Portland Small Business Management

Do the math, Costco gas isn't worth it!

I have never understood why people wait in line for gas at Costco.  Yes, it's cheaper.  I know it's easier to think only about the price of something and not the value of what you're purchasing.  I get it, that's how most people react to pricing.  As far as I'm concerned, that's the easy way out and you aren't doing yourself any favors.  Cheaper isn't always least expensive. 

Let's use Costco gas as an example today.  In my town, Costco is $4.09/gallon.  My preferred station is $4.21/gallon.  On the surface, I think: I should go to Costco.  But should I? Well, let's see...

My car probably needs 10 gallons of gas... Costco, $40.90  Chevron, $42.10.

Chevron is just around the corner, Costco is 3 miles away.  Cost of gas to get to Costco: $0.10

Cost of my time to drive to/from Costco and wait in line: $20 (based on my billable rate).

Total cost of Costco gas: $61, cost of Chevron: $42.10

Aha, Costco isn't less expensive!  I know you'll say it's not fair to add the cost of my time, but I'll argue this:  It's opportunity lost.  That is time I could have been earning money instead of hunting down the cheapest gas.  I'll probably be passing by Costco and I could probably go at a time when lines are short, so I'll grant you my example is extreme.  My point is you need to think about the entire cost and that includes lost opportunities as well as hard costs (like the cost of gas while you travel across town and wait in line).

Even without the cost of my time, I would only save $1.10 by going to Costco.  I think I can find an easier way to save $1.10 (or earn $1.10).  Make decisions based on value, not price.

Divorcing Clients

I'm getting divorced....from a client.  When I begin working with a new client, we get engaged with an official engagement letter.  Occasionally, I have to get divorced.  Its happening today.  It's the first time in a long time that I've had bite the bullet and send out the divorce decree.

I'm a firm believer that every client is not a good client.  As such, I take time to make sure I feel good about the clients I work with.  It's all about fit.  So, I interview new clients as much as they interview me.  I want to be a partner with them and I can only partner with people and businesses that I feel are the best fit with my skill and personality.

I'm a pretty good interviewer, but sometimes things just don't work out.  In this instance, it is a payment problem.  As my hubby points out, they aren't a client if they aren't paying you.  He's right, of course.  The problem in this situation is I've let it go on far too long. The reason?  I like the owner.  He's a good guy; he means well; he wants to pay me.  But, you know what?  I've risked as much as I can afford to risk on good intentions. 

So, today, I'm getting divorced.  It's a sad day.  I don't like it; the client doesn't like it, but it's best for everyone.

~Kelly, www.acclaroaccounting.com

10 simple controls to keep your bookkeeper honest

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The 50/50/50 Rule

I had a very refreshing conversation with Kevin Davies of Acumen Financial Group,  Acumen Financial offers some overlapping services, but I'll encourage you to check them out if you're looking for a new CPA, outsourced CFO, controller, etc. 

At any rate, Kevin has a saying that I thought was brilliant and wanted to share.  We were discussing small businesses and initial conversations with new owners and Kevin said he always warns of the 50/50/50 rule:  "You'll spend 50% of your time doing admin, 50% doing marketing, and the other 50% actually producing."  If you didn't already know, he's spot on.  Being a small business owner is hard work.

~Kelly, www.acclaroaccounting.com

Managing Cash Flow Problems

I am no stranger to businesses with cash flow problems. The lack of cash to pay the bills is pretty common among small businesses.  It's no secret why it happens... promises haven't been kept by customers, you expected sales that didn't materialize, you expected funding that didn't come in, the list goes on.  What I find most often is business owners don't know what to do when it happens to them.  Here's my advice:

1) Figure out what went wrong and take steps to fix the problem or at least limit the impact.  This is easier said than done and you might need some outside advice to help you figure it out.  Here are some things every business should do:

1. Review your budget vs actual report - is anything out of line?  (If you don't have a budget, you need to get one.  Budgets help you keep things under control and see when they aren't)
2. Review your trends - Look at your operating cash flow ratio, debt to equity, etc.  What's the trend?  Is this a one month blip or has your problem been brewing for a while?  (note, your financials must be accurate or your ratios mean nothing)
3. Build a cash flow report.  I like to use 2 cash flow reports.  The first is a high level cash flow that turns the budget into a cash flow forecast so you can see potential problems with your budget and figure out how to make your plans work well in advance.  The 2nd is the one you'll need immediately.  It's a very tactical report that details out what you're expecting in receivables over the next 4 to 8 weeks (as far out as you can accurately predict) and the bills you'll need to pay.

2) Take a look at your tactical cash flow report.  Make sure you've got payroll covered.  If not, immediately figure out how you're going to make payroll.  Once you're 100% satisfied you've made payroll, prioritize your vendor payments.  Try to get an idea of when you'll be able to pay vendors.

3) Collections.  Call your clients - be persistent.  ALWAYS ask for a date of when they'll be able to pay.  Offer to take payments on their account if they too are suffering cash flow issues.  If you take credit cards, ask if they would like to use that option.  If the client hasn't given you a date of when they can pay, ask them when you should follow up with them.  I like to suggest a date - "should I follow up with you next Tuesday?"  Document the day, time, who you spoke with and mark them for follow up.  Remember the squeaky wheel?  It is true, persistence will pay off.

4) Vendors.  Call your vendors (at least take their calls!).  I know first hand that you don't want to take those collection calls.  No one does.  I also know that what every vendor wants to know is that they're important and you do want to pay them.  You're a lot less likely to be thrown into collections if you talk to your vendors, explain that you are having cash flow problems and see what they can do to work with you.  Make sure to prioritize your vendors and don't make promises you can't keep.  Being a liar will never work in your favor.  If you simply can't make any guarantees, tell them when your next decision point is.  "I'll be reviewing payables again next Tuesday, you can follow up with me on Tuesday."  Almost every business has had a time when they experienced cash flow problems.  Most vendors will understand as long as you're communicating and making an attempt to get them paid.

5) Paying the bills.  When you finally have money to pay the bills, of course, pay the most important first. If you don't have enough to pay everyone, try to share the love.  You'll be better off getting several people closer to current, than making one person completely current and avoiding the rest. 

Of course, every situation is unique and I can't possibly comment on all the possibilities for getting through a cash flow crunch.   If you take nothing else from this article, take my advice on talking to your vendors.  I see people make the mistake of not keeping an open and honest dialog with their vendors far too often.  It's the professional thing to do, so take those calls!  You need to manage the situation; avoiding it won't solve anything.

~Kelly,  www.acclaroaccounting.com

"What are we solving for?"

I've gotten so used to asking and answering the "what are we solving for" question that I didn't realize it has become a part of my every day approach.  Today, my son got a new toy that needs to be registered online with the code that came with it.  Once online, he can play games.  He left his new beloved toy at the shop and became very distraught...he wanted it NOW, not when Dad returns in 3 hours from the shop!

My husband began with "you should have said something before we were home".  I quickly interrupted the argument and asked my son.."why do you need the toy now?" (aka: what are you solving for?).  He responded, as I knew he would, I want to play with it online.  PERFECT.  Now we know what we're solving for, let's solve the true problem.  It's not that you need the toy, it's the ability to play online.  Let's see if there's another solution that solves your problem.  How about this...Dad can call you with the code when he gets back to the shop.  You won't have the physical toy, but you can still get online.  Needless to say, he was very happy with the solution.

I use this approach with my clients all the time.  It's very easy to get stuck on the way you logically think a problem should be solved and become frustrated when there are roadblocks.  The next time you hit a roadblock, take a step back and ask the very simple question: "what am I solving for?". 

~Kelly, www.acclaroaccounting.com

Don't have the patience for Quicken? Mint might be for you.

Mint.com (www.mint.com) is a relatively new player in the personal accounting software arena.  Mint has a slick interface and automatically updates your checking and credit card accounts categorizes transactions.  So, you can login daily and see how you're doing. 

You can enter your personal budget and it can provide alerts for things like low balances or if you're over budget on a line item.  Mint provides graphs showing where your money is going and shows ways you can save money (checking/credit card offers, etc).

The product still needs some work and doesn't handle everything that Quicken does, but overall it looks like they're on to something.  I think this is a great tool for individuals who should be aware of their financials situation, but don't have the patience to deal with Quicken.  Just having all of your bank and credit card account balances in one place will help keep you from those crazy overdraft/over line of credit fees. 

As an accountant, I would never recommend this tool to businesses or sole proprietors to track business expenses.  That is not the intent of Mint.com.  It doesn't provide the management tools a business owner needs.  It does, however, fill a niche for individuals who would like an easier way to keep an eye on their checking/credit card accounts.  At this point, I don't think this product is ready for people with complex finances or who need to produce personal financials.  This appears to be geared towards the population that currently keeps track of their personal finances by logging in to their bank and credit card accounts to see what happened (fingers crossed and hoping for the best).

Here's a link to a more detailed post: http://lifehacker.com/software/screenshot-tour/is-mint-ready-for-your-money-312083.php

~Kelly, www.acclaroaccounting.com

Tales Of Mere Existence - "Procrastination"

Who doesn't relate to this? I found this while...well, while procrastinating. Good stuff.