New Business Direction LLC
The Four Ds for Efficiency
Time is our most precious personal resource; once it’s spent, we can never recover it. As busy entrepreneurs, we seem to have less time than anyone else, so it just makes sense to look for ways to use our time wisely. We’d like to introduce you to a technique called the Four D’s that has worked for many.
The Four D’s
When you think about it, there are only four types of actions you can take against any one task:
- Do it.
- Delegate it.
- Delay it.
- Delete it.
As you approach each task on your to-do list, ask yourself which one of the four D’s is best.
Do It
The first option is simply to do the task yourself. Get it done, checked off, and out of the way. This is often the best option if it’s urgent, important, or you are the only one with the experience and training to do it.
While this might sound counterintuitive at first, simply doing a task might not be the best option. Let’s look at the other three options before we decide.
Delegate It
If your to-do list is full of simple, routine actions, then delegating is a strong choice. Delegating is also great for tasks that are beyond your expertise and would require too much learning to accomplish sufficiently. If you don’t have time to do everything yourself, then getting help is a smart alternative to doing it yourself.
Getting help doesn’t mean you have to hire a full- or part-time employee. You can get help in a multitude of other ways:
- Engage a company to do a task. From walking your dog to managing Google Ad campaigns to handling your bookkeeping and taxes, there are service-based companies that can take over a task permanently or on a short-term basis to alleviate some of your workload.
- Automation is a form of delegation. Can software do what you are doing?
- Find help on platforms like Fiverr.com or UpWork. Whether it’s a five-minute or a five-day task, you can find a freelancer to help with your project.
If you can write instructions about how to perform the task, you can delegate it. And if you’re worried about losing control or quality, simply add milestones where you check the person’s work. Initially, it might not be faster, but in the long term, it will pay off.
Delay It
If a task is not urgent or important, delaying it might be the right option. But the problem with this strategy is that it requires you to handle the task at least twice: once when reviewing it and deciding whether to do it, and again when you finally decide to do it. If you repeatedly decide to delay it, you’ve taken up precious time and mental energy that could be better spent.
So, when exactly is the best time to delay a task? Consider delaying when any of the following apply:
- It’s not urgent and you have other urgent items to attend to.
- It’s less important than other items you must attend to.
- It’s less profitable than other items you must attend to.
- The task is best accomplished in batches. As an example, rather than answer each email as it comes in, think about blocking out a couple times a day where you check and clear your email. You can apply this time-batching concept to just about everything to gain efficiency: posting on social media (write and schedule a month’s worth in advance), returning phone calls, attending meetings (book them all on one day and keep other days clear), and running errands (delay until you have three to four errands, then do them all in one run.
Be careful of delaying a task over and over again. Something else may be going on with your mindset:
- The task may be uncomfortable for you (find someone that loves to do what you don’t and delegate), or
- The way to get started is ambiguous (schedule some training or find someone experienced to shorten your learning curve).
Delete It
Some tasks should never be added to your to-do-list in the first place. When there is no return on investment for a task, perhaps the best choice is to delete it.
Take a look at some of the things you do out of habit. Does it still make sense to do that task, or is it simply done because it was always done that way?
14 Solutions for Controlling Labor Costs
While the cost of labor is a significant expense for many business models, for those that are service-based, labor cost is the largest expense incurred in business operations. Controlling labor costs so that they stay in line with what’s best for the organization is an important management function. We outline a few ways you can control (or reduce) labor costs in your business.
- Encourage employee retention.
If a well-trained employee leaves, their institutional knowledge of your business leaves with them. The process of replacing them results in a temporary hit to productivity across the board: you must spend hours recruiting, hiring, and then onboarding a new employee, and they’re likely to need training and experience to get up to speed. Some turnover can actually be good, but if it’s too high (which is the case for many in the era of the Great Resignation), it can result in increased labor costs.
- Automate tasks.
Save labor by automating any tasks that have the capacity to be automated. While a few automations could require extensive capital outlays, many systems can be implemented that are not costly and have an immediate return on investment. Your QuickBooks file is a great place to start. Integrations of native software and feeding of transactions are just two examples.
- Streamline processes.
Are you operating your business most efficiently? Or are employees still performing tasks that are outdated, nearly irrelevant, or unnecessarily redundant?
A great place to start when searching for inefficiencies in your company is the interface between departments. Is your sales team duplicating some marketing team efforts? Is customer service answering the same question repeatedly without communicating to operations how it should be permanently fixed? Enhancing communications among employees throughout the company can increase visibility and cut down on labor costs.
- Train employees.
There’s only one way to ensure employees are doing what they should be, and that’s to spend time training them. Many of the technologies you likely use have created training modules and certifications that employees can partake in for free. If your team frequently uses systems and other tools, consider enrolling them in training courses.
- Provide the right tools for the job.
Do employees have the tools they need to execute deliverables effectively? Keep an open dialogue going about what is and isn’t working in the context of internal processes and technologies. Many times, employees will continue performing a task inefficiently because they either don’t realize a bug in the software can be fixed, they don’t have time to stop and troubleshoot a program, or don’t realize there’s a more efficient way to complete the job. Opening communication around the subject can lead to innovation and improved morale.
- Cross-train employees.
If an employee is out sick, does a customer’s job remain stagnant until your employee returns to work? Check to see if your employees can easily pick up another’s work in the case one employee is out. If they can’t, create an opportunity for cross training once they return. A recorded training session (with a screenshare when necessary) is a great way to train team members, and saving the recording to the customer’s file means that in the future, anyone who needs to can step in and complete the job with relative ease.
- Optimize employee schedules.
In many industries such as restaurant and retail, employee scheduling can be the difference between profit and loss. Software can help you determine how many employees you need and at what time. Ensuring employees know when to come in and what to focus on when they do will go a long way toward productivity. In some cases, a shorter workweek is a possibility that can drive lower labor costs, as is leveraging employees’ individual “magic hours,” or the times of day they’re personally most productive.
- Outsource.
Outsourcing may be cheaper than using employees on certain tasks, especially those requiring specialized knowledge or skills. Outsourcing can also help you determine how long a task will take, which allows you to plan better in the event you decide to take the activity in house once again.
- Review compensation.
Compare your company’s current salaries to the going market rate for salaries in your industry. Are your salaries in line? Adjust accordingly for future hires.
You can also consider different pay structures, such as commission-based, to better match performance to labor costs. It’s also important to consider compensation in the context of employee retention; while bonuses paid out in lieu of annual raises could allow you better management of accumulated pay raises for long-term employees, your team may value receiving a raise over a bonus.
- Review benefits.
Benefit packages are a great way to encourage employee retention, but they can become costly. If reducing costs in this area is a necessity, consider reviewing time off policies, shopping for new health insurance rates annually, or reevaluating employer’s percentage share of 401(k) plan contributions.
- Review overtime pay.
There are two sides to overtime. On the one hand, some overtime pay can help you avoid the cost of hiring a headcount you either don’t need permanently or don’t need full-time. On the other, if overtime pay is so high that you’ve considered adding additional personnel, then your overtime pay is too high. We can help you evaluate when it’s time to hire.
- Provide remote work options.
Studies show remote workers are more productive. Plus, overhead expenses such as rent, furniture, and utilities will plummet, saving expenses overall.
- Hire smart in the first place.
The saying is “hire slow, fire fast.” Finding the right worker for your business is an art form. Interview, test, check background and references, and put employees on a 90-day trial basis to be sure you have the best workers.
- Understand the accounting side of labor costs.
If you pay an employee $15 per hour, understand that your labor cost is far more than $15. Not included in that $15 is:
- Employer’s share of payroll taxes (Social Security and Medicare)
- Vacation and time off
- Paid holidays
- Workers compensation insurance
- Unemployment insurance (federal and state)
- Health care
- 401(k) matches
- Company-sponsored events, like holiday parties, team building experiences, educational conferences, or planning retreats
There are also infrastructure-related costs associated with retaining an employee, such as:
- Computer equipment and software subscriptions
- Rent, utilities, furniture, parking spaces, building repair
- Employer-paid meals, snacks, and coffee
- Meeting time and expenses
If you’d like us to help you calculate your labor costs per employee hour, please reach out.
Employees make your business possible, but to maintain a business profit, labor costs must be frequently reviewed. Follow the suggestions above to keep your team productive and your labor costs in shape.
We’ve heard more than a few horror stories in the past few months of business owners falling for phishing scams that compromise their company, cost them thousands of dollars, and put their customers and contacts at risk. Hackers are getting more sophisticated by the day, and it’s becoming harder to tell a malicious threat from an ordinary email.
We share this insight to empower, not scare. The good news is that most threats are avoidable with a vigilant eye. In 2021, think of a phisher as more of a vampire than a heister: you have to invite them in before they can cause any harm. Below, we’ve pinpointed a few common threats for 2021 and 2022, along with best ways to avoid them. These suggestions should help keep your sensitive data secure from current phishing trends.
Common Threat 1: QuickBooksⓇ Impersonation
One common trend we’re seeing involves solicitations from QuickBooksⓇ impersonators falsely notifying you that your QuickBooksⓇ file is corrupt, your automatic payment is about to expire, or your version of QuickBooksⓇ needs to be updated. These phishers will try to get you to pay for a phony upgrade over the phone or grant them access to your desktop to “fix” your accounting software. Here’s the thing: if you work with an accounting company like New Business Directions, we’ll probably be the first ones to know if something is wrong with your QuickBooksⓇ file. And if you’re a New Business Directions customer, QuickBooksⓇ knows you’re working with a QuickBooksⓇ Solution Provider and will often notify us of any issues your account may be experiencing, too.
How to dodge the threat: If an email appears to come from QuickBooksⓇ, check the email addresses for the correct website. If it doesn’t end in “@Intuit.com” or “@QuickBooks.com” the sender is fraudulent (even if the name before the @ symbol looks convincing). Always contact your accountant before engaging with a solicitation like this and never provide payment information or authorize remote access to your computer or QuickBooksⓇ file to anyone besides your accountant or IT solutions provider.
Common Threat 2: Download this Attachment
Another major threat to watch out for involves an email from an address you recognize (say, a customer, vendor, or team member), but asks you to enter your Microsoft credentials to view the attachment. This scam comes from a person you know, and their email address matches the one you have on file. The MicrosoftⓇ log-in screen looks legit, but the web address is not. Do not enter your Microsoft credentials. As soon as you do, the hackers have access to your email and all sensitive information you have ever sent or received via email. The phishers will then send the exact same email that you fell for to every contact in your address book.
How to dodge the threat: never enter your log-in credentials to view an attachment. If an email includes a hyperlink, hover over the link with your mouse (don’t click) and watch for a link preview to appear in the corner of your screen. In Outlook, this will be the bottom left corner. You’ll be able to see a preview of the web address the hyperlink is trying to send you to, and if it’s different from the one typed out in the email. In this case, if the domain isn’t “office.com” the email is fraudulent. This is a fast and simple step you should always take before clicking a hyperlink in an email. And when it comes to sharing sensitive information like bank statements and government IDs, you should always use a secure, encrypted file sharing application like SmartVault instead of sending the document as an email attachment.
Common Threat 3: “You Have a Voicemail” emails
Are you surprised to be receiving an email notifying you about a new voicemail? Does it have an attachment? Is the sender posing as RingCentral or another VOIP phone system provider you use? Remember: if it seems suspicious, it probably is.
How to dodge the threat: don’t download the voicemail. If you want to be sure you’re caught up on your voice messages, navigate to your voice mailbox the way you usually do and avoid interacting with the email in question.
Common Threat #4: The QR Code Swap
QR codes have become so mainstream that we interact with them weekly, if not daily. From restaurant menus to sign up forms, they make accessing the information you need quick and simple. But there are emerging trends in which bad actors will replace a QR code with their own – by overlaying a sticker. They may also come in the form of seemingly-legit emails. But as soon as you scan these phony codes, you could be putting your sensitive data at risk or downloading malware.
How to dodge the threat: Review the preview of the web address when you scan the code, and before you click on the link that appears. Make sure it’s spelled correctly, and seems like it’s coming from the correct person or business. When dealing with QR codes that exist in a public space, take a second glance to make sure the QR code hasn’t been tampered with, such as replaced by a sticker. When in doubt: don’t scan that code!
Best Practices
There are so many ways to avoid phishing scams, but the most important thing to do is stay observant. If something seems off about an email, it probably is. Below, we’ve outlined a few specific best practices that should help you avoid scams:
- Set-up two factor authentication. Do this for all websites/applications you have log-in credentials for. It might seem inconvenient to go through one more step to access your online accounts, but this practice is still more convenient than dealing with a successful cyber security attack. Apps like LastPass Authenticator or Google Authenticator are an option. These apps provide a six-digit code for you to enter once you’ve logged in to your desired online account. Many other web-based companies offer the option to have an authentication code sent to your personal cell phone or the email associated with the account. How does two factor authentication help? Even if a phisher gets your credentials, they still need access to your email, text messages, or authenticator app to get the authentication code and hack your account, making it significantly less likely they’ll be successful in their attempted breach.
- Keep up with phishing scam trends. Check for updates from Forbes.com, PCMag.com, or your favorite trusted business news source for updates on phishing trends and recent cyber security threats.
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- Don’t open the door for strangers. Never grant access to your computer to someone you don’t personally know, even if they look like a QuickBooksⓇ rep. Your accountant and your IT Support vendor/employee are the only people you should ever allow access to.
- Watch for inconsistencies and typos. Are there misspellings in a marketing email? Does the subject line have five exclamation points? Is your name or the name of your company spelled wrong? When it comes to emails, if it smells like a phish and looks like a phish…well, you know the rest.
- Double-check the sender. Always check the sender’s email address. If the name associated with the email address says “Rhonda Rosand” but the email address differs from the one you have on file for Rhonda Rosand, the sender is a fraud. In cases like this, you should check with the individual through another previously established method of communication, be it a phone call to a number or email you already have on file to confirm your contact actually sent the email you’re looking at. Don’t reply to the questionable email with, “Rhonda, is this really you?” If you were a hacker, how would you respond to that email? Red flags include a professional email that includes an @gmail.com (or similar) domain, a slightly misspelled name, or a domain that differs from that of their company’s website.
- Train your Team. If you received a sketchy email, chances are your team received it, too. Send out an all-company message about the threat and tell employees to notify you or your IT professional immediately if they interacted with the threat. Share trends in cyber security threats, and host frequent training on cyber security best practices.
- Trust your gut. Even if the sender looks familiar, if they’re asking for weird information or are trying to send you an attachment in an unusual way and it seems suspicious, trust your gut. Look for other clues that they might be an imposter: is a hyperlinked web address different from what it should be? Is their email address different from the one they typically use? Is their tone or communication style different than usual?
- Keep your passwords strong and secure. LastPass is a great solution for dual factor authentication, generating complex passwords, and storing sensitive information securely. You can read more about this helpful cyber security solution in a recent blog post of ours here.
- Don’t send sensitive information via email. Avoid sending credit card information, banking information, W-2s and 1099s, pictures of vital documents like drivers licenses, social security cards, etc. via email altogether. Instead, use a secure document management system both parties are already aware of.
When in doubt, don’t click that sh!t
When it comes to Cyber Security, It’s always better to be safe than sorry. Be suspicious of communication that seems a little off. Avoid unusual emails and contact your IT security provider (or accountant, if it’s related to accounting) to ask for their insight right away, especially if you’ve already accidentally interacted with the phishing attempt. New Business Directions is well versed in phishing scams, and we have a keen eye for malicious emails. If you’re a current customer and feel unsure about an email or solicitation you recently received involving your accounting software, reach out to us.
What Does 2022 Have in Store for You?
The last two years have been unlike any other in our lifetimes. As we close out 2021 and enter 2022, it’s an excellent opportunity to reflect on the lessons we’ve learned, how life looks today, and what we want to accomplish in the next 12 months. Here are some things to consider.
Celebrate Your Successes
Give yourself time and permission to review what you have completed in 2021. When you zoom out to your 30,000-foot view, you’ve likely learned and accomplished more than you think. Compare your status on January 1, 2021 with today, and celebrate the changes you’ve made and projects you’ve finished.
Monetize These Trends
Several trends will continue from 2021 into 2022 and beyond. How can you monetize them in your business?
- The move to remote work is likely to continue in many industries, including financial services and technology, where the work is delivered digitally. Hiring virtual workers also benefits employers by giving them access to a larger talent pool and the ability to reduce overhead costs associated with a physical office.
- Expanding your online presence, including ecommerce if it’s relevant, is paramount. Most businesses allocated resources to improve the online interface between company and customers, as the shift toward online spending increased due to the pandemic. Some brick-and-mortar businesses adapted their business model to develop new digital services, enhancing their current product line.
- Climate changes affected many businesses this year in at least two different ways. Some were victims of extreme weather disasters. Some became more visibly supportive of climate initiatives, working them into their mission and offerings.
- Accelerated automation using artificial intelligence will continue to move through the technology adoption curve. If you haven’t considered adopting the technology yet, now is a good time to ask yourself: can your business benefit from AI-driven tech solutions?
- Diversity and Inclusion initiatives will continue to be a central focus in 2022 and beyond.
- Workforce demographics are finally changing. More young people are working in 2021 compared to pre-pandemic numbers, while workers over 50 are retiring at a faster-than-normal rate. Millennials are starting businesses in large numbers, and one statistic shows that 80 percent of those businesses are profitable.
- Staffing struggles are real in many industries. Many business owners who can no longer find employees have had to resort to outsourcing, contract, part-time, virtual, and many other capacity options to keep their businesses afloat.
- Social responsibility has been prioritized by the Millennial and Z generations, leading business owners to ask how they can do their part in their businesses.
- Life-goal realignment is something that has swept the world as people experience a collective wake-up call as a result of the pandemic. The search for purpose and meaning is one of many side effects of this trend. Be sure to consider how this shift in mindset is affecting your customers and employees.
Set 2022 Intentions
If a resolution feels like an empty promise to yourself, consider reframing your goals as intentions that you can always realign yourself to. The New Year is often one of the best times to reflect on how you can incorporate the trends above with the personal and business successes you’d like to complete by the end of 2022.
Make your list, then schedule milestones on your calendar so you can track your progress.
Above all, we want you to have a healthy, happy, and prosperous New Year in 2022.
Holiday Shopping: 2021 Trends and Opportunities
With 2020 came a significant migration from exclusively brick-and-mortar retail to a hybrid model with inventory available for purchase online. The 2021 holiday sales season will require businesses to continue their online migration from 2020 trends, with opportunities for more refinement and improvements. The key to a successful holiday sales season? Bring as much inventory as possible online and integrate all of your customer touch points into an omnichannel of positive experiences.
Let’s take a look at some trends in retail that can strengthen your business and position you well for the new year.
Strong E-Commerce Presence
As shoppers increased online purchasing and delivery last year, the trend is expected to continue beyond the pandemic. For this reason, all businesses should strengthen their online presence, especially their e-commerce presence.
Many retail establishments benefit from a complete ecommerce solution, including a storefront, shopping cart, online payment process, and automated fulfillment. They can expand their online effectiveness with these features:
- Enable chat features between customers and store clerks to simulate the conversations customers would experience by shopping in the physical store.
- For clothing, post detailed sizing charts, imitate the dressing room mirror with try-on automation, and use size-inclusive photography featuring models of different body types.
- Create how-to videos that show customers ways to effectively use the product.
- Expand photography so customers can see all angles of the product as well as how it can be used.
- Display and sort user reviews to help customers make the best purchase decision for them.
- Implement clear navigation and search options so customers can find what they want.
- Consider a ‘buy online, pick up in store’ policy. Today, many customers research online, then visit the physical location to finalize their transaction.
Expanding your business’s e-commerce presence doesn’t just apply to retail. For example, businesses in the services space have implemented appointment-setting and payment processing. Real estate agents have enhanced virtual home tours. Many businesses with physical goods and documents have beefed up delivery options and implemented curbside pickup.
Each business has a unique sales cycle that a customer goes through when purchasing goods and services. The question for business owners to ask is how they can bring most of that experience online.
Mobile
The vast majority of transactions are now occurring on mobile devices. If your business’s mobile presence is not optimal, then you’ll want to make that a priority this year to catch up with your competitors.
Social
More and more consumers are using social media channels – Instagram, YouTube, TikTok, Snapchat, LinkedIn, Pinterest, Twitter, Clubhouse, and Facebook — to discover and purchase items that delight them. Wise business owners will invest more budget into attracting customers from this channel.
Holiday Seasons
With the move to online shopping, the holiday season has been extended from just one day or one weekend to entire months. Consumers are shopping earlier and all year long. Retailers and other businesses can benefit by always having some kind of sale or attraction going on.
How does your business fare when it comes to a fully online experience? Use these trends to boost sales growth in 2021 and beyond.
As the holiday season quickly approaches, now is the perfect time to begin considering how you and your business can express gratitude to your customer base, colleagues, and more during the season of gratitude and beyond.
When to Say Thank You
There are many opportunities in business to say thank you:
- When a customer or associate sends you a referral that results in business
- When an employee goes out of their way to fix a problem or make a customer happy
- When a customer makes a large purchase, large from their point of view, as well as yours.
- When a vendor over-delivers
- When someone sends a gift
- After a speaking engagement or an event when someone has hosted you
- When someone provides advice that has been helpful, whether face to face or in a book or article
- When someone does a favor or something nice that you’d like to reward
Keeping thank-you notes top of mind will help you think of more opportunities to use them.
What to Say in Your Thank-You Note
You don’t have to be an excellent writer to pen a heartfelt thank you note. Be concise about what you’re thanking them for and share a meaningful detail about the item or activity involved. And then thank them again.
If you are unsure about what to say, type up a draft first that you can edit. Then rewrite your final draft on your stationery. It’s far more personal to hand-write your thank-you note than to use a computer-generated one.
Thoughtful Details
Personalized stationery for thank-you notes is a thoughtful detail. It adds a formal and professional touch to your thank-you note, enriching the experience for the recipient. If penmanship is a concern, or the sheer volume of thank-you notes you’d like to send has your hand cramping at the thought, Handywritten offers a a fast and affordable option to outsource the effort while still retaining your sentiment and the impact of a handwritten note.
Be mindful, however, to avoid turning your thank-you note into an advertising event for your company. If you want to send promotional items such as t-shirts, mugs, or other items, do NOT include them with your thank-you card, as it shifts the focus from the individual(s) you’re thanking back to yourself. A separate follow-up package with swag is a nice way to compound the impact of your note.
Helping others feel gratitude is the fastest way to experience happiness. Sending thank-you notes is not only good business, it’s good for our health and wellness, too.
If your business model includes granting credit to customers or accepting payment via recurring credit card charges, you need to ensure that you’re prepared for the unexpected. Inevitably, a customer might fail to pay on time, provide you with their updated credit card information, or their check bounces. So, what can a business owner do to spend as little time chasing these items while still collecting the cash? We have four suggestions: re-examine your credit card policy, be proactive, manage payment failures and disputes quickly, and develop a foolproof collections policy.
Re-examine your credit policy
Are you collecting credit card payments for goods or services retroactively? If so, is there any way you can have credit customers pay upfront? For example, perhaps you can collect a deposit to minimize your risk. Alternatively, you could request final payment right before delivering the final product. Or, maybe you can convert credit terms to a layaway situation, similar to the standard retail practice.
The best way to speed up collections is to change your payment terms if at all possible.
Be proactive
To avoid a significant delay in payment, send your customers proactive email reminders before the payment is due. You may also want to consider calling anyone who hasn’t been timely with their payment in the past before their next due date. If a customer is late with a payment, respond quickly.
If the customer pays by credit card, monitor credit card expiration dates, and send reminders to update the card before it expires.
Lastly, you’ll want to ensure that your business’s online support portal allows customers to easily update their credit card information at any time. Again, automating this process will save you a ton of time.
Payment failures and disputes
Inevitably, a customer’s payment will fail, whether it’s an automatic credit card payment, ACH withdrawal, or failed/bounced check. As a business owner, you need to have solid procedures for you or your employees to process these exceptions.
Before any of the above payment failures occurs, make sure your shopping cart, merchant account, or gateway processor is set up to notify you of the failure. When it happens, contact the customer right away to correct the situation. Assess any extra fees and flag the customer account if you want to place a hold on their account or restrict future payment or credit options available to them.
You may also have customers that report disputes to their credit card company. There is always a tight deadline associated with these transactions, so be sure to respond timely and make sure you have all of the documentation you need at the time of sale if this comes up.
Develop solid collections processes
If the payment is late, start your collections routine. Send out friendly reminders at first, then get progressively aggressive as the payment grows later and later.
Follow-up steps are critical. Make sure your customer is getting your notifications, and give them a call before deciding to take legal steps with them.
Finally, if necessary, turn the payment over to a collections agency to impact the customer’s credit report and possibly collect your money.
We hope you do not have too much of this activity in your business. But if you do, being proactive is one of the best ways to reduce it. Check to see if you have all the processes described above in place to handle collections in your business so that your cash continues to flow.
If you’re continuously looking for ways to increase your profitability, then you’ll want to learn about direct and indirect costs. Breaking out your expenses into direct and indirect categories can help you arrive at the most profitable sales volume for your business.
Direct Expenses
Expenses that fall into the “direct cost” category relate directly to the items you sell. Below are a few examples:
- If you owned a flower shop, the cost of the flowers would be a direct cost. So would the vases, ribbons, cards, and labor required to create your beautiful floral arrangements.
- If you’re a partner at a law firm, the labor, and any materials or supplies spent on serving a customer would be a direct cost.
- If you operated a pool construction company, the concrete, tiles, filter, pump, and labor costs to build the pool would be direct expenses.
Direct expenses will vary proportionally to the volume of items you sell. The more you sell, the higher your direct expenses. The less you sell, the lower your direct expenses.
In general, direct expenses should be recorded in Cost of Goods Sold. You can get your Gross Profit figure by calculating Sales less Cost of Goods Sold (or COGS). Gross Profit Margin is an essential percentage to know in your business. It is computed as follows: (Sales – COGS) / Sales.
Some small service companies might not bother to break out labor into direct or indirect on the Profit and Loss statement each month. Still, it can be helpful to periodically do so, especially when re-evaluating your pricing and profitability.
Direct expenses are important in making pricing decisions but so are indirect expenses.
Indirect Expenses
Indirect expenses are those you must incur to run your business but are not directly related to the items you sell. Here are some examples:
- Telephone
- Accounting software
- Rent & utilities for a brick-and-mortar store
- Insurance
- Administrative labor, such as a receptionist or supervisor
- Education and training
- Professional services, like your HR personnel or IT specialist
- Office supplies
- Business permits
Fixed and Variable Costs
Direct and indirect costs can each be further broken down into fixed and variable costs. For example, HR expenses, education, and training will increase as you sell more and hire more workers. That makes them variable costs.
Other indirect expenses (such as rent) will remain flat, or fixed, no matter your sales volume.
Pricing Your Items
When calculating your sales prices, use your direct costs as a benchmark to ensure your profit margin is high enough to cover an allocation of your indirect expenses. In other words, sales price should always cover all direct costs plus a profit component, plus enough to cover indirect costs when considering your sales volume.
The lower your sales volume, the higher the price per item should be. Alternatively, higher sales volume gives you more room to spread out your indirect costs. That allows you to do one of two things: earn higher profits or lower your price to become more competitive.
If you have questions about direct and indirect costs or want help validating your pricing decisions, please feel free to reach out at any time.
While we all have to keep our monthly books up to date for tax and other compliance reporting purposes, your accounting efforts should never stop there. Your books hold a wealth of data that you can use to run your business better. Below, we outline five reports your business should never be without.
Budget-to-Actual Profit and Loss Statement
Hopefully, you’ve already seen how powerful the Profit and Loss Statement is. We can take it to a deeper level, though, by adding in budget comparison. With this upgrade, you can now plan your way toward the sales and profit figures you want. As a result, you’ll know every month whether you’re on track, ahead of the game, or need to hustle to close the gap next month.
Most accounting systems allow you to enter monthly budget numbers for your sales and expense accounts. Imagine that this is the financial equivalent of Google Maps, and your business is a cross-country journey. You will be able to see where there is construction and traffic so that you can adjust your route to one more favorable. You can also see where there are cool opportunities ahead and plan accordingly to take advantage of them. Remember: your numbers tell a story.
Actual-to-Prior-Year Profit and Loss Statement
An actual-to-prior-year P&L Statement is an easy report to generate, so long as you have at least two years’ worth of information in your accounting system. This report allows you to compare your business’s results for this year alongside last year’s. Are you ahead? Behind? Have new products and services? New employees? New expenses?
With this comparison, you can take action based on how you would like your business to perform this year versus last year. Unfortunately, while this report is readily available, few companies study it to glean the insights available. Make sure you’re one of them and spend some time analyzing the data in this report.
Sales by Item, Customer, or Division (or All Three)
Inside every business’s sales information is a treasure trove of possibility. Where do you see growth, and how can you capitalize on it? Conversely, where do you see a slowdown, and can you run a promotion to juice things up?
Choose the breakout – customer, item, division, or another – that is meaningful to your business type. Then, if possible, arrange for a searchable database so you can drill down into the detail even more. What trends do you see? What opportunities do you see?
Operations Reports
To obtain more information about your profitability and get into the details of how your expenses match up with your sales, you need to review your operational accounting reports. The precise report will depend on your business type. For example, if you are in services, you’ll need payroll reports and timesheets; for retail, inventory reports; construction, job costing reports; and manufacturing, cost of goods sold.
Cash Reports
The last report that is essential for good business management is all about cash. There is more than one option here, and these reports can include Accounts Receivable Aging, Accounts Payable Aging, cash flow forecasting, and various cash flow reports.
If you grant customers credit, you’ll want to actively make sure that money is collected on time from customers. If customer balances get too old, action must be taken. Even if you don’t grant credit, transactions such as returns, expired credit cards, and bounced checks need special attention.
The same is true for amounts you owe to vendors with the Accounts Payable Aging report.
If you run tight with your cash balance, you may want to have a cash flow forecasting report on hand. This report gives you good warning as to when your bank balance may dip below your needs. You can then delay vendor payments or find an infusion of cash to cover the shortfall.
With these five categories of reports, you will have dozens of opportunities to run your business more proactively and improve your bottom-line results. If we can help you find or generate any of these reports, please reach out anytime.
Worker shortages have affected many companies over the past year. If you’re one of them and find yourself needing additional workers to keep up with your growing business, we’ve outlined a few jumping-off points that might help your hiring process.
Where to Look for Workers
You may think of workers as only being employees. Though, especially in today’s job market, you may find you have an easier time securing talent through more unconventional methods or platforms. Consider some of the following hiring alternatives:
- Recruiters
- Employment agencies
- Online job portals, such as Indeed, SimplyHired, and ZipRecruiter
- Social media, including LinkedIn Jobs
- Your own website, email list, or employee referrals
- Temp agencies
- Specialized online job portals that cater to your industry and business type
- Virtual assistant organizations
- Day labor online sites and pickup areas
- Job matching sites such as Upwork, Fiverr, and Freelancer.
- Colleges, when you need interns and entry-level workers
- Your local unemployment office
- Small business development centers
- Virtual assistant agencies or businesses
- Chambers of Commerce and other business organizations
- Professional organization directories where a license is required, such as hairstylists, dentists, or CPAs
- Friends, colleagues, competitors, and neighbors; your own personal or business network
- Craigslist and local classified ads
- High school guidance counselors if you want to hire straight out of high school
- Outsourcing to a company that provides the labor that does what you need
- Volunteer matching sites
Options for Adding Workers/Labor
There are many ways you can increase labor in your business. Of course, the obvious is hiring employees. But, beyond employees, there are many more options than you might first consider:
- Contractors, where you have a contract for a particular job and meet all of the IRS and other compliance requirements
- Temp workers, where you “lease” an employee who stays on the temp agency payroll or hire them outright with a limited term of employment.
- Part-time workers on your payroll
- Companies that you outsource the work to and contract with as vendors to provide a particular service. They may outsource your labor needs or have labor as a component of the product or service you have hired them to supply.
- PEO, or professional employer organizations, act as a customer’s employer, hiring their employees and managing payroll and other HR compliance tasks.
- Interns, which are unpaid positions. Check your state and local rules for laws regarding hiring interns.
- Volunteers, a common source of labor if you operate a nonprofit organization.
With all of these options available, you should be able to take advantage of less mainstream ways to add labor and grow your business.
