SMALL BUSINESS FINANCE TIPS: Maintaining Your P&L During a Down Economy

For any small business, managing revenues, costs and expenses comes with inherent challenges - especially in a down economy. For example, maintaining healthy profit margins – in the face of rising materials and labor costs – can be daunting, but is necessary for a small business to thrive and survive in today's economy.

I have developed the following tips to help small businesses best maintain their P&Ls that I hope you all find helpful:

Revenue:

- Create revenue plan & hold employees accountable for the plan
- Lock down clients with long term contracts if possible – to help revenue become predictable
- Plan to continually grow revenue (this will guard against client drop off)
- “Love” your existing clients/customers keep them happy, send thank you cards, buy them an occasional thank you present
- Grow revenue with existing clients/customers (these are your best opportunity)
- Get rid of undesirable clients (this will not help you in the long run)
- Use a sales tracking software/tool to help you find keep focused on new client opportunities
- Have action plan for growth & action plan for downturn and be ready to use (do not be caught off guard)

Expenses:

- Revisit P&L results on a monthly basis
- Ensure the expenses can easily be identified (i.e. make sure that there is not one vague line item where all expenses are booked)
- Continually compare results against income and expense benchmarks

For a professional services firm for example:
- The net margin of no less than 20% of revenue (note: ensure that the owner/officer salary is included as an expense before looking at the net margins)
- Employee costs should be about 50% of revenue; look at revenue per head as another metric – revenue per head should be no less than $150K; Greater than $200K per employee is preferable
- Rent should be no more than 3-6% range of company revenue
- Spend money (5-10% of revenue) on business development
- Incentivize appropriate employees around expense goals to ensure the company stays “lean”
- Ensure that the company is profitable and keeps a healthy margin (this will guard against down times)
- Keep and maintain projections which would include actual results PLUS forward looking projections for the year
- Include spending on assets/depreciation (a non-P&L item) in the monthly review…this is an area where spending can get out of hand and often gets overlooked
- Do a vendor analysis on an annual basis (keep good relations with your vendors but make sure that an expense is not widely out of whack)

I welcome all thoughts comments and feedback!

GUARDING YOUR BALANCE SHEET – Tips for Survival in Today’s Volatile Market

As the the recession continues to extend into 2010, we continue to be inundated by news about the challenges that face the small business community.

While we are not completely out of the woods in terms of the economy, there are several things that small business owners can do to protect their businesses during these challenging times:

1) Manage Collections: Outstanding invoices should be aggressively followed up on round-the-clock. Having unpaid invoices will create instability. Be aggressive and assume the worst.

2) Collect Upfront: Make sure that all of your contracts stipulate payment upfront. Net 30 can stretch into Net 60, then you are stuck doing work for 2-3 months without being paid.

3) Turned Unused Equipment into Cash: Do not let any unused equipment sit around…turn it into cash immediately.

4) Limit Company Credit Cards: When only necessary, provide your executives with corporate credit cards. Don’t give them out to your entire staff and never give out debit cards to your employees.

5) Managing Account Payable: You want to keep as much cash in the bank at all times. As such, pay only critical vendors first, then pace vendor payment with receivable collections. Stay away from regular payments on credit cards. You can dig your business into unnecessary debt in no time.

GUEST POST: John Garcia, Tax Director at Targus Group International, Discusses Increased Scrutiny from States Due to Budget Deficits

We were fortunate enough to receive a guest post from John Garcia, Tax Director at Targus Group International. John is a well renowned CPA and MBA, professor and corporate tax veteran. John shared with us his recent concerns regarding the increased scrutiny from States due to budget deficits in the following illuminating blog post:

With imploding budgets and other fiscal woes, it is no secret that many states are hurting financially. To help solve these problems, states are formulating and implementing new innovative state tax regimes that spread their tax bases.

Interstate commerce that traditionally was protected from state income tax by federal legislation such as the Commerce Clause of the US Constitution and Public Law 86-272 are no longer valid. Already, Texas, Michigan and Ohio have enacted state tax measures which subjects multi-state enterprises to tax when there is only a minimal connection to the state.

The mere presence of consigned inventory, a sales person, and even a Website can subject taxpayers to multi state tax. Clearly, this is not a short term matter but a sign of things to come. So, if you are concerned, it might make sense to do a Nexus study and be prepared when that out of state auditor sends you that audit notification.

It also makes sense for business owners to consult your tax advisor to create strategies to mitigate fines and penalties associated with non-compliance with State legislation.