EnMast http://www.enmast.com Small Business Community | Small Business Tools, Templates, Help and Resources. Wed, 22 Oct 2014 21:31:07 +0000 en-US hourly 1 http://wordpress.org/?v=4.0 4 times business owners MUST look at their numbers http://www.enmast.com/2014/10/4-things-small-business-owners-need-help-doing/ http://www.enmast.com/2014/10/4-things-small-business-owners-need-help-doing/#respond Wed, 22 Oct 2014 16:09:29 +0000 http://www.enmast.com/?p=17998 “Numbers get confusing. I’m never quite sure what I should be looking at. But my gut has never failed me.” Most small business owners are most comfortable making decisions intuitively; when they look at a situation and they just know the answer. These gut decisions are really useful. They can be quick. They are based

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“Numbers get confusing. I’m never quite sure what I should be looking at. But my gut has never failed me.”

Most small business owners are most comfortable making decisions intuitively; when they look at a situation and they just know the answer. These gut decisions are really useful. They can be quick. They are based on our past experience. They’re great; as long as the decision we are making is similar to a situation we have seen in our past. In a situation like this, our gut is well informed, and the decision is likely a good one.

small business owner decisions

But there are situations where our gut doesn’t know what it’s talking about! Really. It can happen. What if the situation we are looking at is new–nothing like what we’ve seen in the past? And what do you do when the decision is multi-layered,with lots of conditions and “what ifs” to consider; and no clear outcome, or no straightforward “right” answer? What if it’s a really important decision and making a wrong move would have dire consequences? In these situations it’s worth it to slow down, take a more analytical approach, and look at the numbers! Let me give you some examples.

1. Leasing new space

I’ve talked before about my reluctance to sign leases. We shouldn’t think of them as “rent”, instead we should think of them more like debt. Once you sign that lease it’s really hard to stop paying that rent amount; whether you need the space or not. So this is a decision that’s worth considering carefully.

leasing a new space

Also, leases are likely the largest single expense in your business! A 5 year lease for downtown commercial space can easily be a $500,000 – $1,000,000 obligation that you are committing to. Our gut has a hard time perceiving the impact of numbers this big, so it wants to think about it as $12,500/month. That may be true; but you need to pay that $12,500 if sales are up, or if sales are down. You need to feel comfortable with that commitment in good times, or difficult times. That’s too many scenarios for your gut — the gut wants, and works best, when decisions are simple and straightforward. Sometimes it tries to make something simple, that actually isn’t simple at all.

When there are many factors involved and the cost is a significant one, it is time to look at the numbers. Get a professional broker and have them help you with a spreadsheet so you can look at the different scenarios and see how those numbers add up over time.

2. Making significant hires

Up to this point you’ve mostly been hiring young, talented, inexpensive people. But it’s time to bring in the big guns. You’ve found this VP of Sales who has a terrific track record in your industry; she could really move the needle for your company! The only problem is , she wants to get paid — I mean really paid. She deserves it, if she can bring the goods, but how to afford it?

significant hiring

This is another place where your gut is uneducated. You’ve never made a significant hire like this, so it’s an unknown. And it’s a complicated. How fast can she bring on new work? What are the margins going to be? Do we need additional team members to deliver that work? Again, this is more than our gut can handle. There are too many options, too many risks to assess. It’s time to look at the numbers.

An interactive budget is really helpful in this case. An interactive budget will help you play out those “what if” scenarios so you can see what the best case and worst case look like. This analysis can also help you to set realistic expectations for your new team member — expectations that are backed by facts and analysis — that they can respect and be held accountable to.

3. Conducting mergers, buy-outs, or similar transactions.

Selling your business is a big deal — of course you would get professional help with that right? You are making this transaction once or twice in your life; professionals do it 10 – 20 times per year! But what about when you are making a strategic alliance, or when you find a small competitor who wants to join forces with you? Do you need that same rigor, or can you just “work something out” between you?

small business mergers and aquisitions

Yes, you need help. This is another situation where your gut is uninformed and there are lots of factors to consider. You need the analysis of a professional to build out some scenarios, some “what ifs”, and help you see ways that the deal your gut hammered out might go bad. Now you don’t want someone who is going to be your deal prevention team; but slowing down and doing some analysis and looking at the numbers now, can really pay big dividends later.

4. Taking on a huge new opportunity

Wow, this deal could double my business — like, overnight! I know I need to be aggressive to win it, but how aggressive? If I price this too high and they say “no”, I want to make sure I’m confident I made a good decision. But if I price it too low and they say “yes”… That could end up being really costly.

closing a sales deal

Here again we are in uncharted territory. This decision is outside the range of what we’ve done in the past — our gut has nothing to work with. Plus, the stakes are high. Our emotions can start messing with our gut. Not good. When our gut gets scared (or excited) it’s an especially dangerous time.

This is where I want the assurance that I’ve crossed the t’s and dotted the i’s. (Or is it the other way round?) Pricing a huge piece of business like that means that you really have to look at your capacity: staffing, space — how will it impact the work we are doing for our other clients? How quickly could we leverage it into more work of that size? Numbers — even if most are estimates — are crucial to this decision. Numbers are needed to identify the point beyond which we will make money, and before which we will only lose it. Once we find that point, we can create more scenarios to identify the price range that will position us for the greatest success.

It’s the rare small business owner who is naturally analytical — most business owners are more intuitive. But there is a time and a place for analysis. When that time and place comes, you need someone on your team, or among your broader advisory board, who can step in and step up. When do you bring in the big guns to do the analysis that doesn’t come naturally to you?







Photo credit: Loozrboy, Death to Stock PhotoLexinatrixNguyen Vu Hung (vuhung),

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Top 5 things every business owner needs to know (but doesn’t) http://www.enmast.com/2014/10/top-5-business-owner/ http://www.enmast.com/2014/10/top-5-business-owner/#respond Sat, 18 Oct 2014 14:30:20 +0000 http://www.enmast.com/?p=17994 Business owners need to know how to do a lot of things. How to do payroll, how to hire, how to fire, how to sell… the list goes on. But if you ask any business owner, they’ll admit there’s a lot of things they don’t know either. In this episode of Breaking Down Your Business,

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Business owners need to know how to do a lot of things. How to do payroll, how to hire, how to fire, how to sell… the list goes on. But if you ask any business owner, they’ll admit there’s a lot of things they don’t know either. In this episode of Breaking Down Your Business, Jill and Brad talk about the top 5 things business owners don’t know.

They also have on great guest (fellow small business owners) Andrew Tarvin is the founder of Humor That Works, that will make you laugh, and Peter Durand is the founder of Alphachimp who will blow your mind. You can’t miss this episode. Listen below!

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(Podcast player opens up on Breaking Down Your Business or subscribe on iTunes)(

 

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How to measure business performance — use numbers and not your gut! http://www.enmast.com/2014/10/how-to-measure-business-performance/ http://www.enmast.com/2014/10/how-to-measure-business-performance/#respond Thu, 16 Oct 2014 13:00:36 +0000 http://www.enmast.com/?p=17985 Numbers give me a headache. I don’t want to stare at spreadsheets all day — I get a good enough “gut” feel just from running my business. Why should I care about the “numbers”? Most business owners have a strong “gut feeling” or intuition about their business. It makes sense. They spend all day, every

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Numbers give me a headache. I don’t want to stare at spreadsheets all day — I get a good enough “gut” feel just from running my business. Why should I care about the “numbers”?

Most business owners have a strong “gut feeling” or intuition about their business. It makes sense. They spend all day, every day, immersed in their business. They may not be staring at a spreadsheet, but, in many ways, they gather the “numbers” just the same. They walk through the office and can feel how busy people are. They get the mail out of the mailbox and they see the checks (and bills) that are coming in. They listen to their clients and prospects and experience their reactions to the prices they charge. There’s actually a ton of data that they are absorbing all the time that keeps them informed about the health of their business. Business owners are rarely out of touch with their businesses.

how to measure business performance

Even though you do have that strong connection with your business, there are still good reasons to look at the numbers regularly. Our gut is solid directionally, but it’s not very precise. Our gut can also be fooled; it wants to confirm our biases. We need more than just our gut to run our business.

Don’t believe me? This isn’t only true with businesses. There are other places where we may have a strong gut feeling, but we still rely on numbers. So when it comes to knowing how to measure business performance — here’s a few questions and items you need to think about.

1. If you know how your body feels, why do you get on the scale?

One of the places that many people rely on numbers instead of their intuition is with health and weight loss. There is no place we have more intuitive data on than our health. We know how much we’ve eaten, and how much we are moving during the day; yet more and more of us have found value in looking at the absolute numbers. Why do people wear Fuel bands, or Fitbits – when all that data is available to them intuitively?


measuring your business

Despite the fact that all our health data is experienced by us daily, it can be helpful to stand back and look at the data over a broader range of time. We can sometimes “fool” ourselves into thinking that we are getting more exercise, or eating better than we think — but the numbers don’t lie! When we get on that scale, we are faced with the uncomfortable truth: too many cupcakes!

Where are you fooling yourself in your business? What uncomfortable truths that you are avoiding? How could looking at the numbers help keep you more honest?

2. If you can stand outside, why do you need a weather forecast?

How many weather apps do you have on your phone? (I admit it, I have at least three!) If you live somewhere where the weather changes frequently, you will find that folks are obsessed with checking the forecast.
But the weather is easily observable — just go outside, right?

weather-rock-sign

In this case, looking at the numbers tells us not just what the weather is now, but what it might be like in the future. Knowing what the weather is going to be like helps us to prepare, to plan for it.

Similarly, looking at your company’s numbers on a regular basis helps you to plan, to forecast, and to make different choices based on what you see coming. This is something your gut is particularly bad at. The gut makes good decisions when the future is like the past, but when you hit a discontinuity, or when you want to get different results, you need to dig deep into the numbers. You need to forecast the future and then see if the actions you took created the results you forecast. If they didn’t, why not? If they did, congrats! Now do it again…

3. Am I reaching my goals?

Do you have big goals? Goals that you aren’t going to reach in a month, or a quarter, or maybe even this year? How do you measure progress toward those goals? How do you know if you are doing enough to make it?

reaching your goals

If you have big goals, it’s crucial to look at your numbers. It’s too easy to get discouraged along the way when things are still hard and it doesn’t feel like you are making progress. The numbers can show your progress (or lack thereof) and give you the feedback you need to course correct, so you can stay on track to reaching your goals.

4. Breaking it down

Some of you are avoiding your numbers because they are overwhelming. When you look at a whole page filled with columns and rows of numbers it’s too much — what do you look at?

Your Income Statement and Balance Sheet are traditional tools that have proven helpful in evaluating business performance. You should understand them and look at them once a month. Once you get used to them, you realize that you don’t have to look at every number, every time, but there are certain key numbers that, if they look OK, tell you that you don’t need to look at the rest. Those numbers are called Key Performance Indicators or KPI for short.

Every business has a few numbers that, at a high level, tell you a lot about what the rest of the numbers will be. By looking at your KPI frequently (even daily) it can keep you more “in touch” with your overall numbers. That way, when you look at your Income Statement and Balance Sheet once a month, the questions you are asking will be more informed. You will start to notice when numbers are “off”, and you will do a better job steering your business!

Yes, you need to pay attention to your gut instincts — they can be very useful in steering your business. But as your business grows you need a good dose of hard numbers to clarify your thinking. The way to measure business performance is by numbers, and forecast the future from there.

Photo credit: morebyless, dsearls, Eric Kilby,







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Reading a balance sheet: 3 things business owners need to look for http://www.enmast.com/2014/10/reading-a-balance-sheet-for-business-owners/ http://www.enmast.com/2014/10/reading-a-balance-sheet-for-business-owners/#respond Tue, 14 Oct 2014 16:54:05 +0000 http://www.enmast.com/?p=17972 A business’ financial statements are the most basic indicator of your business’ health. But they can be confusing and complicated and, truthfully, not many business owners look at them (and when they do they might not learn much). Yesterday I offered some tips on how to read an income statement. Today we are going to

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A business’ financial statements are the most basic indicator of your business’ health. But they can be confusing and complicated and, truthfully, not many business owners look at them (and when they do they might not learn much). Yesterday I offered some tips on how to read an income statement. Today we are going to look at reading a balance sheet.

I hear it from business owners all the time: “My accountant says I made $300,000 last year and have a big tax bill — but I don’t have that money in my bank account. Where did it go?” I’m not going to go into the differences here between management accounting and tax accounting (except to say that you may have spent money on things that aren’t “fully deductible” like meals and entertainment); so, for tax purposes, your income is likely more than what it says on your Income Statement. But it’s crucial that you know where the money goes between the time you book a sale and when you see your bank balance rise. This is shown on the Balance Sheet.

reading a balance sheet

The balance sheet is where we record things that we are owed and things we own (Assets), as well as things we owe to others (Liabilities). The difference between these things (Assets – Liabilities) is called Equity.

When we are showing an income on our Income Statement but we don’t see the money in our checking account it is often because we’ve loaned it to someone else (usually our customers in the form of Accounts Receivable); or we’ve spend that money on an asset (like furniture or computers) that has a value for a while. Since we are going to use that asset over a period of time, we have to spread the expense over the asset’s useful life through a process accountants call depreciation.

How does this work?

If you buy office furniture you have to pay for it all now, when the furniture arrives; but that furniture is going to last more than 1 year, right? So your accountant will put that purchase on the balance sheet (as an asset) and only deduct 10% of its value (if it has a 10 year life) this year. So your income statement is now saying that you spent $1000; but your checkbook is missing $10,000. You don’t have the money in the bank, but now you have an Asset worth (theoretically) $9,000.

invoiceThis happens in other ways too. If you sell a project and send an invoice, that creates an entry in Accounts Receivable. When you receive payment for that project it moves that amount from Accounts Receivable into Sales. So if you’ve sold a lot of projects but your customers haven’t paid you yet your business could feel profitable (“Look at all the invoices I’ve sent!”) but you may not have cash in the bank.

To make matters worse you’ll likely pay your employees, contractors, vendors, rent, etc. before you get payment for the project that those employees worked on. So even though the project was profitable (assuming you charged more than it cost you to deliver), because you haven’t gotten paid yet, you have no money in your bank account.

All these scenarios can make a business owner feel like money is disappearing. If you want to look for money that’s missing from your checking account, you will usually find it somewhere on your balance sheet.

So when it comes time for reading a balance sheet for your business each month, what should you be paying attention to?

1. Did your equity go up?

The difference between your assets (things you own or are owed to you) and your liabilities (things you owe to others) is your the value of your equity. When that number goes up your business is creating value. (Don’t confuse the value of the Equity with what your business is worth, that’s a topic for another day.) Now look more closely at what Equity is made up of; it’s retained earnings (money you made in prior periods) – Shareholder Disbursements (Money you took out) + Net Income (money you made in this period).

If your Shareholder Disbursements are high (especially if they are higher than retained earnings) then your company is creating value — but you are taking out more value than it’s creating! This is not sustainable in the long-term — either you need to reduce your distributions, or you need to increase your earnings.

2. How are your receivables?

If you are running your business on a cash basis (you only recognize revenue when the cash is in the bank) your balance sheet won’t show Accounts Receivable (A/R) — but you should look at it anyway! Accounts Receivable is the money you have loaned to your customers. Money they owe you but they haven’t paid yet. This number will go up or down with your sales (e.g. if you sell more, you send out more bills, your A/R will go up). This is not a problem, it’s a normal thing when your sales rise. This makes it hard to compare one month’s A/R to another, how do I know if it’s too high?

One way to compare A/R from month to month is use A/R Days, or Days Sales Outstanding (DSO) two terms that mean the same thing. This converts the absolute value of your A/R into a ratio of Receivables to Sales so that you can compare the value of the receivables between different periods. This allows us to isolate the variations in receivable value from the variations in actual sales levels.

3. What else is changing? (Payables, Inventory, etc.)

balance sheetIf you own inventory, that’s another big place where cash hides. If you pay for inventory, that’s money out of your bank account. Even though you will sell it at a profit, until you actually get paid for that inventory, it’s money that’s missing from your bank account. Payables (or Accounts Payable) is money that you are borrowing from your vendors. It’s good to be that customer who pays on time — but if your customers are paying you in 60 – 90 days and you are paying your vendors in 20 – 30 days your business can turn into a bank — where you are loaning everyone money and you are out of cash. Try to get your payment terms with your vendors to be at least as long as your customers demand of you.

Reading Balance Sheets can be confusing, but it essential that you keep tabs on where your cash is coming from and going to. There’s only two things that a business can never run out of; customers and cash. So find a way to keep an eye on both!

BONUS: We’re giving away a free tool this month, called our Small Business KPI Reporting Tool from our Pro Member library. In it, you’ll find how often you should be reviewing things like your balance sheets, other financial statements, and Excel templates to help you build your own statements to use. It’s incredibly valuable — download it now!








Photo credit: Death to Stock Photo, miguelb,

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How to read an income statement: What every business owner needs to know http://www.enmast.com/2014/10/how-to-read-an-income-statement/ http://www.enmast.com/2014/10/how-to-read-an-income-statement/#respond Mon, 13 Oct 2014 16:39:44 +0000 http://www.enmast.com/?p=17963 One of the most basic of indicators of the health of any business is its financial statements. I’m not saying they are the be-all-end-all. There are lots of other indicators we should look at in addition to the financial statements; but it’s hard to argue that you are fully in control of your business if

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One of the most basic of indicators of the health of any business is its financial statements. I’m not saying they are the be-all-end-all. There are lots of other indicators we should look at in addition to the financial statements; but it’s hard to argue that you are fully in control of your business if you don’t understand your financial statements, especially how to read an income statement.

how to read income statements

And yet, many business owners don’t have a very complete understanding of what their financial statements are telling them. Many can read the income statement (sometimes called the P&L), but most don’t really get the balance sheet and forget the cash flow statement — hardly anyone even looks at that! (Though everyone looks at their checking account balance, which gives them part of that picture.)

If you have no familiarity with accounting or financial statements, it is worth it to take a couple of days and invest in a class. Almost any executive education provider has a class called something like Finance for Non-Financial Managers that will likely provide you with all the detail you need to get some good insight into your business’ financial statements. The American Management Association has one, your local university likely has one in their executive education department, and there are even private providers who teach it. That’s the quickest easiest way to go from zero to competence, and you need at least competence.

For those who at least know assets from liabilities, and understand accrual versus cash accounting, we’ve got a few tips to help you get more out of your financial statement review. Today we’ll look how to read an income statement; tomorrow we’ll tackle the balance sheet!

Use Ratios

When I read an income statement I usually don’t spend my time going line by line and scrutinizing every number. I start with the big numbers and compare them to other businesses I’ve seen. To do that I use ratios. Think of your gross income (sometimes called “Sales”) as $1.00. If your profit is 20% of sales then for every $1 in income you are keeping $0.20. Where is the other $0.80 going? If you have a service business I’m guessing that $0.40 – $0.50 is going to salaries, $0.10 – $0.15 is going to rent, etc. If your salaries are way more than 50% of revenue I’m going to get concerned. So I don’t have to look at each line to see where the money is going. I can start with the big ones and see what they look like as a percentage of sales.

There are a lot of places that publish benchmarks ratios for different industries. Start with your industry trade association or magazines in your industry. Your accountant might also have access to some of those ratios.

Look for Trends

how to read an income statementOne easy way to focus in on what’s happening in your business is to compare your current financial performance with prior periods to see how things are changing. Are sales growing or shrinking? As sales grow (or shrink) how do my expenses change — do they grow or shrink with sales, or do they stay pretty steady?

To accomplish this, we want to look at our income statement with columns by month. Then we can compare the numbers for March with similar numbers for January and February. For businesses that have a lot of seasonal variation it can be more revealing to compare last month’s numbers with the same month from last year. So we would compare March 2013 to March 2012 to see that the trends are.

As you run your finger across the months what do you see? Does one month stand out? What happened there? Is there a trend in a particular direction? What’s causing that?

An even more telling way to display the data is using Trailing Twelve Month Charts which treat every month as the end of a year and compare the sales (for example) from April 2012 through March 2013 with the sales that occurred in March 2012 through February 2013. By comparing only 12 month periods it averages out any seasonality and shows you truly the trend in your business.

Project them forward

To see if you really have a handle on reading your income statement, start playing some “what if” games by projecting forward into the future. If you can’t predict your income you can’t control it. So start by forecasting sales. What causes sales in your company? What actions are you taking that make sales happen? How frequently do they happen? By looking at those things you can start to project your future sales.

Then start to project your future expenses. Ask the same question, what causes expenses. Some just happen, like rent. Others are a function of the number of people you have (like the phone bill, or office supplies) still others are a function of your level of sales (like travel or commissions).

If you get all this together, you can really start to gain some insight into your business. You can start making decisions based on the numbers (like, “What happens if I hire someone?” or “How much would I have to grow sales to maintain my current income if my rent goes up?”) Pretty soon you will find yourself loving your numbers!

Understanding your business financial statements is one way you can have more control over, and more success with, your business. If you look at these numbers regularly I guarantee it will change your thinking and decisions in a way that will cause you to make more money!

Feeling a little overwhelmed?

If any of this seemed a little overwhelming, it’s okay. There’s a learning curve to reading income statements and other financial statements — but the pay off is huge! We have a helpful kit for business owners to help them with their financial statements called our Ultimate Small Business Budget Kit. It has an ebook, 8-step video tutorial that walks you through the whole thing, and a sample pre-formatted Excel spreadsheet with all your financial statements to get you started. You can check it out below:








Photo credit: kenteegardin

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5 things you are spending money on that are not (fully) tax deductible http://www.enmast.com/2014/10/business-tax-deductions/ http://www.enmast.com/2014/10/business-tax-deductions/#respond Wed, 08 Oct 2014 16:34:18 +0000 http://www.enmast.com/?p=17932 My accountant says I made $300,000, but I don’t see it in my bank account. Where did it go? Every year at tax time, business owners call me up and complain that their tax return says they made more money than they see in their bank account. Isn’t it supposed to be the opposite? Aren’t

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My accountant says I made $300,000, but I don’t see it in my bank account. Where did it go?

Every year at tax time, business owners call me up and complain that their tax return says they made more money than they see in their bank account. Isn’t it supposed to be the opposite? Aren’t we supposed to be able to deduct things so that our tax return says we made very little? How can it happen that it’s the other way around?

small business tax deductions

5 business tax deductions that are not (fully) deductible

When you spend money, it’s gone. It reduces your cash on hand. But tax laws have a funny way of looking at “income”. Not everything you spend money on is “deductible”. This means that you can spend money on something, but that money might still be counted as “income” (even though it’s no longer in your pocket). This is how our tax returns can show us as having an “income” that’s higher (sometimes much higher) than the money we put in our bank accounts.

I’m not an accountant. You should talk to an accountant about tax laws because they change a lot, and can differ from state to state. And I’m not giving tax advice, but I want to make you aware of some business tax deductions I see my clients get confused about year after year.

1. Meals and Entertainment

business meal tax deductionsBusiness meals are mostly only 50% deductible. That means when you take a client out and spend $100, your taxable income goes down by $50, but your cash goes down by $100. It’s a bad deal. This is also true for sports tickets, golf or other entertainment expenses; half of what you pay will still end up showing up as income at the end of the year, and you are going to have to pay tax on it.

2. Capital Expenses

capital expense tax deductions 2

Did you buy any new computers or other office equipment? Capital expenses get depreciated over the “useful life” of the equipment. That means that the $2,500 you spent on that computer reduced your cash flow by $2,500 but only reduced your taxable income by $500 (this year). The good news is that for the next 4 years you get to deduct another $500 (even though you didn’t spend any money on it in any of those years).

3. Office Build-outs

office space tax deductions

Office build-outs are just like capital expenses that we talked about above, but I mention them separately because the numbers are bigger and I find folks getting caught by them frequently. When you move into a new office you want to spruce it up. You might put in new carpet, or a coat of paint. Maybe you buy some desks or other office furniture. By the time you are done maybe you spent tens of thousands of dollars–only a fraction of which will be deductible. Yes, the IRS will tax you on 80% of the money you spend on those capital improvements (assuming a 5 year lease)!

4. Automobile Expenses

company carIf you have a “company car” (a car that you pay the lease for through your company) or if you just pay gas and insurance through your company account, then your accountant will likely “apportion” that expense; some to “business” and some to “personal”. The portion that is applied to personal is not deductible. In other words, just because you pay for the car through your business, doesn’t make it fully deductible. Some of that money that you paid out may end up counted as income to you.

5. Personal Expense

Did you charge your dry cleaning on your company card? How about car washes, or a briefcase, or …well, anything that’s not really a business expense? That’s all coming back off of your expenses and will get counted to you as income.

Understanding tax law is one of those boring and uncomfortable things that you just have to learn about as a business owner. If you don’t, it’s going to cost you a lot more at tax time!

How have you been surprised at tax time–for better or for worse? Tell us about it!








Photo credit:   gareth1953 the originalTax CreditslocaljapantimesMr.Boombust, M 93,

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My business is growing, but my bank account is shrinking! Here’s 4 reasons why. http://www.enmast.com/2014/10/growing-a-business-monthly-focus/ http://www.enmast.com/2014/10/growing-a-business-monthly-focus/#comments Sat, 04 Oct 2014 23:27:23 +0000 http://www.enmast.com/?p=17922 Growing a businesses means you’ll consume a lot of cash. No one told you that, did they? When your business grows from sales of $350,000 to $800,000, your income isn’t going to double. In fact, it may go down! It might be harder for you to stay profitable at $800,000 than you were at $350,000!

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Growing a businesses means you’ll consume a lot of cash.

No one told you that, did they? When your business grows from sales of $350,000 to $800,000, your income isn’t going to double. In fact, it may go down! It might be harder for you to stay profitable at $800,000 than you were at $350,000! How can that be?

growing a business

When you first start out, you have no business and no income, but as soon as you get your first client your income rises dramatically. That client pays you and most of that money goes into your pocket. Your expenses are low; after all, it’s just you and your computer on the dining room table, right? Then you get another client, and another… Pretty soon things are humming along and you start to get some help, a phone system, a better website, someone to do the books… Pretty soon there’s a big pile of expenses there that you are supporting before you are getting paid.

This is a really inefficient period for a business to operate in. You have added a lot of expenses, a lot of new capabilities, but they aren’t working very hard to make you money. Maybe you bought a phone system, but there’s just 3 of you. If you added 4 more people the phone system wouldn’t cost any more — but it would be working harder.

The way out is through

The-curve-300x267If you graph the cash flow of a growing business it looks like a U. It starts out high (when your expenses are low) then as the business grows your cash flow starts to shrink! It’s going the wrong way because you are adding expenses that are pure overhead. They aren’t adding a lot of benefit to the customer, but you need them to stay in business. This can be distressing — should I go back, cut expenses and make more money? If I keep growing my business, will I ever make good money?

The truth is that you need to spread that overhead cost over a larger base of sales. You need to grow your way out of this. Here’s 4 ways that growing a business costs you money.

1. You need support.

You’ve been doing your own bookkeeping, your own scheduling and admin, fixing your own computers; there’s lots of things that you have been doing that you can hire someone else to do for a fraction of what you could make in those hours. Maybe you’ve hesitated to get help with these things because you are afraid of adding more costs, but now it’s holding back your growth.

It’s time to get help. Buy back some of your hours and spend them marketing to new clients and delivering services. Instead of worrying about adding costs, focus on adding sales.

2. You need to pay people.

Once you start to have more work than you can do on your own, you need to think about building a team. Even if they aren’t full-time employees, you still need to pay them for the work they do! “Great. I’m earning $150/hr and paying $50/hr — that’s going to make me money, right?” Sure, until they screw something up, or take too long to complete something. Oh, then there’s training and development time, and time coordinating everyone’s activities and project management… But (hopefully) these are one-time costs. Once you get people trained and a system in place, you can be more efficient; and your margins should improve.

It takes almost the same amount of work to manage a team of 8 as it does a team of 3. Bigger teams create more process and structure and rely less on informal communication. That’s in part because it is necessary, but also because it’s more efficient.

So don’t be afraid to grow your team.

3. You need more things.

Your computer on the dining room table worked for a while, but now you need an office. (Or at least someplace to meet people that’s not a coffee shop, right?) You’ve got some team members now and they need computers, phone extensions, business cards… The website you and your neighbor hacked together is looking a little, well, like you hacked it together…

If you are going to have a team, you need to give them the tools they need to be successful. Having an office and a team behind you means you can bring more value to your clients. You appear less risky to them. It might even mean you could raise your prices in order to pay for it all.

4. You are lending money to your clients!

“What?!? Why would I loan my clients money? They are big businesses with deep pockets and I’m a struggling entrepreneur. Why should I loan them money?”

But you are. You are loaning them money! When you send them an invoice and they pay you in 30 days (or 45 days, or, gulp 90 days!) you are loaning them money. The more work you do, and the longer it takes to get paid, the more money that should be in your bank account accumulates in your accounts receivables. There are many businesses who grow so fast that they go broke because they need to pay their employees before they get paid by their customers and they can never close that gap!

As you grow, you need to pay attention to getting paid! Get paid in advance whenever you can, or at least get a big chunk up front. Find things that the client wants (early access, preferred service, better appointment times, etc.) and tie them to on-time (or early) payment. Don’t let your accounts receivable grow faster than your sales.

These are just a few of the ways that business growth hits you in the pocketbook. We’ll be talking about these things in more detail through the month here on the blog.

Are you growing a business? Where are you on the growth curve? Is your bank account full, or shrinking?








Photo credit: matchfitskills

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Tips for getting more out of conferences http://www.enmast.com/2014/10/tips-conferences/ http://www.enmast.com/2014/10/tips-conferences/#respond Sat, 04 Oct 2014 14:04:38 +0000 http://www.enmast.com/?p=17897 Conferences can be a great lead generator, learning experience and networking event all in one. But there’s a strategy behind how to get the most out of them. Jill and Brad attend conferences all the time and put their best tips together how you can rock your next conference and get more than your money’s

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Conferences can be a great lead generator, learning experience and networking event all in one. But there’s a strategy behind how to get the most out of them. Jill and Brad attend conferences all the time and put their best tips together how you can rock your next conference and get more than your money’s worth for it.

Then on their guest segment, they talk to Sam Rosen, the founder of Desktime + TJ Hale, the host of the Shark Tank Podcast. Check out the insanity that goes on this episode! ep-42-Horizontal-Podcast-Art-ORIGINAL Podcast play button

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Small Business Key Performance Indicator Template http://www.enmast.com/2014/10/small-business-kpi-reporting-tool/ http://www.enmast.com/2014/10/small-business-kpi-reporting-tool/#respond Wed, 01 Oct 2014 19:55:57 +0000 http://www.enmast.com/?p=14260 As business owner, it’s hard to maintain our focus on the most important issues in our business. It’s hard to set priorities. We need sales to increase, but we’ve got delivery issues, too. What about that low-performing team member, when to you get to them? Though in the midst of all the craziness, we need

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small business kpi reportingAs business owner, it’s hard to maintain our focus on the most important issues in our business. It’s hard to set priorities. We need sales to increase, but we’ve got delivery issues, too. What about that low-performing team member, when to you get to them? Though in the midst of all the craziness, we need to find a way to take the pulse of our business. A healthy business, just like a healthy body, has a number of indicators that we need to check from time-to-time, like our blood pressure. In our business, there are certain numbers we need to checking daily, weekly, monthly, etc.  If we look at our key performance indicators as a “rhythm,” — something that happens automatically  like breathing — it can help keep us grounded and focused on the most important issues in our business (despite all the “other stuff” that comes at us). The Small Business KPI Reporting Tool is just a list of items — key performance indicators — placed in order of the frequency we should be checking them. We have found this to extremely helpful in getting business owners to recognize the value of reporting, and more, the value of organizing reporting in a specific way. Download the tool for FREE when you become a free trial member! Or get the whole sha-bang — our entire library of tools — when you become a Pro Member. (If you are one, login and an orange download button will appear below to download the tool)

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Don’t let ‘great’ be the enemy of the ‘good’ http://www.enmast.com/2014/09/great-enemy-good/ http://www.enmast.com/2014/09/great-enemy-good/#respond Mon, 29 Sep 2014 16:02:24 +0000 http://www.enmast.com/?p=17912 “Life is pretty simple: You do some stuff. Most fails. Some works. You do more of what works. If it works big, others quickly copy it. Then you do something else. The trick is the doing something else.” ~ Tom Peters Tom Peters could be thought of as one of the founding fathers of the

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“Life is pretty simple: You do some stuff. Most fails. Some works. You do more of what works. If it works big, others quickly copy it. Then you do something else. The trick is the doing something else.” ~ Tom Peters

Tom Peters could be thought of as one of the founding fathers of the American quality movement. His book In Search of Excellence is a perennial best seller that really shaped a generation of business thinkers. Because of the movement created by his writing we find ourselves “raising the bar” or asking people to “look at that one more time” or “sharpen our pencil” on that… Continually looking for “something better” might be one of the hallmarks of our current American business culture.

But there is a cost to the “search for excellence”.

tom peters quote

If we spend more time searching than we spend doing then, in fact, we have not produced anything excellent. Look carefully at the Tom Peter’s quote above. He’s not advocating searching — he’s advocating doing. Trying stuff — much of which won’t work. Excellence is more often found through making mistakes (in the act of doing) than searching for perfect solutions. In fact, successive approximation leads to excellence much more quickly than waiting for the one perfect shot. Don’t believe me, let’s look at one of the paragons of “excellence”, Apple.

Real artists ship. ~ Steve Jobs

Every one of Apple’s breakthrough products was woefully incomplete when they were first released. Remember the first iPod with that horrible user interface? It was 3 years later that the product we now think of as the iPod was released. How about the first iPhone that wouldn’t let you add any apps? Or the first iPad, laughably huge and clunky compared to today’s products. But producing those first almost excellent products –those products that were good enough (and still far better than what was out there previously) — enabled Apple to learn, to innovate, to improve and to dominate.

Now, I know you are not Steve Jobs, and you don’t have the resources of Apple. So how does this apply to your business?

  • What are you choosing to review before it goes out the door?
    Sure, you want to make sure they are “up to your standards”. You don’t want to be embarrassed. What if saving yourself from occasional embarrassment is making yourself into a bottle neck and preventing those almost great version 1 ideas from seeing the light of day? Look at the list of things that are “waiting for your review” right now and send half of them out the door without another minute’s delay. I’m not kidding, try it, you’ll like it.
  • Do you keep interviewing to find that “perfect” candidate?
    And subsequently lose other “almost-perfect”, well qualified candidates? While you are looking for the perfect candidate who is doing the work? Is your company’s quality and profitability suffering while you search for better and better candidates? Every candidate is going to have pluses and minuses — if they don’t you didn’t interview them very well.
  • How many times have you rewritten that blog post?
    The time you spend re-writing could be spent drafting another post. Not posting it means you don’t learn from the reactions and comments it would have gotten. Posting it and moving on brings in more search traffic, more visitors to you site, and potentially more business.
  • Do you spend more time reviewing past decisions, or evaluating future decisions?
    We can’t change the past. I’d rather invest time in today’s decisions than in evaluating yesterday’s mistakes. I’m not saying that we should never be reflective, we should. I’m looking at the proportions. Make 80% of your thinking about today’s decisions and tomorrow’s goals, spend less than 20% on yesterday’s mistakes.

Where are you letting the great be the enemy of the good? How is your search for excellence getting in the way of shipping something that will move your business forward?







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How to get accountability when you’re a business owner http://www.enmast.com/2014/09/accountability-business-owner/ http://www.enmast.com/2014/09/accountability-business-owner/#respond Sat, 27 Sep 2014 14:19:02 +0000 http://www.enmast.com/?p=17907 We can’t go to our team to ask them to keep us accountable when we’re the business owner. So who can we talk to and be checked in on with? Jill and Brad talk about who and where they go to get the accountability they need to be better leaders in their business. Listen in

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We can’t go to our team to ask them to keep us accountable when we’re the business owner. So who can we talk to and be checked in on with? Jill and Brad talk about who and where they go to get the accountability they need to be better leaders in their business.

Listen in on their fun conversations with guests Marc Talluto is the founder of Fruition Partners and Cate Conroy is the founder of Concentric Content!

how to get accountability as a business owner

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Top small business articles for business owners | September 2014 http://www.enmast.com/2014/09/top-small-business-articles-business-owners-september-2014/ http://www.enmast.com/2014/09/top-small-business-articles-business-owners-september-2014/#respond Fri, 26 Sep 2014 13:00:08 +0000 http://www.enmast.com/?p=17888 Most business owners have control issues, whether we would like to admit it or not. How many of you have to see every document before it’s sent out to a client? (That’s one sign you have some control challenges). This month we really hammered on our control freak behavior. It’s hard for us to let go and

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Most business owners have control issues, whether we would like to admit it or not. How many of you have to see every document before it’s sent out to a client? (That’s one sign you have some control challenges).
top small business articles septmeber

This month we really hammered on our control freak behavior. It’s hard for us to let go and trust others to do their work. But it’s really unhealthy for us — we spend all our time doing and fixing our team’s work instead of working on our own to-do list.

So here is this month’s top small business articles. Plus Brad had a post on LinkedIn that went crazy. Read it here: 10 ways for bosses to let go of control freak habits.

 

1. Control Freak Test: Are you a control freak?

You might be sitting here thinking “I’m not that bad” or “I’m not controlling at all.” I challenge you to take this quiz and see if you find yourself answering “yes” to any of the questions… Read on »

control-freak-test

2. Step 1: Admitting you have a need for being in control

Admit it. You probably have some controlling tendencies as a business owner. It’s okay. Most of us do! But we set our team up for failure when we HAVE to be in control. Brad walks you through it. Read on »

Control-freak-recovery1

3. The truth about controlling boss behavior

Do you always have to double check your team’s work? Have all the answers? Solve all the problems? Your need for control is really a trust issue. Here’s what I mean… Read on »

controlling-bosses

4. Cube vs. Corner: How do the boss’ work habits affect yours?

Bosses usually more than their employees, but have you ever thought how that might be affecting your employees? Brad and Devan talk openly about it, and Devan shares some insights to how she feels how it’s set unrealistic work expectations for her. Read on »

work-habits-boss

5. Step 2: Why business owners need to ‘let go’ more

What makes you a good boss is having the confidence in your leadership to give your team ownership of their work. And that means you need to let go more. Brad shares how you can loosen that grip of control! Read on »

let-go


 

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