Pick up just about any public company’s most recent annual report, and you’ll find a section on ESG, or Environment, Social, and Governance. ESG is the trend of not only considering but also measuring a company’s sustainability performance—something that has become key for a new generation of investors who are choosing to be more discerning when selecting companies to invest in.

While ESG is still predominately a matter of concern for large companies, small and mid-size businesses can benefit from an awareness of the trend. Below, we offer an introduction to the ESG components:

Environment

When measuring a business’s impact on the environment, one must consider topics such as climate change and sustainability. This includes questions like, “How many natural resources does the company use, and are they replenishing them as they use them?” and “If the company is creating pollution, how is it offsetting, or working to eliminate, its pollution?”

Social

The social impact of a business is the broadest umbrella of the three categories. It includes many topics, from diversity and inclusion (in the workforce and with suppliers) to consumer protection related to their product. Human rights issues like overseas working conditions, minimum wages, and animal welfare in product research and development also apply.

Governance

The area of governance measures the quality of leadership within the company as it relates to the topics of ethics, transparency, compensation issues for both executives and employees, and employee relations as a whole.

Accounting for ESG

The accounting industry is developing and adopting standards for measuring a corporation’s sustainability performance. As of this writing, the IFRS (International Financial Reporting Standards) Foundation has proposed the creation of the Sustainability Standards Board, which will help set standards for ESG in 140 countries.

This move will better align the current financial performance of a company with the new sustainability measures. However, all of this is many years off, as many organizations have developed standards for numerous components of ESG that need to be consolidated and adopted.

In the meantime, we do know that positive sustainability performance by a company drives positive financial performance. There are many ways small businesses can participate in ESG’s benefits.

ESG and Small Business 

ESG can positively impact your company’s value, culture, hiring process, the vendors you select, and the customers who select you.

For example, if you plan to do business with a large company, mirroring their ESG values can help you align with them, giving you an edge in the selection process. Similarly, when you communicate your ESG values and contributions, you are more likely to attract employees with the same individual values, making for a better fit.

While there are many efforts a small business can make to improve ESG, here are a few ideas to get started:

• Disclose your starting hourly rate, if it’s well above your state’s minimum wage, to attract better-quality candidates.
• When purchasing vehicles, consider electric or hybrid.
• Match employee nonprofit contributions, and give them time off to volunteer.
• Practice transparency when it comes to executive salaries or financial results.
• Write and post a diversity and inclusion statement.
• Conserve electricity by closing off unused spaces, turning off lights when not in use, and switching from gas to electric appliances when possible.
• Optimize service routes to reduce fuel consumption.
• Donate excess food to shelters (in the case of restaurants).
• Protect customers’ private information with privacy processes and policies.
• Make product components recyclable, purchase recyclable supplies, and train employees to recycle.

Add your own ideas to the above list, and ask yourself how your business measures up when it comes to ESG.

When it comes to crafting a refund policy, being a business owner means that you can establish your own rules so long they are communicated to your customer clearly in advance of their purchase.

A good refund policy reduces conflict and ambiguity by outlining the procedures and terms under which a return/refund can occur. In doing so, it improves customer service. Your employees will appreciate having a documented policy they can share with customers, and your customers will be able to accurately assess the risk of making their purchase ahead of time. Furthermore, your credit card or shopping cart company will most likely require one to maintain PCI (Payment Card Industry) compliance. It’s always a good, fair business practice to establish and publish a thorough refund policy.

Here are some of the components you’ll want to address in your refund policy:

Eligible Items for Return: Which items can be returned and which can’t? Some products can’t be returned safely after opening (such as food products). You might still honor a refund of money or credit, even if the item can’t be returned or re-sold.

Condition of Items: You may want to stipulate that returns can only be made if the items are in a condition to be re-sold. This could mean that to qualify for a refund, the customer also needs to include their item’s packaging when they initiate their return.

Return Time Window:  Your business model and industry will often dictate the length of time that is appropriate for a customer to initiate a return. Common time limits range from 7 to 30 days, and during the holidays, many retailers even extend their return windows to 90 days. 

Shipping Requirements: If shipping is required to return an item, you’ll want to ensure your refund policy addresses which party will be responsible for shipping fees, how returns should be packaged, and what mail carrier is authorized for the return.

Processing Time: When can customers expect to receive their refund? Managing customer expectations surrounding refund turnaround is also something you may want to address with your refund policy. 

Cash vs. Credit: If a return qualifies for a refund, how will the money be returned to the customer? Via the payment method used, cash, a mailed check, or store credit only?

Processing Procedures: Will customers need to fill out a form or request refund approval? What instructions do you need to provide them for proper return requests and processing?

Fees: Will there be a re-stocking fee, cancellation fee, return processing fee, or any other fee that reduces the refund amount?

Answering the above questions is the first step to drafting your company’s refund policy. You might be tempted to establish a “no returns, no refunds” policy, which could be the right thing for your business, depending on many factors. On the opposite spectrum is the “no questions asked” policy, which could increase sales in the long term by lowering the risk for your shoppers. (Nordstrom, for example, is well-known for its generous return policy). Keep in mind: your refund policy is a chance to build trust with your customer, and a rigid policy could result in lost sales or repeat customers. 

Once you have thoughtfully considered the topics outlined above, you can begin drafting your written policy. It may also be a good idea to have your lawyer review the policy prior to publishing. Once the policy is finalized, post it on your website and in checkout areas of your store.

Next, make sure you have a smooth process in place to handle returns on a timely basis. Most brick-and-mortar stores have a separate checkout area or customer service desk to process returns to avoid slowing down the regular check-out lines. Employees should be trained to speak with the customers appropriately, accept the returned items back into inventory for resale or return to vendor, and use the cash register or point of sale system to process the returns. A well-trained employee can even create opportunities to convert a return into an exchange for a similar item that better suits the customer’s needs.

With an increase in customers will always come an increase in likelihood that there will be a customer who requests a refund. However, with a clear, fair, and well-documented refund policy, your business can be prepared to handle any return.

Entrepreneurs often excel at running their day-to-day businesses and swiftly meeting their customers’ needs. But often, those same business owners who are great at meeting their clients’ needs have a hard time meeting internal deadlines and achieving long-term goals, despite their best intentions. Enter: self-accountability, or the act of maintaining commitments you make to yourself and accepting responsibility for the outcomes of your actions. It’s the difference between getting something done and a wistful, “I’ll get to that next week” mindset.

 This article will outline a few ways you can stretch your self-accountability muscle.

Setting Goals and Deadlines

We all have projects we’d like to work on but haven’t gotten around to for various reasons. The issue could be that your goal isn’t SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) enough, causing uncertainty about how to start. Eliminating ambiguity around your goals can often unveil the path to achieving them.

Once your goal is SMART, start by making a timeline of tasks and milestones that you would like to be held accountable for, marking your calendar for each milestone and the project’s end date. By displaying your list of milestone dates prominently, you might find that carving out time to work toward them becomes a more practical and intentional process. 

Connect with Your Purpose

Take some time to analyze why completing a project is important to you. How would completing it connect with your business purpose, mission, vision, and values? Document your “why” and display it prominently next to your milestone list to help you stay focused.

State Your Goals Publicly

Communicate your goals publicly with peers, friends, or co-workers. For many entrepreneurs, this is when their commitment to achieving their goals feels real. “There’s no turning back now,” you might find yourself thinking.

It’s a big step to put yourself out there, and as we’ve mentioned, many entrepreneurs find it easier to be accountable to others than to themselves. If this is something you experience, announcing your commitment can be a great way to establish self-accountability. By making your intentions public, you’re taking responsibility for the results of your actions (or inactions). It may feel scary to do so, but it works!

Consider an Accountability Partner

Some people do very well by partnering with a peer or trusted business person. This could be a mentor, a paid coach, an advisory board, a mastermind group of people, a nonprofit group, a co-working group, a peer, a vendor, an incubator, or an investor. While a friend might seem like the best place to start, consider going further outside your comfort zone.

Tell your accountability partner to push you and to be candid. They may need your explicit permission if it’s an informal arrangement. Set regular meetings to help you maintain your progress and report on your milestones. Allow your partner to point out mistakes or opportunities for improvement, and acknowledge them yourself. Make course corrections as soon as they’re necessary and use your partner as a sounding board.

Remember, this process won’t work if you aren’t honest with both yourself and your partner. Notice when you’re procrastinating and dig deep to discover why. Often, it can be a lack of resources or time, but this cause is usually coupled with a mindset issue, like uncertainty about where to start or a fear of failure that needs to be illuminated.

Celebrate

Celebrate every milestone you achieve, big and small. Reward yourself appropriately! Even if a project seems small, if it’s one you’ve put off for months or even years, completing it is worth celebrating, and you shouldn’t feel ashamed of the time it took you to reach completion. A celebratory mindset reinforces positive behavior and creates enthusiasm and momentum.

Self-accountability makes the functions of your business run better, plain simple. You can apply these ideas to projects, entire departments, and even your personal life goals.

Accountability can make a tremendous difference in achieving the success you want, so try out one of the approaches we outlined above, and know that we’re cheering you on every step of the way.

Securing a business loan can be an exciting step in the growth of your business. But did you know that loans typically require a specific process to be properly recorded in your accounting system? Not to worry; your loan statement will provide the information needed by your accountant to get the loan booked properly.

To start, you’ll need to locate the following pieces of information about your loan:

• Total amount borrowed
• Date of loan
• Date of the first payment
• Payment amount
• Term of loan
• Number of payments
• Interest rate

The full amount of your loan should be recorded as a liability on your business’s balance sheet. The offset is either an increase to cash or the recording of new assets like a car, truck, or building.

Each payment you make contains two components: interest and principal. Interest is an expense and is recorded in the Other Expenses section of your profit and loss statement. It will reduce your profit. Principal is the amount you pay toward paying off the loan. It reduces the liability account where the loan is recorded. While Principal does not affect your profit, it does improve your liquidity with each payment you make.

The interest and principal amounts won’t be the same for each payment. Earlier loan payments consist of higher interest and lower principal amounts. As you reach the end of paying off your loan, the interest portion becomes smaller and the principal larger. An amortization schedule shows you the exact amount of interest and principal for each payment. You or your accountant can create a loan amortization schedule in Excel.

Each time you make a payment, cash is reduced for the entire payment amount. The offset is split between interest expense and your loan liability, using the amounts in the amortization schedule. When you code your loan payment, you can use the amortization schedule to get the correct amounts for both of those accounts.

In a simple service business with no assets except cash, your cash balance can mimic your profit level. However, when you introduce loans and new, non-cash assets with depreciation expenses, that won’t be the case. You might wonder why you have no cash and more profits, or vice versa. This is why it’s a good idea to understand how these transactions affect your Balance Sheet and Income Statement as well as your business’s overall financial health.

At year-end, your accountant can make correcting entries if needed between the loan balance and interest expense. 

If you failed to make payments or made them late, your accountant can make those allocations as well using manual journal entries.

Often, when you get a loan, you’re also acquiring some type of asset, such as a car or land and building. This asset should be recorded on your books correctly as well. You should have some type of closing statement or purchase contract that has the details for your accountant. Your Accountant will also compute and record the correct amount of depreciation for the asset type.

Your accountant can speak with you in more detail about your specific situation and better explain the interplay between cash and profits. We use the Statement of Cash Flows to reconcile profits to cash. Want to learn more about that financial report? Reach out to New Business Directions.

Incidents of cybercrime have been problematic for a long time, but since the onset of the pandemic, we’ve seen these incidents increase not only in frequency but in elaboration, too. Unfortunately, phishers and hackers have become more adept at successfully targeting small and midsize businesses with their efforts. 

Previously, we’ve addressed how you can improve the security of your online accounts. However, if your organization’s reputation depends on maintaining the security and privacy of customer records, then this insurance is a must. In today’s climate, it’s no longer a matter of “if” but “when” your private business information could be breached, and to what extent. However, with the right precautions in place, you could reduce–and possibly even eliminate–such risk.

Finding the Right Insurance

The best place to start is your current insurance agent or a general insurance broker that you trust. Cybercrime policies are separate policies that cover specific acts, and you will need to read the policy carefully to determine exactly what you are protected from. You should also distinguish between personal and business policies; you may want both.

In a business policy, some of the items you’ll want to consider protection against include:

• Data breach
• Ransomware attack
• Spoofing and identity theft
• Wire fraud
• Civil fines
• Lawsuits
• Costs of notification, reputation repair, forensics and data restoration, credit monitoring, and other potential damages

A good policy will cover some or all of these costs:

• Business interruption costs
• Data breach costs
• Extortion costs
• Crisis management and public relations costs
• Data recovery costs
• Computer replacement costs
• The cost of reputational harm

Like any other insurance, you will need to complete an application to obtain a quote. Some of the standard questions you’ll be required to answer include:

• Type of products and services sold in the business
• Type of electronic data stored on your computer systems
• Whether laptops are password-protected
• Whether you have written network security and privacy policies in place
• Whether you have physical security procedures in place
• Whether you have the most current software and processes to keep it upgraded
• Whether you have backups
• Whether you monitor unauthorized attempts to access systems
• Whether you are in compliance with PCI DSS (Payment Card Industry Data Security Standard), HIPAA (Health Insurance Portability & Accountability Act), and GLBA (Gramm-Leach-Bliley Act)
• Whether you have a written document retention and destruction plan in place
• Whether you have encryption enabled
• Whether third parties are involved in data handling
• Whether you have a process to check copyrights of materials you use
• Whether you have a risk management education program for employees
• Your current insurance policies
• Whether you’ve had a breach in recent years
• Whether you’ve had any lawsuits or claims in this area
• Whether you use a firewall
• Whether you use anti-virus protection
• Whether you have an employee/third party off-boarding process that terminates access to computers and data

As you can see, the application process itself is an excellent way to “cross your Ts and dot your Is” when it comes to putting safeguards in place for your business. And, of course, your premium will likely be less expensive when you have these precautions and systems in place. It goes without saying that your premium will be less expensive if you get insurance before you are attacked so that you have a clean application.

A key aspect of owning a business is managing enterprise risk effectively. A cybercrime policy will go a long way toward protecting your hard-earned investment and offer you peace of mind, knowing that your business is protected.