New Business Direction LLCThe best cakes have layers and layers of different delicious flavors to enjoy. Stacked on top of one another, each layer is baked separately and becomes part of the whole. Like a layer cake, your business expenses have layers of meaning to them. When you can understand how expenses play a part in profit, you can manage them better.
Here’s how to make a layer cake of your business expenses. Let’s start with the most direct expenses.
Direct Costs
If you have inventory you will have a balance in the Cost of Goods Sold account. It should represent how much you paid for product or inventory that you are selling. It is the most direct expense of all the expenses; if you don’t spend this money, you would not have a product.
If you sell services, you should not have a balance in Cost of Goods Sold, but you will have direct expenses that are tied to performing your services. These might include labor from wages of the employees who carry out the services for clients. Any supplies directly involved with delivering services should be included as well.
You may also have other direct costs related to selling specific products or to servicing specific accounts.
Indirect Costs
The next layer includes indirect expenses. These expenses do not make up your product directly and might contribute to several different lines of products. Indirect costs might be attributable to a group of products or projects and can be apportioned accordingly.
Overhead
Although overhead is technically a form of indirect cost, it’s good to create a separate layer for it. It includes management salaries, rent, utilities, and other fixed costs that cannot be directly allocated to a product or service.
Assembling the Layers
A wonderful exercise is to classify each of your expense accounts in your Chart of Accounts as direct, indirect, or overhead. In that way, you can see how each account contributes to the costs of running your business. Some questions to ask yourself:
- What is my gross margin before indirect costs and overhead?
- What is my gross profit after indirect costs and before overhead costs?
- How can I cut down on any of these categories of expense?
- What is my breakeven volume in sales before overhead is factored in?
- Can my profit margin be changed if I spent less in a certain area?
This layered view is just another way to view the financial aspects of your business and can help you make better decisions down the road.
You can also break the layers down even further by classifying the expenses as critical and non-critical. This will help you determine where best to invest while maintaining the level of profit you desire.
You can’t manage what you don’t measure. Layering your expenses will help you have your cake and eat it too. And if we can help, just reach out as always.
This year’s theme was “epic” designed as the epic conference to empower small business advisors to develop and sustain the epic practice that distinguishes itself and embraces the key differences that separate ProAdvisors around the good, the great and the “epic.”
Sessions
The four-day conference kicked off each morning with Power Breakfast Sessions followed by main stage presentations with keynote speakers such as Daymond John of Shark Tank, Joe Buissink of Canon Explorer of Light, and author Mike Michalowicz of Profit First. In between general session, attendees dispersed around the conference center into rooms where cutting edge training sessions were being held. Training sessions were broken down into 5-tracks for Practice and Professional Development, Practice Growth, In-Depth QuickBooks Training, ProAdvisor Certification Training and QB Integrated Apps.
If you were fortunate enough to attend, Rhonda Rosand, CPA
taught a 100-minute informative training session titled Successful Implementations from Initial Contact through Ongoing Support on Sunday, May 22nd. As the evenings came around, networking sessions were held consisting of ICB Bookkeeper’s Symposium, the Woodard Network Social hosted within Atlantis’ stunning marine life exhibit, The Dig and of course, the infamous TSheets dance Party on TSheets Tuesday.
Sondra’s Take on Vendors
In between training, I was able to visit the exhibit ballroom which held over 90 vendors, some of which were very familiar. I came across software I use everyday to make my work flow run smoothly and now I am able to put a face to the product. For example, SmartVault allows me to access files anywhere, anytime and from any device. I also have the capability to securely share files with clients and our team.While at Scaling New Heights, I learned the importance of technology and how it relates to strengthening our firm and supporting our clients.
Running a small business is often about taking and managing risks. Market risks are normal but business and tax risks are another thing altogether. Most business and tax-related risks can be managed as long you know about them. Here are seven small business risks you will want to make sure are covered.
1. Best Choice of Entity
Are you operating as a corporation, limited liability company, partnership, or sole proprietor? More importantly, is the entity you are operating under providing you with the greatest tax benefits and separation from personal liability? If not, you might want to explore the alternatives to make sure you’re taking the amount of risk that’s right for you.
2. Employees or Contractors
Are your team members properly categorized when it comes to the IRS’s rules about employees versus contractors? Unfortunately, it’s not about what you and your team member decide you want. If you decide to hire contractors and the IRS determines they are employees, you could owe back payroll taxes that can cripple a small business. So you’ll want to do the right thing up front and make sure you and the IRS are in agreement, or be willing to take a future risk.
3. Insurance
If you’d like to protect yourself from possible losses through a disaster, theft, or other incident, insurance can help. There are a lot of kinds to choose from, and you’ll likely need more than one. At the minimum, make sure you’re covered by:
- Business property insurance, renters insurance, or a homeowners rider to protect your physical assets.
- Professional liability or malpractice insurance, if applicable, to protect you from professional mistakes including ones made by employees.
- Workers compensation insurance, to cover employee accidents on the job.
- Auto insurance or a non-owned policy if employees drive their car for work errands.
You may also want personal umbrella insurance, life insurance, and health insurance. Check with an insurance agent to get a comprehensive list of options.
4. Sales Tax Liability
Are you sure you’re collecting sales tax where you should be? As the states get greedier, they invent new rules for liability. For example, if one of your contractors lives in another state, you may owe sales tax on sales to customers who live there even if you don’t live there or have an office there.
Nexus is a term that describes whether you have a presence in a state for tax purposes. Having an office, an employee or contractor, or a warehouse can extend nexus so that you’d need to collect and file sales tax for those states. If you’re in doubt, check with a professional, and let us know how we can help.
5. Underpricing
Most small businesses make the mistake of underpricing their services, especially when they start out. If you started out that way, it’s awfully hard to catch up your pricing to a reasonable level. Knowing the right price to charge can make the difference between whether the company last six months or six years. You can mitigate this risk by getting cost accounting help from your accountants who can help you calculate your margins and determine if you’re covering your overhead and making a profit.
6. Legal Services
Legal services can be expensive for a small business, so sometimes owners cut corners and take risks. Attorneys are needed most when it comes to setting up your entity, reviewing contractual agreements such as leases and loan agreements, settling conflicts, advising on trademark protection, and creating documents such as terms of service, employment agreements, and privacy policies. Just one mistake on any of these documents can cost a lot, so be sure it’s worth the risk.
7. Accounting Services
Doing your own accounting and taxes can be risky if they’re done wrong or incomplete. You could end up paying more than you should if you leave out deductions you’re entitled to. Worse, if you do your books wrong, you could end up overpaying taxes without realizing it. A common bookkeeping error results in doubling sales, and while it might look good, you certainly don’t want to pay more than what’s been truly received.
How did you do with these seven risks? If you need to reduce your risks in any of the areas, feel free to reach out for our help.
Two very important skills for entrepreneurs to master are marketing and finances. Combine them by understanding the numbers behind marketing, and you have an even more powerful understanding of exactly what makes your business tick.
Key Numbers – Cost Per Client Acquisition
Do you know how much it costs your business to bring in one client? The technical term is “Cost per customer acquisition,” and it’s computed by adding the total marketing and sales costs excluding retention costs and dividing them by the total number of clients acquired during a period of time.
Cost per customer acquisition is important to know because then you can compute how long it takes before your business begins to make a profit on any one customer. In software application services with a monthly fee, the breakeven for a client can be around ten months.
It’s essential to understand this dynamic for pricing and volume planning purposes. If your services or products are priced too low so that your acquisition costs are not recouped in a reasonable period of time, it can play havoc with your cash flow as well as your profits. If you don’t have enough volume to cover overhead and acquisition costs, then your company will be in trouble in the long term.
Customer Lifetime Value
There is a simple and an academic formula for customer lifetime value. You can estimate it by multiplying the average sale of a customer by the average number of visits per year by the number of years they remain a customer. That’s the easy version.
The more difficult version of this formula takes into account retention rates and gross profit margins. The formula is: Average customer sales for life times the gross profit margin divided by the annual churn rate.
Once you know and track these numbers in your business, you’ll be better able to make smart decisions about your marketing investments and your pricing. And if we can help you, please reach out as always.
A 2014 Global Fraud Study conducted by the Association of Certified Fraud Examiners (ACFE) estimates that the average business loses five percent of their revenues to fraud. The global total of fraud losses is $3.7 trillion. The median fraud case goes 18 months before detection and results in a $145,000 loss. How can you avoid being a fraud victim?
The first step is to become more aware of the conditions that make fraud possible. The fraud triangle is a model that describes three components that need to be present in order for fraud to occur:
- Motivation (or Need)
- Rationalization
- Opportunity
When fewer than three legs of the triangle are present, we can deter fraud. When all three are present, fraud could occur.
Motivation
Financial pressure at home is an example of when motivation to commit fraud is present. The fraud perpetrator finds themselves in need of large amounts of cash due to any number of reasons: poor investments, gambling, a flamboyant lifestyle, need for health care funds, family requirements, or social pressure. In short, the person needs money and lots of it fast.
Rationalization
The person who commits fraud rationalizes the act in their minds:
- I’m too smart to get caught.
- I’ll put it back when my luck changes.
- The big company won’t miss it.
- I don’t like the person I’m stealing from.
- I’m entitled to it.
At some point in the process, the person who commits fraud loses their sense of right and wrong and their fear of any consequences.
Opportunity
Here’s where you as a business owner come in. If there’s a leak in your control processes, then you have created an opportunity for fraud to occur. People who handle cash, signatory authority on a bank account, or financial records with poor oversight could notice that there is an opportunity for fraud to occur with the ability to cover the act up for some time.
Seventy-seven percent of all frauds occur in one of these departments: accounting, operations, sales, executive/upper management, customer service, purchasing and finance. The banking and financial services, government and public administration, and manufacturing industries are at the highest risk for fraud cases. (Source: ACFE)
Prevention
Once you understand a little about fraud, prevention is the next step. To some degree, all three points on the triangle can be controlled; however, most fraud prevention programs focus on the third area the most: Opportunity. When you can shut down the opportunity for fraud, then you’ve gone a long way to prevent it.
While we hope fraud never happens to you, it makes good sense to take preventative steps to avoid it. Please give us a call if we can help you in any way.
If you want 2016 to be better than 2015, you have to do something differently in 2016 than you did in 2015. It’s a simple but profound realization. Change brings the opportunity to make things better; it can be scary yet exciting at the same time.
Ask yourself what you are going to do differently to have your best year ever. Here are some questions and exercises to consider:
Clarify Your Vision
What does the world look like after it’s consumed your product or service? A vision statement for a company helps to keep everyone on track and seeing the bigger picture of what they’re accomplishing day after day. How is the world smarter, more beautiful, happier, healthier, or wealthier after they’ve left your business?
If you haven’t written your business vision and mission statement, consider this exercise for 2016.
Create New Habits
What habits are holding you back? Which ones are propelling you forward? Choose one habit that’s costing you the most and make a commitment to drop it from your 2016 repertoire. Conversely, identify the habit that is brining you happiness and wealth and multiply it.
Let Go
Sometimes we need to let go before we can move forward. What do you need to let go of? Are there customers or employees in your life that sap your energy or your bank account?
Build Your Support Structure
Are you short-staffed? The way you manage your time has everything to do with your success or the lack of it. If you are taking up your time with a lot of low-dollar tasks, it’s going to be hard to boost your income and get ahead. Surround yourself with support to do everything that can be delegated, including personal tasks such as grocery shopping, housekeeping, cooking, and lawn maintenance as well as tasks such as filing, bookkeeping, appointment scheduling, and routine customer service.
Make a list of areas where you could use support, and fill these gaps. In today’s world, you don’t need to hire full time people to fill these slots; you can simply get responsible contractors, other small businesses, and virtual assistants to build your support team.
Focus
What project or task would make a huge difference in 2016 if you could pull it off? Focus on the high payback projects and commit to one, even though it might be out of your comfort zone. Imagine the difference in your business once it’s completed, and get inspired to get started.
Choose just one of these areas to start your 2016 out with hope, intention, and excitement.
Rhonda Rosand, CPA has successfully completed the requirements to earn her designation for the twelfth consecutive year as a Certified QuickBooks® ProAdvisor.
Certified QuickBooks® ProAdvisors are CPA’s, accountants and other professionals who have completed comprehensive QuickBooks® training courses and met the annual testing requirements in order to become certified as experts in QuickBooks®. The courses are designed for accounting professionals and consultants who have a solid understanding of accounting principles.
An accounting professional since 1986 and a Certified Public Accountant since 1992, Rhonda is a one-of-a-kind, live-your-dreams business coach and trainer. She has real-world business experience, well-honed problem-solving skills and an enthusiastic, energetic, can-do attitude. She believes that a successful business stays that way not only by managing its finances well, but also through a proactive plan that includes marketing, strong customer service and long range planning. “Today it is not enough to have a good advisor who works with you once a year”, says Rosand. “The best approach is to actively manage all aspects of your business, all year long.”
Rhonda Rosand, CPA is the owner of New Business Directions, LLC.She specializes in QuickBooks® consulting and training services, coaching small business owners and providing innovative business solutions.
To learn more about New Business Directions, LLC and QuickBooks®, or to schedule an appointment, please call (603)356-2914, email rhonda@newbusinessdirections.com or visit the website at www.newbusinessdirections.com.
On November 2nd– 4th, Intuit will be hosting the 2nd annual QuickBooks Connect Conference in San Jose. The conference brings together thousands of entrepreneurs, small business owners, accounting professionals and developers 
under one roof.
There are three different tracks on the agenda as follows:
Accountant – QuickBooks Connect will help your firm get future ready by challenging you to go further, think differently, and embrace the cloud to properly value the services you provide, grow your firm, and better support your clients. *
Small Business – Whether you’re a company of one or one hundred, come to make your business dream a reality: network with fellow small business owners, entrepreneurs, self employed individuals, startup founders, and Venture Capital leaders to receive personalized advice on maximizing your success. *
Developer – Engage Intuit Developer experts to speed your QuickBooks app integration and successful launch to the QuickBooks ecosystem. Take advantage of the unique opportunity to meet and network with other developers, accountants and small business owners. *
The mission is to connect, learn and grow throughout a dynamic agenda of main stage and intimate sessions. Key speakers 
include Oprah Winfrey, Jessica Alba, Brian Lee and Robert Herjavec. Sessions topics include: Here to There: The Accountant’s Journey toward Professional Greatness, Work/Life Harmony, 10 Barriers to Service Excellence and How to Overcome Them, and Cash is King: Tips to Increase Your Cash Flow Today. There will also be speed mentoring sessions and an entire series of QuickBooks Online training topics.
Rhonda Rosand states, “This will be my second year attending the Intuit conference and I look forward to seeing many familiar faces at the event and I invite you to join me in California for this spectacular training opportunity.”
* – content is taken directly from the QuickBooks Connect Website
As a business owner, you’re likely torn in a hundred different directions every day. It can take up most of the work day just fighting fires, serving your customers, and answering employee questions – never mind the time spent on email. It’s super-easy to lose sight of what you can be doing to move your business forward the most.
That’s when “the one question” can come in handy. It’s something you can ask yourself at the very beginning of each day, even before you check your email. Make your question about you and your goals for your company.
The one question is, “What’s the highest payback thing I can do today?”
If your goal is to boost profits, then ask “What’s the highest payback thing I can do today that will boost my profits?” If your goal is to empower your employees, then ask “What’s the highest payback thing I can do today that will empower my employees?” If your goal is to make a difference in your community, then ask “What’s the highest payback thing I can do today to make a difference in my community?” If your goal is something else, tailor your one question to that specific goal.
It’s not about fighting fires or answering routine employee questions or even serving current 
customers. Although those tasks are all important and essential, none of them will take your business to the next level.
It could be meeting with a power partner or referral source that sends you a lot of business, designing the next campaign that will bring in a higher level customer, meeting with your employees for lunch, or researching new products to sell. It’s going to be a task that gets you working “on” your business instead of “in” your business.
If you like this idea, consider writing the question on a sticky note and posting it to your bulletin board so that you can see it 
every day. I write my question and my intentions each morning on a colorful piece of paper that I carry with me all day. I do this while having my coffee and long before I check an email, text or telephone message.
Try asking yourself this one question each day: “What’s the highest payback thing I can do today?” Then do it, and watch your business grow.
Holding your own event is a great way to meet new people and allow them to sample your business in a low-risk setting. A face-to-face event allows you to build trust quicker than many other marketing methods, and trust is almost always required before a sale can be made.
Types of Events
Some of the more popular types of events you can hold include:
- A seminar or class
- An open house
- A neighborhood sale
- A networking meeting
- A reception or party or celebration or festival
- A conference
If you’re new to holding events, start small and/or join with another business so that you’ll have a larger number of people to invite.
Participants
Once you’ve decided on the type of event you want to hold, you’ll want to determine who you will invite. Will it be clients only? Will you join with other businesses and combine your lists? You’ll want to invite a larger number of people than you might think. If the event is free, there may be several no-shows, even if they have RSVP’d. The more formal the event, the fewer the no-shows.
Topic or Purpose
For the best turnout, choose a topic that’s interesting to your clients as well as relevant to the services you offer. Provide education that the customer needs, a new money-making strategy, a new product or service roll-out, or something that will affect your customers’ well-being, and you’ll experience the best turnout.
Spread the Word
Now that you’re ready to hold your event, it’s time to get the word out. Plan on sending multiple emails (more than you might be comfortable with) to let people know about your event. Email is a good way to notify people, but if you have the budget, mail invitations. Call the most important people and let them know you want them at your event.
Have Fun and Make Money
Be sure to have a high ratio of staff to guests so that more than one of your staff can meet each person. Enjoy your event, and hopefully, you’ll be able to get to know many future customers there as well.
