Month: August 2017

Preface: Being respectful of the high finance parable in the Bible, we’d say it is better to having taken business risks and lost, than never having taken business risk at all.

Investing to Double Your Businesses Value – Part VI

The Bible has very clear instructions in the world of high finance from Luke 19: 11-27. A nobleman goes on a journey and assigns three servants to invest money. Two servants take risk and one is fearful and takes no risk. The fearful servant likely has reason per the exemplified power of the nobleman; and two servants who took risk are successful, and promoted to high positions.

While there are different interpretations of Jesus parable, the face value moral is that risk in high finance, (i.e. applied to business) of taking risks is advised as less risky, than the risk in avoiding risks. Assumption: the servant’s position with that level of responsibility, certain training was likely par for the course.

Entrepreneurs assume risks too. Managing risk is Part VI of Investing to Double Your Business Value. Risk management is a multiple step continuous process. Identifying the risks is a first step to managing those risks, e.g. economic, operational, marketplace, and financial risks. Identifying risks before they develop is well-advised, but identifying risks before they become terminal is as vital.

In risk management one of the most problematic mistakes is a wrong diagnosis of the risk, e.g. a truck load of type writer ribbons at 50% discount, will be easily marketable. Marketplaces change and adapt, and entrepreneurs must manage the risks of those changes and adapt too. A more practical risks example is as follows. Are your business sales subject to consumer financing or only a discretionary consumer expense? What major enterprises drives commerce in your business locale or sales radius. What factors would change or influence your customers purchasing habits and therefore result in sales volume risks?

Risks will appear in your financial statements. Small business owners can sense risk. Larger enterprises must make decisions from the financial numbers. If you track accurately month-to-month financial performance, with a good understanding of how your financials work, you can identify and quantify risks immediately (with-in months), and begin working towards resolutions. This is step two of risk management – analyzing operational and financial data to quantify and assess risk development and implement quick mitigation. For instance, if your business MAP to increase sales, as a first step, is to hire one new employee, it is important to have a plan in place to track that performance with expectations. Or say, if your business is repairing lawn mowers, how can you track efficiency gains on that additional talent; or say what if you’re a lawn service technician, and a $700 robotic mower is introduced to the market? You need to identify trends early, and envision and respond to the risks.

Responding to risks and responses. The response to an early morning coffee or a missed train are different than responding to major customer transitions or marketplace innovation. Planning responses to risk is advised. For instance, if you’re acquiring a competitor to double business value, how can you minimize risks of cash flow on debt financing, if you simultaneously are increasing overhead with new employees. How will you respond to cash flow risks if a new employee requires three months training to perform billable work, and your projections are an unrealistic one month of costs?

Watching risks. You must always be alert for business risks. From project risk on a construction site, to office risks of cash management, an entrepreneur must be alert and continually monitoring risks. An awareness of risk, and the ability to manage risk, and not fear it, is important [emphasis added].

Being respectful of the high finance parable in the Bible, we’d say it is better to having taken business risks and lost, than never having taken business risk at all. Manage the risks. Talk with your trusted advisors. The fearful servant likely didn’t even have a conversation with a trusted advisor, or another servant, he seems to have simply trusted his own knowledge entirely. You have the advantage, because you can see and read and learn. At minimum, he should have likely set expectations with the nobleman. What are your business expectations and what are the risks in those expectations, i.e. double business value?

Part VI of Investing to Double Business Value – Manage Risk.

Preface: You need to be the cartographer for your business in an ever-changing business landscape;  your business skillset to map the right path forward in your industry will contribute substantially to future business value.

Investing to Double Your Businesses Value – Part V

Cartography is the art and science of making maps. Although the concept of a spherical Earth was well accepted by the time of Aristotle in 350 B.C. and has been widely accepted since, in ancient history, some map makers thought the world was flat. The oldest know maps in history are Babylonian clay tablets from 2300 BC, and since that time have been largely replaced in recent years with companies like Tele Atlas contributing to Google maps and LCD screen displays with programable features called a global positing system. With more 20 petabytes of data all from within three years, the twenty million gigabyte equivalent data sets are integral to business and personal transit today.

One certainty – maps have been a fundamentally important contributor to the development of modern society. We may take the value of maps for granted, but without them, reaching destinations would likely be more challenging.

Doubling the value of a business requires more planning than mapping a coast-to-coast trip. Entrepreneurial ventures too require a mapping of the business journey to doubling the business value, i.e. where will we start, where were we yesterday, where are we today, and where will we be tomorrow with regards to value?

A Business MAP, a Marketplace Assessment Profile, is a good tool to help you reach your business destination. A Business MAP is a business planning tool that helps you make sense of your business: the services and products viability in the marketplace, your business’s competitive advantages, industry risk, resource risks, opportunities, and value drivers. A Business MAP looks at your business on both a macro and micro scale and provides a guide for your businesses future. A Business MAP helps you plan your business destination, whether it’s organic expansion, a gear-up, etc.

1. Services: What does your business sell? Business is about selling products or services. Nothing happens in business without a sale. What are opportunities for the sales of products or services? What will you sell more of to increase sales and, therefore profits, or how will you add asset value?
2. Competitive Advantages: Monopolies have no competition. Likely your business doesn’t have the advantage, so what sets your business apart from the competition? What advantage does your business hold (or disadvantage) with locations or customers? What niche areas of sales provide an edge in the marketplace? What moat does your business own that secures and develops the value increase?
3. Industry and resource risks: What risks face your business? How will you manage the risks? What resource concentrations face your business – from vendor’s concentrations to fixed or variable expenses, what are the cost drivers; how can they be minimized? How can you reduce risks to add value?
4. Opportunities: What opportunities will increase gross sales, and net income or asset values; and, or, decrease liabilities to increase value?
5. Value drivers: What will drive the value increase in sales or assets in the marketplace? Will it be new markets, locations, sales teams, or acquisition of competitors say, or simply Fed policy?

A map is nice tool, but to apply the knowledge of the map you need a mode of transportation, fuel, and it helps to count the costs of the journey; naming a few of the advised travel planning steps. To double your business value, you a business MAP + much more. A business MAP is more than answering 5 question categories, and is beyond the scope of this blog. The above is only an introductory idea of what that strategic business mapping encompasses.

Summary: without mapping the steps to doubling your business value, good accounting, a well-trained talent pool, leadership or trusted advisors do not produce singular strategic ends. You are the cartographer in an ever-changing business landscape, and your ability to map the right path forward in your industry or business segment, will contribute substantially to future business values.

Step five to doubling your business value – a Business MAP

Preface: The disciples were always learning continuously. Were they cognizant eyes!  Entrepreneurs are learning continuously, too; and accountability in the office is sometimes an easy trial to improve financial business performance.

Accountability for the Moneybag

Jake M. Dietz, CPA

A moneybag blesses your business when wisely spent for the entrepreneurs intended uses. Unfortunately, sometimes money disappears from the moneybag without the owner’s knowledge. Attempting to hire office employees with integrity minimizes the risk of fraud, but it doesn’t eliminate the risk. Even the disciples, most of whom were men of integrity, had a Judas among them. Fortunately, entrepreneurs can minimize the misuse of their resources. Businesses should separate duties, provide accountability, and oversee the use of business resources.

Segregation of Duties

As much as possible, segregate these three responsibilities:

• Custody of assets
• Recordkeeping for assets
• Authorization to use assets

Segregation, or separation, of duties makes it harder for one person to misuse resources without being noticed. Unethical office employees could still collude, or work together, to commit fraud, but proper segregation of duties deters employees from misusing assets because of the risk of being caught.

Let’s consider ways that duties could be segregated for a business checking account. The person that has custody of the assets should not be able to authorize their use, so the person with the blank checks should not be able to sign the checks. If they could, then they might write and sign a check to themselves. The signor shouldn’t sign a check made out to the keeper of the blank checks without proper documentation that the check should be paid. An example of proper substantiation would be payroll records indicating how much to pay the employee. Also, the signor could not sign a check to themselves unless the person with the checks provided a check.

Accountability

In an ideal situation, businesses could separate custody, recordkeeping, and authorization duties. Entrepreneurs without a large office staff, however, may not be able to fully separate these functions among employees. Even when the staff is small, entrepreneurs can still provide accountability to employees. Let’s review some ways to provide accountability.

• If there are not enough accounting employees in the office to provide accountability, then temporarily pull an employee from another part of the company to help with certain functions. For example, suppose a company has one bookkeeper, but it also has a salesperson. When the bookkeeper opens the incoming mail and prepares the bank deposit from the checks, have the salesperson be present. The salesperson can record a listing of the checks. This arrangement allows a second employee to create a record to be compared by a third person to the bookkeeper’s record.
• Entrepreneurs can outsource certain responsibilities, such as reconciling the bank statements, to an outside bookkeeper. That bookkeeper would not have access to the checks or the ability to sign the checks. They would reconcile the bank statement to the record of cash in the accounting software.
• Companies can use software to track who makes changes in the accounting software. Give separate user names and passwords for everyone who can modify records in the accounting software. Encourage employees to keep their passwords confidential. If an employee is changing transactions, someone else can then track who made the changes.
• Perform unexpected inspections occasionally. If you regularly get invoices for materials, then you may not have time to go out to the shop floor and inspect the materials every time you get a bill. You could, however, occasionally ask to see the materials that are listed on a bill. Ask at random times so that the employees do not know when to expect your inspections.

Trustworthy Oversight

In addition to your inspections, work with a trusted CPA who can inspect your accounting records. Your CPA can watch over your accounting and look for discrepancies and red flags. Some accountants looking out for clients best interest, with be on the alert for fraudulent and inaccurate activity when examining financial statements. Ask your accountant if they will do that for you. A quick review of the profit and loss statement, balance sheet, and statement of cash flows sometimes reveals problems in a company. Deeper research may be needed to pinpoint the exact nature of the problem.

If deeper research is needed, then your accountant may review bank statements, images of cancelled checks, and bank reconciliations to try to identify the problem. They also may look at your financial statements over time to look for unusual activity and trends. Accounting software often allows them to review deleted transactions.

If no one has combed your books recently looking for fraud, then contact an accountant with experience doing just that. If they find something, then the problem can be addressed before it grows larger.

An article about fraud can be disturbing, but fraud has been occurring for thousands of years. Even if there is no Judas among your employees, it is still wise to take steps to deter fraud from happening. It is far better to have accountability and no fraud than to have no accountability and fraud. If you have questions on how to provide accountability for the moneybag, call your accountant and ask for ideas.

Preface: In Part IV of our series, we look at the role a trusted advisor occupies in doubling business value; along with the three main reasons trusted advisors usually are, and should be, retained.

Investing to Double Your Businesses Value – Part IV

Credit: Donald J. Sauder, CPA

Socrates was once known as the name of a famous philosopher, today, it is also the name of a real world artificial intelligence system, a thinking machine.

When Bill Gates, the entrepreneurial face of Microsoft Corporation, was young, he was late for supper one evening. His mother inquired why he did not promptly appear to the table. His response. “I was thinking”. Asking and answering questions to stimulate critical thinking and draw out idea’s and underlying assumptions, will always be a key process to building business value.

Today, most entrepreneurs wouldn’t ask a computer for advice. For example: why do customer shop at our location? Or, where are the opportunities for our business? Or say, what will our customer service look like ten years from today? Yet, often leading to the right answer (resolution) is the right question. Let’s ask a rhetorical question relevant to this blog – Can we double the value of (your) business?

An entrepreneur’s trusted advisor(s) are part four of building business value. When entrepreneurs retain ‘trusted advisors’ to coach and advise on key business themes, the decision on what advisor to rely on for advice will ultimately be key to the success of the purpose. What do you want to achieve with an advisor(s)?

Trusted advisors are the people responsible for thinking through (and avoiding, and resolving) fundamental entrepreneurial risks. To mention a few risks a) marginalized pricing power, b) marketing campaigns, c) building expansions, d) human resource decision, e) new market jurisdictions f) new product or services, g) innovative changes in the marketplace, etc. Choosing the right ‘trusted advisors’ is as simple and yet complex as understanding what role they will be responsible for in your business.

Entrepreneurism is challenging, and often uncertainty abounds, i.e. “Why are we working to double business value, when we can’t get enough qualified help for current projects?” An advisor who brings reassurance, calm fears, and inspire confidence is invaluable to a business. A trusted advisor who has resolved specific problems before, or inspired marketplace confidence, holds substantial value to that question.

Say business is going well, and you’d like to expand into a new location or product line. Those prerequisites are sometimes the path to doubling fundamental value. Many entrepreneurs have specific skillsets that have led to success, and a decision in certain instances requires resources beyond those skillsets, i.e. a trusted advisor is necessary. A trusted advisor in the normal course of business can be someone of accomplishment, authority, education, and respect. A consultant(s) say, or an employee(s), or business partner(s).

Trusted advisors should be obtained with referrals and endorsements. Trusted advisors are usually retained for these reason – i) to bring confidence to a decision, ii) take away worry, iii) or resolve business hassles. A trusted advisor will not manage your business. A trusted advisor will help you build confidence to make sound business decisions, they will provide assurance and clear worries with clarity of the risks, and viable options towards resolution. A trusted advisor will advise – that is offer suggestions about the best course of action for you and your business; inform about the facts of the situations and circumstances; and recommend viable, practical solutions. You will ultimately be responsible for the outcome of those suggestions.

A trusted advisor will appreciate your values, principles, and ideals, and advise you in a way that supports those personal fundamentals towards business success. A trusted advisor will work to make their advice, your business successes.

A truly trusted advisor’s role keeps you true to your fundamental values, principles and ideals in business decisions, along with developing financial and operational business value. Burgeoning entrepreneurs can rarely double a business value alone. Who they choose as a trusted advisor(s) is focal.

Step four to doubling your business value – true trusted advisors

 

 

Preface: Leadership style and strategy may vary among businesses; leadership is a substantial contributor to doubling a business value; and leadership requires more than a good vision.

Investing to Double Your Businesses Value – Part III

Credits: Donald J. Sauder, CPA

Leadership is the third pillar to doubling business value. Leadership can mean different things to different people, in different situations. For instance, there are global leaders, religious leaders, political leaders, or say community leaders. A business leader, and a business leader approach are what’s required to double a business value. US President David Dwight Eisenhower said “Leadership is the art of getting someone else to do something you want done, because he wants to do it.”

A business leader inspires a vision of the business future, e.g. a local industry leader in automotive repair and service in 3 years. A business leader motivates and manages employees to deliver on the vision. A business leader coaches and builds a team(s) that is effective at achieving the vision. Leadership integrates skills and skillsets to accomplish development of a masterpiece. Leadership compels and convinces the talent you need to join in achieving the business vision. Proverbs say’s where there is no vision, the people perish. A leader’s business vision is not simply accomplished with an objective of doubling business value, it is accomplished with the vision of adding value, so much value and to such an extent, that your business receives a little bit of that value in reciprocation.

Leadership adds value to employees, customers, the community, and beyond. Successful business leadership is admired; from employees and customers, to the community at large; admired and respected because the vision is adding value.

Leadership is ultimately a core value of business value building. A leader will provide employees on the team the access to develop and gain the necessary skills to their job well. Leadership will provide accountability, give and receive feedback, and work towards the long-term success of enterprise. President Eisenhower also said his most important lesson in leadership was attitude begins at the top. A business leader must therefore be capable of peak performance under all types of conditions; and in the most formidable business circumstances a business leader must say “I prepared my entire life for this”.

Leadership is the heart of business value. A business leader will serve the business by managing with a customer and client satisfaction attitude, high employee morale; and a win-win mind-set. There is a difference between management and leadership. Professor Warren G. Bennis is quoted as saying – “Leaders are people who do the right thing; managers are people who do things right. Leadership is strategic; management is tactical.

Doubling business value requires applying G.B. Shaw’s thought – You see things and say ‘Why’? But I dream things that never were; and I say ‘Why not?’ To double a business or enterprise value is one things, but then maybe you could double it again. With the right leadership approach, that is realistic. If you’re a student, perform a case study on two successful businesses. Then ask yourself – has a leadership mindset contributed towards that success?

Leadership requires more than vision, it requires active listening, confidence, courage, an understanding of your strengths and weaknesses, problem solving, helping others achieve things they never imagined possible, and building the team for the future.

Leadership style and strategy may vary among business leaders, but  leadership is a pillar to doubling a business value.

Step three in doubling your business value – Leadership

Preface: Choosing an accountant for your business is an important decision.  This blog provides some characteristics for entrepreneurs to look for in potential accountants

The Importance of Choosing a Trusted Advisor for Your Accountant

Credit: Jake Dietz, CPA

Should I eat apple pie or pecan pie for lunch? Pie selection decisions do not have long-term consequences. Other decisions, such as choosing an accountant, have far-reaching consequences. We will examine three characteristics to look for in an accountant in this blog. Choose an accountant who initiates consulting, who guides you through the tax and accounting maze, and who helps you achieve your business goals.

Seek an accountant who initiates consulting for your business. Sometimes you will be the one to ask for help, but choose an accountant who offers advice when it is helpful. For example, suppose you have a veterinarian come to the farm because your horse hurt its leg. If the vet also notices degenerative joint disease affecting the horse, then you may want to be told about it. You may not want a vet who says “I didn’t diagnose your horse’s degenerative joint disease because you didn’t ask me about it.” Likewise, you don’t want an accountant who says “I didn’t tell you your company was failing because you didn’t ask me about it.” Choose an accountant who shares with you what the strengths, weaknesses, opportunities and threats are that face your business. When was the last time your accountant called and asked about your business?

Find an accountant who can guide your business through the maze of tax filings and accounting decisions.   The Internal Revenue Code bewilders many people and traps the unsuspecting.   If you try to navigate the maze with inadequate advice, you may end up missing huge deductions or being on the losing end of an audit because of unreasonable tax positions. Choose an accountant who can help guide you through the risky pitfalls and help you take advantage of the beneficial areas of the tax code. If you are meeting with a potential accountant, consider asking them for an article they wrote about taxes, or ask them if there are any parts of the tax code that would help you. Most accountants don’t memorize the entire code and may need to research certain items before providing answers, but a busy entrepreneur should use an accountant who is familiar with the code and knows how to research the items that are not memorized.

Choose an accountant who will help you achieve your business goals. Entrepreneurs have different goals, and it can take hard work and discipline to achieve those goals. Do you want to grow your sales by 100% in five years? Do you want to pay your employees a livable wage? If you want to increase the wages you pay, your accountant may suggest increasing prices and sales. If debt is high, your accountant might point out opportunities to improve cash flow. A good accountant can help project what needs to be done and provide insight to achieve your goals. Choose an accountant who asks about your goals and values and then plans how to achieve them.

When considering pie choices, make a quick decision so you can soon enjoy the pie. When considering accountants, choose them like you would choose your vet. If your horse gets sick, you want a vet who has invested the time to gain the expertise to help the horse get up and running again. Likewise, an entrepreneur benefits from choosing an accountant who has the knowledge and experience to help your business. The benefits of choosing a trusted advisor to be your accountant can accumulate over the years. The consequences of a bad decision can be quite painful. Choose wisely.