I-GEN: The "Connected" Generation,

For an interesting article on the youngest generation of our society read about the IGen, or Gen Z.  The generation of those presently 20 and under, born after 1995.  While there is much to observe and consider about this newest generation the reports provided the following some insights as to how the IGen, will influence retail business.  

• IGens witnessed their parents deal with the great depression and recovery of lean family financial conditions. IGEN's will pay attention to price and quality.
• IGens are comparison shoppers readily using their smart phones to check for better deals.
• IGens influence over price, selection, ratings, reviews is shifting power away from retailers, and brands to the consumer. 
• IGens access discount websites, bidding apps, sales, loyalty promotions, making purchases at a discount is their expectation.
• IGens will do  most of their shopping online, stores will be a recreational pastime or social activity 

For the full report discussion on the IGen  2016 National Study on Technology and the Generation after Millennials  by The Center for Generational Kinetics and Jason Dorsey

Changes to Overtime Pay Exemption

Effective December 1, 2016 exemptions from Federal minimum wages rules may increase the number of your employees eligible for over time pay rates.

What changes on December first is the limit on when exempt position are eligible for overtime pay. The annual wages limit will double from $23,660 to $47,476. 

Any employee positions classified as exempt should be reviewed and reclassified to non-exempt and thus will be eligible of overtime pay.  Job positions already eligible for overtime pay, these changes do not affect those positions in any way.

Reclassification of positions can result in other HR issues and further decisions and important to avoid wage problems but also changes in job duties to better control costs of overtime pay.  Choices for job positions impacted include;

• Maintain workers’ pay rate and pay additional overtime.
• Maintain their pay rate but limit their hours.
• Reduce their pay rate to maintain cost neutrality for overtime worked.

For employees being reclassified, there are options with respect to their duties, retaining   professional duties even though they are now paid overtime. Changes to any employee's position and pay can start a series of adjustments for all employees, not to forget emotional fall out form those who feel they were not given fair consideration. 

As business owners and managers review your employee positions. Identify any presently exempt positions that will be impacted and plan for appropriate changes.  It is highly recommended that you planning include talking to an HR advisor as well as your payroll accountant. 

Use your advisors to update overtime controls and policies, set clear overtime work expectations, clarify compliance with eligibility rules, and how to present changes to employees.

Additional Readings

·        Managing Overtime: Setting the stage for success by Kathy Peters -- Overtime is more than an issue of compensation. Effective employee relations strategies can alleviate common confusion and dilemmas surrounding overtime.

As a supervisor of non-exempt employees, you’re responsible for seeing that employees accurately record the time they work and receive overtime when it’s due. This article looks at managing overtime issues through workplace atmosphere, communication, and expectation setting.

·       4 Overtime Traps  by Chris Kelleher  to Avoid  Overtime. It's been a law for almost 70 years. If you thought that after all that time every business would know how to follow it, you would be very, very wrong.

Alleging violations of the overtime law is a new "growth industry," with employees (and their lawyers) going after everyone from mom-and-pop businesses to industry giants. To keep your business from becoming yet another lawsuit statistic, here are four common overtime traps and how to avoid them
• Overtime Management Techniques   by Lisa McQuerrey, Demand Media.  Overtime, or time worked beyond a standard 40-hour workweek by hourly, non-exempt employees, can wreak havoc on the operating budget of a small business. While there may be times when overtime is necessary and cost-effective, overtime pay can begin to drain your bottom line if not managed correctly. Advance planning and scheduling can help reduce the need for employees to work in excess of their scheduled hours. 

SBDC Assists Busienss Owners in Strategic Decisions

Advisers in the Washington Small Business Development Centers are quietly working with business owners all across the State. Confidentiality is a key trust factor with clients so its not often that client stores make the news.   Yet occasionally, with the clients permission a story gets published about a clients success and how SBDC advisers were able to help.

Published by Washington State University online news
advising-guides-polestar-back-small-business-success

Washington Small Business Development Center program is hosted by Washington State University in partnership with the U.S. Small Business Administration and local economic development organizations. Offices are located in 25 communities across the state.
Washington Small Business Development Center

Planning to Sell Your Business

There were obvious advantages to buying a business, but there were also the usual concerns. Did the sale price seem reasonable? How should the purchase be structured? The buyers had some money to invest, but how much would they need to borrow? What could they expect in revenue over the next year, and what, exactly would their expenses be...

Every year hundreds of businesses owners try to make a successful exit by selling their business. Of all who try, only 2 in 10 owners are in the best position to find qualified buyers and receive a full offer.  Another 3 in 10 will close receiving a liquidation value if anything.  That means half of all who want to sell could get a better deal by preparing to answer the buyers questions.

The goal of exit planning is to help that 50% in the middle get a better outcome.   Planning starts with a review of existing financials, reviewing the business operations to identify improvements.  Actions are implemented over the next two to three years that improve the business value when it’s time to sell. 

One reason a business sale is difficult to finance is the seller does not provide a good set of financials that prove the business value to a lender.  Even well qualified buyers will have difficult in financing if the seller's financials don't pass the lenders review.  Moreover, the recession took its toll on buyers who now have less equity to invest. Combined with too many sellers its a buyers market, businesses with the best profitability have the advantage.

Most efforts to sell a business fail to gain good value because the owner remains an entrepreneur and does not prepare the business to attract a good buyer. Preparing to sell means creating a business that buyers will want. A seller needs to show a strong profitability,  competitive edge to stay profitable, sustainability to survive economic downturns, scalability so the business grows, and a business culture so good employees stay. 

Planning to sell a business is a systematic process with three goals.

• Maximize business value to the seller and qualify for buyer financing.
• Maximize the number of possible qualified buyers.
• Minimize cost and lost time looking for buyers.

A through process helps identify transition opportunities, business strengths and weaknesses, risks to a successful sale, needs of both the business and the owner, now and for their life after business, keeping the businesses successful and local.

To obtain a successful sale takes time and effort to prepare.  Consider a three year strategy which happens to be the time lenders look back on the sellers financials. Thus, three years of good performance will improve the opportunities for a successful sale. 

Starting A Business

There are lots of good ideas for starting a business, yet more than half of all new businesses fail in the first year, and half of those remaining fail the second year.  Why?

Starting a business is easy, staying in business requires dedicating your life to the business plus more money than you expected. Then the realities of the marketplace are not what you expected. The idea of a business plan is not so much about the plan as it is about researching and thinking about the how to tie your dream to actionable steps. 

Owning a small business is a lifestyle. You will have long days at the store working on budgets, marketing, customer relations, employee issues few days off, worrying about sales, solving vendor problems and a host of other questions.  You have to be dedicated to the business and your family has to be supportive.  Without personal dedication and family support many owners burnout, the business become a heavy burden.

Money, what you need to earn, what you never have enough of.  Start up expenses will exceed estimates, sales will be slower than desired, and a lack of cash flow consume more and more of your savings. Finding a loan to start your business will be difficult. Most banks like to see up to two years of operating history before they will consider your loan application. Additionally, you need to invest your own money and collateral.  If you don’t have enough confidence in yourself to invest in yourself , then why will anyone else be willing to support you with a loan.

Not enough customers, to generate sustainable sales.  Do not deceive yourself by thinking “everyone” is a potential customer.  A marketplace reality is that all potential customers are already buying from other businesses. Your business will need to compete and win customers away from your competitors.  Start by identify who is most likely the target customer and ask them what do they want. 

A simple plan and budget will help organize all the things you need to do to start your business. A good plan is short, provides an outline that keeps you focuses on actions yet be responsive enough to consider new opportunities. Budges are the foundation for a successful business by prioritizing expenses and setting revenue goals.  Budgets identify how much it will cost to start and to operate.  When you plan for what it really takes to be successful actions can be taken to start at a manageable scale and then grow as sales increase and you improve operations.

Get Help. When writing a business plan and starting a business its very easy to convince yourself that you know what's best.  An objective third party review will bring you back to reality and help you find a path the results in a successful business.

Price is More than Dollars and Cents

Customers are sensitive to the cash price once they are in the store, but they decide on what store based on emotional likes or dislikes. All things equal a customer will choose the product with the lowest cash price. Yet in real life customers make decisions on how they feel about the store, the products or services.

A customer’s emotional desires can overrule the pure economic interest for lowest cash price.  We’ll call these desires the non-monetary value of price.  Non-monetary price are all of the aspects of acquiring a product of service that require the customer to exert time, effort, experience an inconvenience or disruption to their normal activities.  If any aspect of the acquisition process causes a customer to seek an alternative then the non-monetary price exceeded the economic interest of actual cash price.

One example of extreme non-monetary price was on the news the other night.  In this case, the customer’s desire for the product was so strong hundreds they were willing to wait hours on end for a token that would allow them to come back later, waiting a second time, to buy Seahawks tickets. An extreme example of emotional desire worth any inconvenience.  We’ll call that strong brand loyalty.  

In a more day to day situation emotional pleasures include buying from a specific store, a specific style of clothing or a favored brand of any merchandise.  These desires increase the willingness to pay a bit more and go a bit farther out of the way to get the satisfaction of the preferred product.  Starbucks is an example of playing to emotional desires through delivery of a combination of product, service, setting, and rewarding loyal customers to create a very strong customer base.

Test your own responses to the non-monetary price on your daily activities.  Consider how long you are willing to wait in a drive up line to obtain a latte.  Will you stop at a store if you finding a parking space in front yet pass that store if you have to walk more than a block.  Why do you shop at the stores you frequent most often, is it sticker price or something else.

For business minimizing the negative non-monetary price and maximizing the positive emotional desires is a case for understanding your customer’s.   As consumers we are not logical, we make emotional decision about which store before considering the cash price.

Community Sourced Capital in Washington State

Recently Washington State Department of Commerce and Community Sourced Capital, launched a campaign aimed at bringing zero-interest crowd-sourced loans to small businesses in all of Washington’s 39 counties.  So what is community sourced funding and how does this program work for businesses.

FOR BUSINESS BORROWERS

Essentially Community Sourced Capital is a portal to crowdfunding. A portal hosts funding requests so that crowds of people primarily in the community where the business is located can make small investments to support economic development in their neighborhood.  

To start a business will submit a loan application to Community Sourced Capital and pay a fee to become a member of the portal.  The application is checked for financial integrity and community connection, history of sales and existing debts that might compromise the ability to repay the loan. Promotional material indicate loans are at zero interest but there are monthly fees.  Loans must be repaid in three years or less.

FOR COMMUNITY SUPPORTERS

The amount of money loan is divided into units called squares at $50 each. Supporters can may as many $50 squares as they wish to support to business. Squares do not return interest to the supporter. AS the business repays the loan the payment is divided and shares paid into the squareholders   account. Monthly statements and short updates are also provided to squareholders.

TO FUND OR NOT TO FUND 

Like all crowdfunding site the business seeking funds will need to make a serious marketing effort to campaign for local supporters. Steps include creating awareness of the funding request, making sure the request has a social value that the community will want to support.  In the end it will be the community supporters who determine if the business gets a loan.  In most crowdfunding campaigns that were successful typically had great marketing efforts. 

For details and information  https://www.communitysourcedcapital.com/ 

Disaster Recovery Loans

The wildfires of 2014 remind us of the potential for calamity to strike our communities. Hopefully, you will not have suffered personal or business losses and can pass this information on to someone else.   Federal disaster recovery loans should be considers as a backup to hazard insurance. To cover the gap between the insurance coverage and actual costs. After all even with low interest it is still a loan.

Small Business Administration (SBA) Disaster Recovery Loans are direct from SBA and not issued through a bank. Loans are available for repair or reconstruction of your home or business assets or to help cover lost sales.  For information on agricultural disaster recovery programs contact the local USDA Farm Services Agency.

Preparing to apply for a disaster recovery loan will help the process move quickly by avoiding delays for missing information.  Adequate financial documentation is a priority. Thus, start by assembling as many o the following documents as possible:

• For Home and Personal Property or Business Physical Damage Loan 
• Legal property descriptions and pre-disaster values  
• List and descriptions of personal or business property lost 
• Insurance policies, whats covered and how much
• Location and directions for a property inspection
• Pictures, before the disaster to document what existed, particularly helpful for replacement of personal or business assets
• For Economic Injury Loans  
• Business tax forms for all federal and state taxes paid to prove past sales 
• Sales reports for prior years to demonstrate the difference ins same period sales before-during-after the disaster
• A monthly cash flow budget from the period of the disaster until business has recovered lost sales 
• Operation Expenses that must be paid during and after the disaster
• Authorisation for SBA to verify your federal taxes with a signed IRS Form 8821

Usually after a federal disaster SBA will set up a local assistance office to answer questions and help prepare the loan application.  The fastest way to receive a decision is to apply online online for SBA's disaster assistance loans. 

Submprime Lending -- Bankruptcy Now or Later

For some businesses struggling to survive, unable to obtain a bank loan turning to a subprime lender might seem like a good idea.  The feeling that a bit more cash will turn things around can be emotionally powerful especially in contrast to the stigma of declaring bankruptcy.  However, as these articles point out there is a significant risk to using a subprime lender.

When the desperate need for cash arises it may be better to first seek advise and stop digging a deeper pit of debt.  With assistance it may be better to declare bankruptcy get some relief to restructure or get out before you loose everything. 

Wall Street Finds New Subprime With 125% Business Loans - Bloomberg

New Subprime Market: Small Business Loans - Businessweek

Credit Scores for SBA Guarantee Programs

Properly preparing for a commercial loan is critical to your chances of obtaining approval.  After you leave the bank your application will undergo a complete review that will consider both your personal and business credit worthiness. Your personal credit reports and FICO score will be pulled along with business information from Duns and Bradstreet as well as the completeness of your application and business financials.

Before submitting any loan application check your personal credit reports at www.annualcreditreport.com . A FICO of 650 is usually the minimum necessary if the remainder of the application shows a healthy business performance, a score above 675 will certainly improve your chances and may be required in some situations.

Verify business information at Dun and Bradstreet, also known for issuing your business a DUNS number.  Dun and Bradstreet track every business's credit performance and are the data resource used by SBA when reviewing loan guarantee applications.  In particular SBA will check your contact information, length of time as current owner, trade lines payment history, and if any legal actions may be in your history. 

Should a blemish exists on either personal or business records you have the opportunity in your loan application package to offer the lender an explanation. Lenders do not like to be surprised, and might think you are trying to hide information that could negatively affect you application. You will be much better served if you discuss past situations upfront where the lender can advise as to how serious the blemish will be and what corrective actions would mitigate the problem. Additionally, you might be able to take actions to improve your total FICO score and Dun and Bradstreet report before submitting for a loan.

Application review will look very closely at your personal and business financial situation. Use SBA's Personal Financial Statement to help prepare your financial status.  Provide Income tax and financial statements to demonstrate business history and trends. A variety of business financial ratios will be calculated to confirm your ability to pay all bills on time including the loan payments and to compare with peer business performance, consider this your business league win loss record.  

Keep in mind that as the lender completes underwriting often the only data they have is what you provided in writing. Each time there is a missing bit of information the review stops until you provide more information, or the lender decides to deny the application.

Buying a Family Owned Business

It is particularly important that buying a family business be considered as an investment, not a purchase, and certainly not a gift.  Making a good investment is based on homework, understanding exactly what you are investing into, risks and a goal for what you want to get as a return on the investment.  

Easier said than done when the business is owned by a parent and emotional issues start to influence business decisions.    Other family members may have expectations as to what their interest in the business is or should be based on long ago events or implied promises.  What the business is worth may be perceived rather than factual.  Plus many years of who helped when money was tight, or someone was ill and many other family issues can sneak into the conversation.   

Thus, if you are planning to sell your business to family or buy from family these steps may help to make the transition less traumatic and more importantly to be – fair to all concerned. As a starting point the owner should let their retirement intentions be known well in advance along with any expectations from the business and future owners such as the need for a retirement income.  

It is highly recommended that the owner obtain a qualified business appraisal to clear the air as to what the business is actually worth, defusing any misconceptions about what might be a fair purchase price. A business appraisal sets a starting point and lets all those concerned know that if they are not interested at this price the owners may consider the open market.

Consider the financing options. If a retirement income is desired will the sellers carry a contract to finance thus obtaining a long term steady income, or do they need lump sum cash out to pay off other debts?   Encourage anyone who may be interested in buying the business to start getting qualified for financing. I have seen a number of deals canceled when the buyer’s loan application is denied upsetting their dreams of owning the family business.

Review tax and estate planning considerations to avoid surprises and unintended consequences.  You may be best served by doing this several years before the intended sale to avoid capital gains or estate taxes. Moreover if the buyer will need bank financing getting the financials and taxes in shape may improve the banks willingness to make the loan.

Starting early will also enable the buyer to gain more experience running the business. The buyers’ management experience will also be important if bank financing is needed.   It is also possible that the intended buyer may change their mind once they test the demands of management.  Some people will recognize they are much better at performing the business functions and that management is not what they do best.

Finally, put it all in writing this is a business deal and family disputes can start over seemingly minor issues. Get an attorney to prepare a purchase agreement spelling out all the details.

Never Stop Testing Ideas

Operating a business is a series of trial and error experiments products, services, marketing, how you do things are all subject to variables that can be changed to improve the outcome.  Yet I frequently hear a client say, I did that and it did not work, end of discussion.

An important part of making your business better that the competition is discovering how to do your business better than the competition.  When an idea works, it’s obvious and we repeat it. But, when the idea does not work we frequently miss an opportunity to learn why the idea didn’t work, or conversely how to do it better next time.  In some respects we can learn more about our business, customers, products and services because we need to solve a problem, to improve the product or service, as a critical step towards growing the business. 

Learning how to do better will improve your chances of out competing and winning new business opportunity.   Thus, when you try a new idea, product or service analyze the following:

• Was product/service right for this time and place: Technology, fads, even location can influence customer needs. 
• Why was the idea a success or flop? 
• What changes would result in a different outcome?  

Advertising message must fit the correct audience.  Each new generation of consumers is as different as we are for our predecessors. In other words, what I like is not necessarily important to my customers.

Product and service are provided consistently, on time, and meeting or exceeding customer expectations. Complaints are solved quickly.  

Consider new opportunities beyond your normal customer base.  The Internet opens the global market place to any business willing to be seen by new customers, who are looking for the goods and services you are offering.  An order from India, China just might be an opportunity knocking on your door don’t miss that opportunity just because you “tried it once and it didn’t work.” Fix what didn’t work.  

Making Sure Your Website Is Ready for Smartphones - NYTimes.com

Recommended for businesses who are interested in marketing via smart phone technology.
 Good succinct article on mobile website optimization for small biz

Making Sure Your Website Is Ready for Smartphones - NYTimes.com

Trends for Retail Businesses

I read this article on MSN Money. As the new year get started I thought these trends would prompt  you to think about how each might impact your business and thus a strategy to adapt and take advantage of how people will be shopping.

10 trends changing how you'll shop in 2014 - - MSN Money

SBA updates Rules for SBA 7(A) Loans

The U.S. Small Administration ("SBA"), updates to become effective on January 1, 2014, provides lenders with additional requirements for underwriting analysis when considering a 7(a) loan. Cash flow remains the key factor as the primary source of repayment for the proposed loan.  If an applicant "lacks reasonable assurance of repayment in a timely manner from the cash flow of the business, the loan request must be declined, regardless of the collateral available or outside sources of cash."  This statement reflects current practice by many lenders and SBA has added several new standards and requirements to verify adequate analysis.   

Analyzing the repayment ability of an applicant will be based on historical financial statements and tax returns (if an existing business) and detailed projections.  Analysis must support the following assumptions: 

1. Analysis of historical cash flow should demonstrate total debt service coverage after the SBA loan;
2. Define operating cash flow as "EBITDA" earnings before interest, taxes, depreciation and amortization;
3. Analysis must document additions and subtractions to cash flow;
4. Debt service is defined as required principal and interest payments on all business debt inclusive of new SBA loan proceeds.  The applicant's debt service coverage ratio must be 1.15 to 1 or greater on a historical and/or projected basis;
5. Spread of pro-forma Business Balance Sheet (current business balance sheet + changes in assets and liabilities as a result of the loan, other debt, any required equity injection, and use of proceeds);
6. Ratio calculations for:  Current Ration, Debt/Tangible Net Worth, Debt Service Coverage, and other ratios the lender considers significant for the business/industry (e.g. inventory turnover, receivables turnover, and payables turnovers, etc.);
7. Analysis of working capital adequacy to support projected sales growth in the next 12 months

SBA 7(a) LOAN PROGRAM GENERAL UNDERSTANDING

SBA business 7(a) loan programs are initiated by a lender who is considering a business loan that otherwise would not meet their minimum lending requirements. SBA does not make loans but agrees to guaranty a portion of the loan that meets minimum SBA requirements.

 ELIGIBILITY REQUIREMENTS

·         The applicant must be: An operating business, organized for-profit, located in the United States.

·         Loans are for capital purchase, working capital, cannot be used for investment or to payback owner’s investment;

·         The applicant must show that  funds are not available from alternative sources, including personal resources of the principals;

CREDIT WORTHINESS

Lenders must analyze each application in a commercially reasonable manner, consistent with prudent lending standards. On SBA-guaranteed loans, the applicants’ cash flow is the primary source of repayment, not the liquidation of collateral. Thus, if the applicant lacks reasonable assurance of repayment in a timely manner from the cash flow of the business, the loan request must be declined, regardless of the collateral available.

Statement of Cash Flows

A very useful but often overlooked financial statement is called the Statement of Cash Flows. Its purpose is to reconcile the income statement with the balance sheet thus revealing where your cash is hiding. A basic statement of cash flows has three sections: Cash from operating activities, cash from investing, and cash from financing.

The table below is an example of a statement of cash flows. Let’s discuss what it is telling us about this business, and how you can use the same report to monitor your financial status.

Cash from Operations

Starting with the cash from operations we determine the net income for the month was $15,000. During the month we expended depreciation of $1,000 so we add that amount back.See Note 1

On the current asset side of the balance sheet we recorded the following activities: A $5,000 increase in accounts receivable, a $7,500 increase to inventory. See Note 2

On the current liabilities side of the balance sheet we recorded a $5,000 increase in accounts payable; and, an increase in accrued expenses by $1,200. See Note 3.

Making the above adjustment to Net Income shows our actual cash from operations is actually $9,700 not $15,000 we thought we had.

Cash from Investing

During the month we purchased new equipment for $20,000 a negative number representing money out. We also cashed in a $5,000 certificate of deposit, positive number for money in. The net of these transactions is $15,000 cash out.

Cash from Financing

That new equipment was purchased with a loan, so long term debt increased by $15,000, money in. As owners we took $2,500 dividend, cash out. Net change from financing was an increase in cash by $12,500.
Summing all the business activities during the month our true net increase in cash was only $4,800. Adding our beginning balance of $6,000 indicates we should have an ending cash balance of $10,800.

Cash Flow from Operations

Net Income                                                          $15,000
Depreciation/Amortization add back                          1,000
Accounts Receivable decrease ( increase)                (5,000)
Inventory decreases ( increases)                               (7,500)
Accounts Payable increases (decreases)                     5,000
Accrued Expenses increases( decreases)                    1,200
Net Cash from Operations                                        $9,700

Cash Flow from Investing

Net Cash from purchase/sale of fixed assets

• Equipment                                                 ($20,000)
• Property

Net Cash from securities, CD’s                                  5,000   
Net Cash from Investing                                        ($15,000)

Cash Flow from Financing

Notes payable increase (decrease)                                  0
Long term debt increase (decrease)                        15,000
Cash dividends (paid out)                                        (2,500)
Net cash from Financing increase (decrease)         $12,500

CASH Flow Increase (Decrease)
Beginning Cash                                                      $6,000
Net Increase (decrease) Cash                                  4,800
Ending Cash                                                        $10,800

Notes:

1. Depreciation/amortization is tax a deduction, no cash was actually was spent so we add back the amount of depreciation/amortization.

2. When assets accounts decreases it represents more cash in from collections of A/R or sales of inventory so we add the amount of the decrease. On the other hand when asset accounts increase then more sales were on account or more inventories were purchased than sold and the amount of the increase is subtracted.

3. Liability accounts are recorded the opposite of asset accounts. When payables and accruals increase then cash was not going out and is added. As payables and accruals decrease then bills were paid, cash is gone and the amount of decrease is subtracted.

Understanding the Balance Sheet

As a business adviser I have observed many small business owners who do not have a good set of financial statements.  Often missing is the financial report containing current balances for asset, debts and net worth of your business.  A good balance sheet can reveal subtle trends of increasing debt, inventory control problems, and cash flow problems.  Additionally a good balance sheet is required when seeking a business loan approval and used in determining the value of your business.    

Balance sheets are a record of your financial status at a specific time.  Comparing balance sheets across different times will reveal trends in your business enabling you to take timely corrective actions. 

Try these steps to see what the balance sheet reveals about your business. 

Compare this month to last month   

      Check balances of current asset accounts for cash, accounts receivable, inventory, and current liability accounts for accounts payable, taxes payable, payroll payable.  Calculate a Quick Ratio by dividing the total CASH + Accounts Receivable by the total current liabilities. A low Quick Ratio indicates pending trouble in paying your bills.  A Quick Ratio greater than 1 to 1 is desirable, indicating sufficient ability to pay your bills. 

Show Me the Cash! A common problem for small business is cash flow, while the profit and loss statement shows a profit there is no cash in the bank. Common places to look for what happened to the cash are the accounts receivable, inventory. If the amounts in inventory and or accounts receivable are increasing then more of your cash is tied up until inventory is sold or customers pay their bills.  

Working Cash: Another method for determining how much cash you should hold in the bank is to calculate working capital needs by subtracting total current liabilities from total current assets then divide by sales. 

Cash hides in Inventory:  Efficiency can be monitored by calculating inventory turnover. Divide cost of goods sold as shown on the profit & loss statement by the value in inventory. If the ratio is 2 then each dollar of inventory worked twice, if the ratio is 6 then each dollar worked  much more efficiently at 6 times.  

Financial History: In the equity section of a balance sheet the line for Retained Earnings is a track record of your business performance, adjusted for amounts taken out by the owners.  Retained earnings also represent the amount of value re-invested in growing the business.  

Return on Effort: Efficiency of your business can be measured in several ways.  A ratio measuring sales to assets indicated how hard your assets are working. Low sales to assets ratio may indicate you have too much money tied up in assets.   Return on Equity, pretax profits divided by net worth, reports the earning benefit of your investment in the business.   

Low Sales Is A Symptom Not A Problem

Low sales are not the problem it is a warning sign that something more fundamental needs to be addressed.

When management is focused on declining sales as the problem the solutions are typically to do more, run faster, try harder. However attention may need to be redirected to find the cause of declining sales.

There are many factors that can cause declining sales and some objective thinking and self-reflection may help you identify the correct causes. Objectively consider the following:

• Am I responsive and friendly with my customers, suppliers, employees? Note: employees tend to behave the same way the boss does.
• Do my products satisfy the customer’s desired level of quality, service, or performance?
• Are my products/services meeting current technology standards?
• Are my prices correct
• What are my customers really saying about my business? Do I really listen to the customers or do I jump to solutions before the customer has expressed their thoughts? You might find this video thought provoking are you really listening? http://vimeo.com/66753575
• Is merchandising, floor layout, store decor, cleanliness, signs, inviting, up to date?

It might be easier to sit down with an objective outsider to contemplate and ask yourself questions like this to identify factors that you may be totally missing when you assume you've got a "sales" problem. Involve employees in the discussion their observations may bring a fresh perspective. Bring in someone from outside your business, who has no vested interest to protect.

Low or declining sales is always the result of some situation or lack of performance so focus on identifying the real problem to come up with an effective and lasting solution.

Managing A Family Operated Business

A Family that operates a business often faces additional challenges of maintaining family relationships separate from business roles and responsibilities. The family may start with a strong parental leadership but as the kids become adults and start to take over the roles and responsibilities can become confused resulting in family strife.
I liked the article posted by Entrepreneur Magazine, by Lisa Evans “Father and Son Business Owners Share Their Secrets to Success” because it provides four simple and doable steps to helps family members keep the business separate form family.

To read the article Father and Son Business Owners Share Their Secrets to Success
BY LISA EVANS | June 14, 2013|
http://www.entrepreneur.com/article/226984#ixzz2WV9vpdF4