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Reducing Your Cost Structure

Reducing Your Cost Structure

 

“It’s not what you pay a man, but what he costs you that counts.” —Will Rogers

Good business leaders understand that having insight and control over the company costs is vital. Low overhead and a surplus of cash is a recipe for a financially successful business, but when an unforeseen global pandemic steals customers away from your business model, what is your response?

If you are like J.Crew, Neiman Marcus, or Souplantation, the solution is to cut employees loose, shut your doors, and hope that the financial aid from the federal government is enough to pay your essentials bills until the mess dies down.

However, if you are a smarter leader with an insightful team by your side, you can reduce your cost structure and keep your business alive during the midst of it all.

We want to take some time to be that insightful team for you. Below, we highlight the key ways you can proactively reduce and control overhead rather than making severe deep cuts.

During the uncertainty of this current economic environment, there is no better time to address leaning your company. Taking an intellectual dive into the inner workings of your company using the following ideas is one way to evaluate what is working and what is not.

Idea 1: Speak With Lenders

Fostering a better relationship with each of your lenders is one of the first steps we recommend taking during this time. A simple phone call to your banks, credit unions, and other money lenders will help to keep lines of communication open.

Not only that, but it will help you establish a relationship of trust if you initiation the call. When you have the lender on the phone, also be sure to ask about some of the following:

  • A detailed review of the terms for all your business loan agreements and lines of credit
  • The option of refinancing debt to extend terms and reduce payments
  • Ask about reducing interest rates on loans and credit cards
  • Try requesting a credit line increase for credit cards
  • Consider negotiating a way to pay only interest on the debt if finances become too tight

You don’t know what the lenders will say until you ask, so try and negotiate the best terms for your business and see what options are presented to you.

Idea 2: Seek Financial Aid

The federal government has been rolling out a variety of financial aid packages for businesses to choose from during the COVID-19 pandemic.

The three large government options available include PPP, EIDL, and Main Street Lending program.

The Paycheck Protection Program stems from the CARES Act as a way for business owners to help pay employee salaries, benefits, company bills, and make other vital financial payments to keep afloat.

Read More: What Should Your Next Steps Be When Applying for the PPP?

The Economic Injury Disaster Loan Program is part of the Small Business Administration’s federal assistance for the private sector. It can provide up to $2 million to small or private businesses and non-profit organizations regardless of whether the applicant sustained physical damage from the pandemic.

The Main Street Lending Program is the newest program announced by the federal reserve and was specifically established for small and mid-sized businesses that were financially stable before the coronavirus pandemic. Roughly $600 billion of aid is accessible for these companies.

Read More: Your Guide To The Main Street Lending Program

Another option is to seek private grants from big organizations. Please do some research on grants.gov or reach out to our team for a few suggestions.

Idea 3: Review Your Contracts

This might be one of the easier ideas on our list! With that, you should make efforts to understand how your business is using the space you are in and how it might need to expand or trim in the future.

If your lease is nearing its end, consider this as an ideal time to renegotiate on the original terms. Some options include subleasing the space, taking over a new and less expensive commercial real estate location, or taking advantage of a shorter-term lease from your landlord.

Idea 4: Boost Incentives

Now more than ever, your customers have a reason to zip up their wallets and pour over their credit card billing statements. The best thing you can do to ensure your services are billed continuously is to show their value. If your customers understand why they need your products or services, then you are appealing to the financial side of their rationale.

Once you feel you have established a customer relationship based on trust and necessity, consider rewarding or incentivizing them by discounting early payments, offering special pricing on new product launches, or giving coupons to loyal customers.

You can expect that each of your customers is struggling in their own way, and so your overall goal is to ensure they feel valued and that you are continually providing real value. Take this time to look beyond the numbers and understand your customer’s business strategy and how you can further support them in reaching their goals. Need more help in this area? Call our team of experts for even more advice.

Idea 5: Look Beyond The Obvious

Unfortunately, one of the first places scared leaders will choose to cut back is by way of their employees. We don’t believe this action is the ideal way to reduce your cost structure.

Layoffs are harmful to the remaining employee’s morale and productivity. They are working in fear rather than working to continue the mission of the company.

While there are times when addressing your labor force is a crucial factor for your business’ survival, it is crucial to look beyond that channel at the beginning. Before heading down the path of layoffs, consider these other roads first:

-a reduction to working hours
-furloughs
-decrease or eliminate bonuses and performance pay

Consider modifying the benefits and compensation plans as a way to minimize costs. Ultimately, many of these considerations will positively or negatively impact your business. Think through your plan and communicate your strategy with your other business leaders before taking action.

Final Thoughts

With the right information, leadership, and choices, reducing your business’s cost structure doesn’t have to be incredibly painful. The best outcome is when you can lean out, keep your incredible team, and envision a successful future.

Remember, communication is essential during this time. Answer all the questions, quell all the fears, boost everyone’s morale, and be as proactive and transparent as possible.

If you are looking for more ideas on how to trim down the excess costs of your company and how to recession-proof your business, you can read one of our most successful blogs linked below.

Read More: How to Proactively Recession-Proof Your Business During COVID-19

Call us for help taking these ideas and putting them into action. Our team of experts has helped countless businesses trim down their costs and can answer any questions you have about this process.

 

Internal Controls That Protect Your Business From Fraud

Internal Controls That Protect Your Business From Fraud

News headlines involving embezzlement, fraud, data breaches, and other scandals may have you nervous, especially during the current economic climate. “What is happening within my organization?” might be a thought regularly occurring in your head. After all, fraud is one of the most common ways that companies lose money.

To protect your business from fraud, you must continually evaluate internal controls. These protocols help keep a business safe from specific types of company risk.

Incorporating internal controls can ensure the effectiveness and efficiency of operations and support reliable reporting.

Read More: This Is How To Protect Your Company From Employee Fraud

These Internal Controls Can Protect Your Company

According to the Association of Certified Fraud Examiners (ACFE), organizations can reduce the impact of fraud by pursuing internal controls and policies that actively detect fraud. Some examples may include management review, account reconciliation, and surveillance/monitoring.

Here are four other simple and straightforward internal controls for your company to consider:

1. ACH Payments
Do you have a custom signature stamp for your office? If you do, we advise against this option. Even if you keep it locked up or only allowed specific employees to use it, there are still issues with this kind of system.

A better option is to implement an electronic system such as Automated Clearing House (ACH) payments. By sending payments through ACH, businesses can use fewer resources than traditional paper checks, and they can more easily track income and expenses with electronic records.

eGuide: What Business Should Expect From Their Accounting Department

2. Separation of Powers
Separation of powers is as crucial to your business as it is to the government. When one person has all the power, the system is likely to fail. Just like a system of checks and balances, having dual control in place is ideal for any business.

One employee can be responsible for setting up ACH payments and wire transfers, while another employee can be responsible for approving these numbers.

Reviewing and catching critical errors is a vital part of this process. If there is oversight by more than one person, the possibility of theft and fraud significantly decreases. When dual control is in place, the system can often be effective in combating asset misappropriation.

By practicing the separation of powers, three main functions are able to occur:

1. Custody of assets
2. Authorized use of assets
3. Record keeping of these assets

It might seem that having two employees dedicated to managing assets is overkill for your small business. While it might be challenging to achieve, it should be implemented whenever possible to improve the overall performance of the organization.

3. Single User/Password
Every day you and your employees access websites to conduct business as usual. Many companies share one login to their bank, accounting software, credit card, and other financial accounts. Where do you store your vital login information? In a spreadsheet? On your phone? Printed out and next to your computer?

Either way, these are not secure ways to save your password information. These logins are so easy to hack and steal that it is up to your company to protect itself.

Make sure each user/employee is set up as an authorized user, and you can set the rights for each person. You can also research inexpensive and secure apps or websites to hold your logins, ensuring that the hacking rate drops significantly. When people leave the organization, make sure to delete the username and change common passwords.

4. Expense Reimbursement
Implement a process for all employees to follow regardless of hierarchy. Make sure to have an annually updated policy and require receipts/invoices over a certain dollar amount.

If you have corporate credit cards, you can utilize merchant category codes to restrict the types of goods/services for which they are used. For more information on this process, you can reach out to your card company for assistance.

Read More: The Three Main Internal Controls for Accounting and How They Protect Your Assets

How Should Internal Controls Be Implemented?

Has your business ever completed an internal control audit? If not, this is a great place to start. By completing an audit, the effectiveness of any current controls is tested, and the audit can also highlight weak points for the company.

When your organization takes part in an audit, there are essential processes and paperwork that need to be reviewed by a CPA. Having a set of eyes outside of your organization can be vital to the success of this audit.

While it might require preparation and a lot of documentation, the result will provide your organization with information that is consolidated all in one place, making it easy to access financial reports and statements in the future.

The implementation process itself can be quite an undertaking for a company to manage itself. For this reason, we recommend you find an expert to take on and manage this audit.

eGuide: What Business Should Expect From Their Accounting Department

How Often Should Internal Controls Be Updated?

All of your company’s internal controls should be updated yearly. One easy way to remember to do this is to make it part of your annual shareholder meeting where the control details can be documented and voted on.

While these are examples of simple internal controls to implement, the Signature Analytics team of experts can make recommendations based on your industry and the nuances of your business.

If you need assistance, please contact us to have internal controls set in place or feel free to ask us any other accounting and finance questions.

 


 

Discover how outsourced accounting can provide more visibility into your business

Best Practices for Managing Company Credit Cards

Best Practices for Managing Company Credit Cards

Credit cards are popular for business transactions for their convenience and benefits. If your company relies on credit cards for business transactions, it is important to follow credit card best practices to ensure the business uses credit responsibly.

Types of Cards

There are many options for the type of cards available for business transactions. The simplest is a Debit card that processes transactions directly in your bank account, much like a check, ACH or bill pay transaction. “Credit” cards can be either Charge cards, which often have no pre-set limit, but must be paid in full at the end of each billing cycle, or true “Credit” cards, which allow payment of less than the full balance each billing cycle, and charge interest or fees for the privilege.

In general, Debit cards allow for the flexibility of paying for goods and services at the point of purchase, but only if the money exists in the bank account. Charge cards are useful if a company’s cash flow is stable enough to ensure repayment in full, and credit cards can be helpful when cash flow is variable, as there are repayment options.

Benefits of Using Credit Cards

Many card programs allow rewards points or miles based on purchasing volume. It is a convenient and efficient way to pay for expenses and there are often purchase protection features and the ability to dispute a charge on a credit card statement. There are also valuable summary reports that categorize spending for easy review.

Common Problems Companies May Have

  • Sometimes purchases on credit cards are not timely entered in the financials – or at all!
  • Furnishing a credit card number is very different than generating, signing and presenting a check or cash. Checkbooks are kept in a secure location, credit cards travel the world with employees and purchasing departments.
  • The monthly statements show a mere summary of the charge, often cryptic numbers and letters. There is often a rush to input the data, so that a payment can be generated or the “books closed.” This can hide important vendor or expense details, as often charges are summarized to minimize data entry.
  • Sometimes only the payment made to the credit card is entered, which is usually different than the charge activity.
  • Finally, there can be unauthorized charges buried in the detail that is not entered.

Practices Signature Analytics Recommends to Clients

  • Issue cards to individuals, rather than “sharing” the card numbers, this helps manage approvals and reduces unauthorized charges. If all of the cards can be managed on one bill that makes for easier management since there is just one payment to process,.
  • Download transactions weekly from the card websites, and review/approve these, rather than wait for the statement to be generated. This also allows GL coding details to be added, as well as any potential client related data or pass through charges.
  • Book expense details directly in the accounting system, this will help provide details for future financial analysis.
  • Implement auto feeds of credit card transactions into the accounting system. This is a feature of many accounting programs, which downloads transaction details on regular basis, and allows the assignment of a vendor and GL account number without having to key in the data. Alternatively, some programs allow the importing of data that has been downloaded from the card issuer sites.
  • Use cards issued in the name of the business, or if a personal card, use it only for business purchases. Mixing personal transactions on cards can be very difficult to account for.
  • For purchases on employee’s personal cards, use expense management software that gets credit card data directly, and create approvals for the reimbursement of these expenses.
  • Get cards from more than one issuer, as not all vendors take all brands of cards.
  • Inquire of vendors if they have “purchasing” cards that work for only their locations, such as fuel transaction cards. There are often additional reporting features available, such as the vehicle mileage that gets entered when purchased, so that miles per gallon can be monitored, discouraging unauthorized charge fees.

These are examples of best practices for managing company credit cards. It is an example of the approach we take with our clients to all accounting policies and procedures.

We Can Help

Contact us if your business needs assistance in creating and implementing procedures to best manage your company credit cards and expenses. Signature Analytics is an outsourced accounting firm providing ongoing accounting support and financial analysis to small and mid-size businesses. Our team of highly experienced accountants will act as your entire accounting department (CFO to staff accountant), or complement your internal staff, to provide the ongoing accounting and finance support necessary to effectively run your company, analyze operations, and guide business decisions.

Cash vs. Accrual Accounting: which method is best for your business?

Cash vs. Accrual Accounting: which method is best for your business?

The full financial picture of any company is like trying to solve a scrambled Rubik’s cube: it’s complicated. This makes proper accounting essential to both the financial health of your business and its overall potential for longevity.

There are two standard methods of business finance tracking: the cash method and the accrual method. Understanding the difference between these two methods will help you in determining which method is the best fit for your business.

What is cash accounting?

The cash accounting method tracks income when it is received and expenses when they are paid and is the most popular method for small businesses and personal finances. If you’ve ever balanced a personal checkbook or entered what you’ve spent and earned into a spreadsheet, then you have a good idea of how cash accounting works.

For example: you own a business that builds websites for companies and finish a website in August, but your company doesn’t get paid until October, then that income is recorded in October’s books. If the client never pays, then the income is never recorded.

The benefits of cash accounting

The cash accounting method accounts for real-time transactions, meaning that transactions are recorded when cash changes hands. For small businesses who are worried about overspending and want to know exactly how much cash they have on hand, the cash accounting method may be a good fit for your business.

There are also tax benefits to cash accounting. Finance and accounting professionals can work with your tax personnel to determine the most advantageous method for your situation. Since some companies are restricted from using< the cash accounting method, it’s important to consult with an accounting professional who can help to identify whether cash accounting is a viable option for your business.

The disadvantage

While cash accounting is essentially a “simpler” way of maintaining a business outlook, it can also produce an erroneous picture of your company’s performance since revenue isn’t recognized until the money is in the bank.

What is accrual accounting?

Accrual accounting takes a more hypothetical approach to your big-picture business finances; accountants or financial firms count income when it is billed and expenses when they arrive.

Unlike the cash method, the accrual method records the client invoice the day it is received, even if it isn’t paid until a month later. In the accrual method, accounting professionals will use a balance sheet to record the offsetting asset or liability so you can maintain a good sense of your business’ current financial status.

The benefits of accrual accounting

Since accrual accounting records transactions upon completion of a delivery or service, it allows a company to see how well it’s doing and have the ability to make better predictive decisions regarding the future.

Because you know how much is anticipated in the short-term (regardless of it being in your account yet), accrual accounting gives you a better sense of your cash flow needs as well as any outstanding expense liabilities that are due. Financial professionals will usually add another reporting function that lists actual cash available at any given time.  

The disadvantage

Since the accrual method records all transactions, regardless of the payment being received, your books could could reflect revenue even if your bank account is completely empty.

Which one is right for your business?

There are a few factors to consider when deciding whether to use cash or accrual accounting methods. Here are a few things to keep in mind:

Size and Industry

The size and industry of the company you run are major determining factors. For instance, C corporations who generate over $10 million and S corporations who generate over $20 million in average gross revenue over the past 3 tax years, are excluded from using the cash accounting method.

Inventory

The size and industry of the company you run are major determining factors. For instance, C corporations who generate over $10 million and S corporations who generate over $20 million in average gross revenue over the past 3 tax years, are excluded from using the cash accounting method.

Ease of Reporting

The accrual accounting method is more difficult to report from a tax perspective, though financial service experts can easily handle this aspect.

Insight into your business

Cash accounting doesn’t give much insight into the overall health of your business as far as sales, expected income, or expected expenses go.

Your bottom line is too important to track haphazardly, either by using the wrong method or not using one at all. Learn more about how to track your company’s income and expenses.

Financial experts can also give you more insight into which type of accounting method makes the most sense for your business and set it up for you so that you can keep focusing on the most important thing: running your company. Hiring a reputable financial firm can help your company reduce the risk of spending too much or straining vendor/contractor relations with late payments. Get expert advice now.

The Statistics You Need to Grow Your Business [Infographic]

The Statistics You Need to Grow Your Business [Infographic]

Building and growing a successful business requires a solid strategy grounded in facts. The shrewd business owner knows how vital it is to use accurate data to guide smart decisions.

 

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Building and growing a successful business requires a solid strategy grounded in facts. The shrewd business owner knows how vital it is to use accurate data to guide smart decisions.

Take a look at the enlightening statistics we’ve collected to help you plan realistically for your business’ future.

Capital Is King

82% of businesses fail for lack of money, and 55% of business owners peg cash flow as the number one challenge to growing their businesses.

Tip: Successful business owners are cash savvy and use tools to track and analyze cash flow. From choosing the right software and hiring the right talent, to simply understanding all costs associated with business processes, use tracking and analytics to maintain a tighter grip on your capital.

Finding Funding Is Tough

More than 60% of business owners worry about how they will finance continued growth.

Tip: There are a number of financing options available to medium-sized businesses. In addition to loans from banks and other financial institutions, you might consider accounts receivable factoring, purchase order financing, equity issuance, or using assets to secure a line of credit.

The Talent Pool Is Shrinking

77% of CEOs fear that a lack of available talent will stunt company growth.

Tip: Smart CEOs are looking for soft skills on top of credentials to ensure they’re hiring the right people. When they find what they are looking for, they go for it. The job-seeker may have a lot of negotiating power, but your business will end up with the talent it needs.

Growth Requires More Than Money

of the fastest growing companies fail to become self-sustaining.

Tip: While financial success is necessary, that alone will not sustain your business. Setting up processes for continuous innovation is essential to keep your business growing long-term.

As a business owner, your priorities should be to exercise mindful cash flow forecasting, explore your options for financing, make smart hiring decisions, and support innovation.

With these four tips in mind, your business won’t stay stuck on that bottom step — it will climb step by step into the future.

Brought to you by Signature Analytics | www.signatureanalytics.com  

3 Reasons Why Businesses Fail

3 Reasons Why Businesses Fail

Owning a business is hard, particularly in the first half-decade of its existence. In fact, 20% of businesses fail in their first year, and another 30% collapse by the end of year five. The good news is that with the right strategy and a watchful eye on your business income and expenses, you can avoid closing your doors. The key is to be aware of potential problems and to quash any existing issues.

Below you will find the 3 most common factors that determine the success or failure of a business, so you can start protecting the health of your company today.

Cash Flow Problems

Insufficient cash flow is one of the leading causes of businesses throwing in the towel. Proper cash flow management ensures that everything else in the business operates smoothly. This extends from stocking up on inventory to paying salaries and utility bills on time. It’s also important to keep records of who owes you money and when you should receive it.

Consistently analyzing cash flow statements will allow a business owner to stay on top of accounts. Whether you use a cash or accrual accounting system, it’s vital that you know how much you have in hand and what you expect to pay out in the near future. This will give you a broader idea of what to expect with your business, ultimately allowing you to keep afloat. If you don’t feel comfortable taking on this task alone, you should hire a firm to help you manage your business finances; there’s just too much at stake not to take action.

Poor Management

As a business starts to find its footing in a given market, it becomes crucial for management to have clear communication and expectations for its employees. Without adequate and efficient project management from the top, personnel aren’t able to efficiently handle the stresses of the required workflow.

By setting clear expectations on a day-to-day basis, employers are given a better chance at managing workflows utilizing the tools at their disposal. Consider allocating a time slot on a weekly or biweekly basis to touch base with your team. You can also arrange a more thorough meeting at the beginning of each fiscal quarter for long-term goal-setting. This approach increases workflow effectiveness by fostering healthy accountability standards within your team.

Expedited Growth

Losing the ability to adequately handle growth in your company is one of the most stressful situations a new business can fall prey to. By expanding operations too soon, companies run the risk of sacrificing efficiency as they are unable to keep up with production. At the same time, they lose capital from not fulfilling client needs and expectations.

As a business owner, your goal is, first and foremost, to create the best client experience possible. So take the necessary steps to make that happen. This may mean delegating many of the tasks you’ve always done on your own. By hiring people you trust, whose passions align with your business message, you can fill the void in the areas outside of your reach. It is also incredibly important to ensure that your staff are adequately trained for potential growth-related problems. Sometimes this is achieved through trial and error, but it’s always best to be prepared whenever you can.

With all the pitfalls lurking throughout the life of your business, it’s easy to get discouraged. But remember: for every 20% of businesses that fail within their first year of operations, another 80% succeed. By reflecting on these 3 factors of failure, your business can join the ranks of the majority and last for much longer than that one-year mark.

7 Social Media Tips for Business

7 Social Media Tips for Business

At Signature Analytics our people are more than finance and accounting experts, we are trusted advisors. We leverage our network and recommend solutions to make sure your business is firing on all fronts. Recently, we attended a workshop on Social Media for Business. This event was sponsored by San Diego Venture Group and presented by Chance Shay at (W)right On Communications.

The term “Social Media” can mean different things depending on your audience. LinkedIn is often the best-suited social channel for business while Facebook, Twitter, and Instagram can crossover based on the type of business and purpose. Is your business properly represented and well connected on these platforms?

Here are the main takeaways from this workshop:

  1. Know your audience – this will help determine your message and how to deliver it.
  2. To be successful use different platforms (LinkedIn, Facebook, Instagram, Snapchat, WhatsApp, etc.) and cross-promote your content. This will ensure you reach a wide audience.
  3. To be successful online, you need: Paid, Earned, Share, Owned (PESO) – everything is connected.
  4. Timing is critical to control messaging – leverage all channels that your audience uses.
  5. Have an online strategy plan with clear goals, measure the effects (likes, hits to the site, clicks, emails, engagements, etc.), have a baseline and get better every month.
  6. Be consistent – being consistent will help create brand recognition.
  7. Hire experts or at least have an online consultant who can keep you on the leading edge of trends.

Regardless of your industry, social media gives your business the platform and opportunity to reach prospects and customers on a global level! Contact us today to set up a consultation with one of our Market Presidents. As your trusted advisors, we want to learn about your business as a whole. Not only can Signature Analytics provide a full accounting and finance team, we also offer services that best fit your business including ongoing accounting and financial analysis. Let us provide the analysis you need to effectively run your company, analyze operations, and guide business decisions!