As much of the Northeast recovers from Hurricane Sandy, our thoughts go to everyone affected. As power is restored and businesses slowly reopen this week, many are digging out their insurance policies to see what damages are covered.

After the shock and aftermath of a natural disaster of this magnitude, many business owners are also shocked at the exclusions contained in their insurance policies. In many cases what they thought was covered, wasn’t. For those items covered, there may be a lengthy claims process until the much-needed money arrives.

There is one insurance policy that has no exclusions and has no long claims process:

It’s called cash reserves.

Cash reserves bridge the gap between the time a loss occurs, and the time the insurance company reimburses you. That could take weeks, months or even a year. It doesn’t exclude certain expenditures; it can be used to buy meals for displaced workers or to make necessary repairs or emergency provisions to keep operating.

An estimated 25% of businesses never reopen their doors after a major disaster, according to the Institute of Home and Business Safety. Whether it is due to inadequate insurance coverage, or the financial resources to rebuild, many business owner’s life’s work ends with the disaster.

So what are cash reserves? Ideally it is cash sitting in your bank. It can also be available credit on a line of credit. It should be easy access to cash when you need it. Cash reserves are not meant to cover major expenditures, but they will help cover the gap to make some general repairs or rent temporary office space to start getting you back into operating condition.

So in the aftermath of this storm, think about building your own no-exclusion/ no claims insurance policy. Having a cash management strategy is the best insurance policy you and your business can have.

Getting your pricing right is critical in balancing profitability and market share, yet many companies don’t have a well thought out pricing strategy.  In this webinar we covered the following:

• Why you should have a pricing methodology & strategy
• Some of the analytics around optimal pricing
• The impacts of pricing changes on your organization

You can view the 30-minute webinar by clicking the image above or here. Don’t forget to join us for our next webinar on June 28th,  KPIs:  Measuring What Matters

Are you wondering why you are being blind sided by unexpected cash shortfalls? Download a recording of our recent webinar by clicking on the image above or here

In this webinar we covered:

• Why you may be encountering cash flow surprises

• Creating a usable cash flow forecast

• Strategies you can use when cash is tight

• Calculating customer and vendor cycles to improve forecasting

Join us for upcoming webinars:

June 14th, Pricing for Profitability with Walter Psztur, CFO

June 28th, KPIs: Measuring what Matters with Anna Masker, President

We love straightening out messy books.

When a client comes to us and needs us to clean up their accounting files we get a certain satisfaction from putting everything in the right place and giving the owner a clearer picture of their company. Unfortunately, the client who tried to save some money by doing the books themselves realizes that poor bookkeeping increases their accounting expenses exponentially.

So it got me thinking: how could they have known that their bookkeeping costs go beyond just the hourly rate they pay their bookkeeper? So we came up with our list.

Symptoms of Poor Bookkeeping and How It Can Cost you Big Money

Incorrect cash balances: We’re surprised how often clients don’t have accurate cash balances on their books because they been reconciled regularly, leading to costly overdraft and embarrassing bounced checks.

December whiplash: Often when we look at client’s financial trends we see huge profits or losses in December a.k.a. “the December whiplash effect.” Typically, the CPA does all the year-end and “clean-up” entries to client’s books in the month of December.  It costs the clients money because they really don’t know their true YTD profit/loss until after the year is closed– not to mention the large bill from the CPA for their time trying to make sense out of the numbers. Owners should have these entries matched to the time period in which they occurred.

Open door for fraud: We’re surprised how many owners give their bookkeepers cart blanche access to their bank accounts, including the ability to write online checks and make purchases on their behalf. While this may be a great convenience for the owner, it is also a huge risk which could cost them thousands or hundreds of thousands of dollars of losses. Simple steps like limiting access, opening and reviewing all bank statements for unusual transactions and separating duties are ways the business owner can protect themselves and their companies.

Over-inflated profits: One of the clean-up entries that CPAs make at the end of the year is grossing up payroll. A common mistake is to enter net payroll as wages, so you never really know what you’ve paid your people and your tax liability until the end of the year.

Monkey-in-the middle: You know the scenario—you have a CPA and a bookkeeper. The CPA has questions and you have to go to the bookkeeper for answers. Or, worse, they have some serious differences of opinions on how you should handle a type of transaction leaving you to figure out who is right. Where’s the profit drain in all of this? You are stuck in the middle, spending your time away from the business, and the CPA and bookkeeper are running up bills while they debate.

Flat financials: Every financial transaction is rich with data, but few bookkeepers know how to extract it.  Without details of product or customer profitability, you are probably leaving money on the table, whether it is in lost profits or opportunity costs of missed revenues. Having a knowledgeable person doing your books that can give you these types of details can help you get the laser-focused reporting you need to identify and capitalize on opportunities to improve your bottom line.

Surprise- surprise: Poor bookkeeping has also led to many a cash flow surprise. Unbilled (or late-billed) invoices, vendor bills that got lost and surface just when you are in the middle of a cash flow crunch, can cause havoc when you are trying to make payroll.

Constant owner intervention: “High maintenance” bookkeepers, i.e. ones that need constant supervision or review of their work, cost business owners a lot of money. From extra hours of pay due to inefficiencies, to the time it takes the owner away from managing and growing the business, an unskilled bookkeeper ‘s costs often are a multiple of their wages.

Forget it– I’ll just do it myself. A common response for when people don’t want to invest in outsourcing their accounting. While this may seem like a cost-saving measure, when you think about it, it really isn’t. Whether the owner doesn’t see the opportunity cost of not investing that time to manage and grow the business, to the errors and large “clean-up” bill they get from their accountant at year end, to the saddling of a non-financial office manager with bookkeeping, the money saved by keeping bookkeeping in the wrong hands quickly dwindles when all the other factors are taken into consideration.

Does any of this sound familiar to you?  Sometimes it is worth it to talk to professionals.  Even though they may seem like they are “expensive” when you factor in the costs of poor bookkeeping, they may seem like a bargain after all!

Anna Masker and Walter Psztur of Profit Point were interviewed by NJBiz on our work with Omni Finishing through the Small Business Development Center (SBDC). The SBDC of Northwest NJ provided one-on-one counseling to Omni and hired Profit Point to do a financial review, funded by a grant under the Jobs Act of 2010.  Read how we helped Omni here.

Are you beginning to view your accounting department as a cost center full of overhead expense?

Are you not sure what they do all day but know that they seem very busy and often overwhelmed?

If one critical person in the accounting department left, would business continue on without missing a beat?

If these questions make you uneasy– you aren’t alone.

When we talk to many CEOs we hear the same thing: “When it comes to the financials, we don’t know what we don’t know.” That includes what their accounting department does on a day-to-day basis—and what information they should be getting from them.

For many companies the amount of information that the leadership team gets from their accounting departments is minimal, dated and not easy to understand. Not wanting to know the intricacies of the accounting function, many owners blindly trust their accounting staffs, and figure if the tax accountant isn’t complaining too much at year-end,  their accounting department is getting by just fine.

But are they? Could they be delivering more, more efficiently and with greater accuracy?

Here are some signs that your accounting department may need an overhaul:

Timing is everything. What would have happened to the Titanic if they knew about the size of the iceberg before they hit it? If you aren’t getting financials from your accounting department within 10 days after month-end, you are in the same situation. By the time you discover an issue 20, 30 or 60 days after the month ends you may find that a small issue last month has snowballed into a serious problem (“iceberg”) and you didn’t see it until it was too late.

Flat financials. So you are getting information from your accounting department, but can you use it? You should be getting real information from your staff– details such as which customers are driving your profits, what product lines are doing well, what is the productivity of your staff and your assets, as well as projections of where you are headed. If you aren’t, you may not see—or be headed directly for– that “iceberg.”

Business growth outpaced the skill set of the staff. Most companies have them—the bookkeeper or staff accountant who has been with the company from inception—who knows every nut and bolt of the business. But now that person is the “CFO.” Sometimes that person can grow into the role—sometimes not. It might be time to take a hard look at the skill set of your staff and get the right help in place to continue the business’s growth.

Busy-ness doesn’t equal good business. When was the last time your accounting department stopped and asked why they do things the way they do? Often times we find manual entry of accounting transactions when they could be automated, re-entry of the same data in multiple systems, and a LOT of unnecessary paper shuffling.

Old technology. Face it, when it comes to investment in IT, the accounting department gets the short end of the stick. There is nothing sexy about an accounting package (unless you are an accountant!) and it certainly doesn’t hold a candle to the fancy CRM systems that often are upgraded before the accounting systems. However, when used wisely, an investment in accounting system upgrades may just improve the efficiency of the staff, give you better information in less time and cost you less over all.

Your accounting department’s main function, beyond just record-keeping for the IRS is to provide you, the owner, with the best springboard for growth—information.

We often get called in to companies when the owner/CEO isn’t getting the information they need, when they need it and in the format that makes the most sense to them. Either the business has hit an “iceberg” or they are trying to avoid one.

How does your accounting department help you “spot the icebergs” in your business and how do they help you course-correct?

Did you know? There is still funding for consulting through the Jobs Act of 2010.

If you are a growing business with 7 or more full-time employees, and you find that help from a consultant could get you past a particular hurdle, you may qualify for funding for consulting through the Jobs Act.

Recently, Profit Point was engaged by the Small Business Development Center (SBDC) of Northwest New Jersey to do a strategic financial review for a client, using a grant from the Jobs Act. In this review, we analyzed the financials of the business and gave the client a 10-page report with our findings and recommendations. We met with the client to talk about our findings, and laid out a plan of where they should focus their efforts first. After implementing some of our plan, the client reported that margins were up significantly over last year.

In addition to financial consulting, the SBDCs offer a variety of consulting, classes and strategic counseling for established businesses looking to grow. And, you can’t beat the price—nearly everything is free; classes are a nominal fee.

As for the Jobs Act, what did it do?

Signed in September 2010, the Small Business Jobs Act, is one of the most significant small business legislations in over a decade. The law provided up to $50MM in grants to the Small Business Development centers (SBDCs) for counseling and training. Other critical resources were made available to help small businesses continue to drive economic recovery and create jobs. The new law extends the successful SBA-enhanced loan provisions while offering billions more in lending support, and tax cuts. More information can be found here or contact us for more information.

Ask any business owner if they ever have enough money or enough people to get the job done and their answer is probably a guffaw and a resounding “NO!”

When you ask them who they need (in a perfect world) you’ll hear they need sales people, operations people and line workers.  Rarely do they say they need a Chief Financial Officer (CFO.)

Ask any business owner that has left their accountants’ office during tax time still puzzled on why they owe so much to Uncle Sam or how they could have made so much on paper but don’t see it in the bank.  Many accountants can’t answer these questions.  A CFO can.

If you are worried about looking foolish in front of a CFO, or are embarrassed that you don’t have a grasp on your numbers, don’t be. You aren’t alone.

If you have a handle on your financials but still find yourself with questions about product line or customer profitability, whether you should pay back your loan or take the money and use it to grow, or why you never seem to have enough cash, you should consult your CFO.

If you believe your CFO is strictly a glorified bean counter, you have found the wrong person for the job. If you think that a CFO is really short for CF-”no”, that is, someone who will shoot down all your plans or ideas, you’ve found the wrong person.

If you are looking for someone to help you map out your growth, “run the numbers” and provide you options backed by analysis, and you naturally turn to your CFO, you know you have the right member on the team.

But most businesses don’t have that team member in place. There is an empty, yet critical, spot on their bench. It comes down to one change in mindset on the part of the business owner:

Hiring a CFO isn’t an expense, it’s a growth strategy.

A CFO can provide you with the best springboard for growth: information.

Information can be in the form of financial analysis and trends or forward-looking projections. It can be a scenario analysis (“if I do X, then my profit could be Y”) or a post-mortem (“why did this job run over budget?”) A CFO with good business sense can take your operational and financial data to give you a picture of the effectiveness of your daily operations. That’s pretty powerful stuff.

So, you can muddle along and find out what works through gut instincts or trial and error. You can hire another sales person or line worker and you can grow in increments. Or you can fill that empty spot on your bench with a CFO, even on a part-time or consulting basis, and grow exponentially. You just need to change your mindset.

When businesses downsize or look for cost savings the first place they look is their staff. Employees are expensive—you have to pay them a salary, benefits, “house” them for the work day, and give them whatever equipment they need to complete their work. Naturally when it comes to cutting costs, business owners see reducing these “people” costs as a quick way to save money.

Here’s a twist. Before you start thinking about headcount reductions, look to your employees for costs savings by ASKING them for their opinion. I know—it probably isn’t comfortable to admit that you need to save money if the business isn’t doing well. You also have to deal with the mind-racing and jumping to conclusions of inevitable layoffs. There is a lot to manage when you go this route.

As the business owner, you may need to shift from thinking you’re the only one who knows how to run the business, to being open to input from the lowest levels within your organization. When GE went through this process of seeking out cost saving ideas from deep within the organization, a line worker in one of its plants commented that for 25 years GE had his hands, all the while they could have had his brain as well—for nothing. Pretty powerful.

So do yourself (and your company) a favor—ask. Ask your employees how you can save money, how you can improve operations, how to grow the business. Remember those closest to the work know it best. They know a lot more than you give them credit for.

A critical thing with opening yourself up for ideas is also being open to act on them. Here are a couple of ways to encourage ideas:

Share the savings: If employees think that cost savings are going to wind up in your pocket, and yours alone, they’d be less likely to volunteer ideas. Give them a portion of the savings and recognize them in front of your peers or reward the best ideas with dinner for two paid by you.

Have Belly-Flop awards. Every idea you get may not be a good one, so have some fun with it without embarrassing the person who made the suggestion. If you pursue an idea and it doesn’t work out, award it the “Belly-Flop” award and analyze what went wrong, and learn from it. The main point here is you want to reward the risk that person took by suggesting something.

Watch the eye-rolling: You know what I mean, whether literally or figuratively, there is always one or more employees that roll their eyes as you announce your next big initiative or idea. Before you dismiss them as small-minded, take a moment to find out what their qualms are. In their response may be some warning signs of a project about to fail—or cost too much.

So take time in your day, week or month to ask, listen and do. If you show you are open to ideas from the ranks– and take them seriously–more will come, and so will your solution for turning around your business.

There is a lot to be said about a star employee—one that holds the company together—the go-to guy or gal that helps run your company smoothly. They may have a big role in your company or they may just be the billing clerk who gets the invoices out on time and accurately. You take them for granted—until they are gone.

By “gone” I mean any number of ways: They leave your company completely, they get sick and are unable to work or they just “check out.”

Most businesses have some backup plans for data—redundant systems, servers, backups to the cloud. But I am surprised that most companies don’t have a backup for their most critical information—the information that resides in the heads of its employees.

Think about how much knowledge walks out your door every day. How would your business be affected if a few key people didn’t come back?

What if that employee is you?

In small businesses there is little room in the budget for redundant employees but there is NO room for the disruption that ensues when a critical employee is absent.

You as the owner need to come up with a backup plan—otherwise you will find yourself constantly distracted and firefighting while at the same time finding someone to replace him or her. It doesn’t have to be a massive undertaking—you probably already do it for when employees go on vacation.

Think of it as extended vacation planning. Here’s how:

Make upkeep of standard operating procedures part of everyone’s job. These don’t have to be long, formal documents but they should entail critical pieces of information about standard policies and procedures– from how much material you order to where all the passwords are for the bank accounts, to the way that certain customers like their invoices processed.

Develop a pipeline of talent. I’ve worked in organizations that get this right—so when there is a vacancy it’s no sweat, they just move up the next person they were grooming for the position. By grooming, that means ensuring the understudy has had the experiences and some of the training the critical employee has while allowing him or her to pinch-hit during vacations or business trips. This will ensure a smoother transition when the time comes.

Cross-train. This may be the easiest to do but the hardest to find the time to do too. The best way to do this is by allowing people to work on projects together, paired with people with different skills or responsibilities to allow each other to see what the other is doing .

Shuffle the deck. Have one person who is doing all of your critical activities? Maybe you need to shuffle the deck and allocate different critical responsibilities to a few different people. This way if one person leaves business doesn’t come to a halt. Spend some time and develop your A-list of critical tasks and make sure you don’t have all your eggs in one basket—with only one person doing them.

It’s time you had a backup plan for the rest of your data—the data that walks out your door every evening. Develop your backup plans now and avoid the brain drain when a critical employee leaves.