Outsourcing is a much discussed topic but I rarely see it focused on the primary strategic issues facing a small business owner. What I too often see is "Outsource and save money". This is rarely true. However, what I think the outsourcing industry should market is...."Outsourcing = spend more money and make even more money."
When I talk to business owners I ask them "what does your business do best?" I get all kinds of answers, some make absolutely no sense. I once had a guy who owns a auto repair shop say "I have a great website". My reaction... what??? I may look at things differently but I'd prefer that my auto repair shop was best at...well, I know you see this coming, I'd like my auto repair shop to be best at auto repair.
But in other instances I get business owners with the right answer but....
For example, I asked a staffing business owner what her company does best and she says "we're really good at matching the right person to the right job." That makes sense. So then I ask... "In what area does your business need the most improvement?" Her answer, "sales". Makes sense, so then I ask, "What area of your business do you spend most of your time in?" Her answer "bookkeeping and accounting". What???? I see this all the time, all the time. The business owner knows what they are good at and what they need to improve but they spend a very scarce resource, their time, doing things that don't contribute to the improvement of the business in any strategic sense.
Business owners who spend time on "non core" activities think they are saving money but they aren't. What they're doing is making themselves feel good by being busy.
The reason to outsource is not solely to save money because often times it's hard to see a dollar for dollar return on peoples time when outsourcing. But what outsourcing does is a) provide more professional, complete and reliable task accomplishment and b) frees up the scare resource of owner time so that the small business owner can concentrate on perfecting what the business does best and improving on the core areas that need improvement.
Want to have a better business that is more focused, more profitable and easier to operate? Try smart outsourcing.
Soon I'll add a post on how to begin the analysis of what you should outsource and what you should control directly.
Thursday, November 19, 2009
Tuesday, November 17, 2009
Should you have your small business books audited?
For the vast majority of businesses with revenues under $2,000,000 the answer is no. Unless, you have external requirements from bonding company, shareholders, finance companies, etc.
However, even if you don't have those direct external requirements for Audited financials you should have your books at least "Reviewed" by an independent CPA. A Review is not just "hey, take a look". A Review is a formal process that is less expensive than an audit but with many of the same benefits. What are the direct benefits to the business owner?
1. A look at your business through the eyes of business experts not involved in your small business day to day. These fresh eyes can show you how to improve profits, better manage cash, reduce risk, etc.
2. A reviewed statement will reduce the impact of "on the fly" accounting treatments that are often made by internal bookkeeping staffs. The review will add discipline which will make the financials more useful. For instance, do you now account for your cost of goods sold the same way every year, every month so that you can compare the information and make decisions accordingly?
3. It is much, much less expensive to get reviewed statements if you've committed to the review BEFORE the year begins. Going backwards is more work, much more work.
4. You may not think you need Reviewed books now but what if 18 months from now you are approached by a buyer who is willing to make you a great deal to buy your business but they only buy businesses with at least reviewed financials for 3 years. You could miss the opportunity of a lifetime. You need to commit to accurate reviewed books before you have any idea you will need them.
5. I assure you that a bank will be more likely to approve a loan to a business with reviewed books than a business without reviewed books. And what if having reviewed books means you don't have to sign a personal guarantee for the loan? Big advantage there!!
If you want a small business that is easier to run, more profitable to own and more valuable to sell then start NOW to get your books reviewed by a qualified CPA.
However, even if you don't have those direct external requirements for Audited financials you should have your books at least "Reviewed" by an independent CPA. A Review is not just "hey, take a look". A Review is a formal process that is less expensive than an audit but with many of the same benefits. What are the direct benefits to the business owner?
1. A look at your business through the eyes of business experts not involved in your small business day to day. These fresh eyes can show you how to improve profits, better manage cash, reduce risk, etc.
2. A reviewed statement will reduce the impact of "on the fly" accounting treatments that are often made by internal bookkeeping staffs. The review will add discipline which will make the financials more useful. For instance, do you now account for your cost of goods sold the same way every year, every month so that you can compare the information and make decisions accordingly?
3. It is much, much less expensive to get reviewed statements if you've committed to the review BEFORE the year begins. Going backwards is more work, much more work.
4. You may not think you need Reviewed books now but what if 18 months from now you are approached by a buyer who is willing to make you a great deal to buy your business but they only buy businesses with at least reviewed financials for 3 years. You could miss the opportunity of a lifetime. You need to commit to accurate reviewed books before you have any idea you will need them.
5. I assure you that a bank will be more likely to approve a loan to a business with reviewed books than a business without reviewed books. And what if having reviewed books means you don't have to sign a personal guarantee for the loan? Big advantage there!!
If you want a small business that is easier to run, more profitable to own and more valuable to sell then start NOW to get your books reviewed by a qualified CPA.
Thursday, November 12, 2009
Run your business like you'll own it forever..and remember it's always for sale..
Sounds like a contradiction right? Well it isn't.
You never know when the opportunity to sell will present itself. The best course of action is to run your small business like a a buyer will determine how much they are willing to pay you for your business tomorrow. Run it well, do the right things and have all your books and records in excellent condition.
But...... then why run it like you'll own it forever?
Because you can't out guess what a particular buyer will value. The best you can do is, as always, do what's best for your business.
Your decisions and actions as a business owner will determine what your business is worth, tomorrow or 5 years from now.
You never know when the opportunity to sell will present itself. The best course of action is to run your small business like a a buyer will determine how much they are willing to pay you for your business tomorrow. Run it well, do the right things and have all your books and records in excellent condition.
But...... then why run it like you'll own it forever?
Because you can't out guess what a particular buyer will value. The best you can do is, as always, do what's best for your business.
Your decisions and actions as a business owner will determine what your business is worth, tomorrow or 5 years from now.
Tuesday, November 10, 2009
List of Common Problems We See in Small Businesses
Below is a list compiled from talking to and evaluating hundreds of small businesses. Small business opportunities to improve are often very easy and inexpensive, it just takes a little attention to detail and a commitment to improvement. Here is my list:
1. Detailed written procedures for critical or repetitive tasks. Most small business owners struggle with "finding good employees" the problem is usually not that the employees are not "good" it's that new employees learn differently and written instructions can get new employees productive faster and less likely to get frustrated and give up.
2. No system to follow up on sales opportunities. It's incredible how often we see this. Customer calls, asks a few questions then says "I'll call back", business doesn't even ask for a phone number much less check back with the customer.
3. Poor accounting makes the financial statements essentially useless for operating the business. The lack of accurate financials makes budgeting very difficult and consequently we often ask the question "How's the business doing?" The answer, "Seems pretty good, I guess my accountant will tell me in March." Not good.
4. The small business owner really has no idea how his pricing is compared to competitors. They don't do any "research". Their only feedback is when their customers tell them "Your price is too high!" Duh, most customers will tell them that even if it's the lowest price they received!
5. Failure to seek expert advice until they have a problem. You know the saying, an ounce of prevention....... Often small business owners do not want to pay an attorney, CPA, financial planner because they think the issue won't be a problem....but when it is a problem... it costs them 10 times as much as it would have if they had done a little up front work.
1. Detailed written procedures for critical or repetitive tasks. Most small business owners struggle with "finding good employees" the problem is usually not that the employees are not "good" it's that new employees learn differently and written instructions can get new employees productive faster and less likely to get frustrated and give up.
2. No system to follow up on sales opportunities. It's incredible how often we see this. Customer calls, asks a few questions then says "I'll call back", business doesn't even ask for a phone number much less check back with the customer.
3. Poor accounting makes the financial statements essentially useless for operating the business. The lack of accurate financials makes budgeting very difficult and consequently we often ask the question "How's the business doing?" The answer, "Seems pretty good, I guess my accountant will tell me in March." Not good.
4. The small business owner really has no idea how his pricing is compared to competitors. They don't do any "research". Their only feedback is when their customers tell them "Your price is too high!" Duh, most customers will tell them that even if it's the lowest price they received!
5. Failure to seek expert advice until they have a problem. You know the saying, an ounce of prevention....... Often small business owners do not want to pay an attorney, CPA, financial planner because they think the issue won't be a problem....but when it is a problem... it costs them 10 times as much as it would have if they had done a little up front work.
Monday, October 26, 2009
How to Make an Offer to Purchase a Small Business
Buying a small business is a unique process in many ways. Here is a list of "elements" of a contingent offer that might make sense when considering a purchase.
Contingencies are very important when making an offer. A buyer is not likely to get full access to all of the business books and records without first agreeing to a purchase price and terms CONTINGENT on full due diligence. Contingencies to consider when making an offer:
These kinds of 3rd party approvals can be very tricky, get good advice before heading down this path. Think through your small business ideas and build your contingencies to make sure that you've covered all the bases.
Contingencies are very important when making an offer. A buyer is not likely to get full access to all of the business books and records without first agreeing to a purchase price and terms CONTINGENT on full due diligence. Contingencies to consider when making an offer:
- Small Business Financing - If you will need financing include a contingency for obtaining small business loans on terms and conditions acceptable to you.
- Include a contingency for buyer and seller to agree on a specific training and transition plan.
- Contingency for any agreements to be assumed by buyer to be on terms acceptable to buyer (example, facility leases, copier contract, machinery leases, etc)
- Contingency for background check on the business and the seller's themselves. It's important for buyer to know who they are buying the business from.
- Contingency for full review of all business records including tax returns, sales tax reports, bank statements, etc.
These kinds of 3rd party approvals can be very tricky, get good advice before heading down this path. Think through your small business ideas and build your contingencies to make sure that you've covered all the bases.
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