A title like that makes CFOs and accountants wonder if they are living in a nightmare. Certainly audits are no fun at all. But I was interested recently to read about Harrah’s Casino in Las Vegas which adopted the idea that “every day is audit day” by performing internal audits every single day.
That sounds pretty horrible to most people, but consider the benefits: Small businesses can become so chaotic that record-keeping suffers. But with an attitude that “every day is audit day”, records are considered to be just as important as everything else and they actually get done. This is important for solopreneurs but it’s even more important in multistaff scenarios where business owners aren’t touching every outgoing and incoming entry.
Obviously, your small business doesn’t need to (and probably doesn’t have the time to) put as much focus and effort into auditing yourself every day. But if you make a not to audit SOMETHING every day, you’ll…
- reduce the pain of audits
- increase the completeness of your books
- increase the accuracy of your books
These are good benefits on their own but I think there are two other benefits that spring from these which are even more important:
First, if and when the IRS decides to audit you, you can pass over your books with the confidence that they are as up-to-date and accurate as you can make them. So, IRS audits become less of a hassle (and there will be no night-before scrambling to find receipts that happsn so often).
Second, your visibility into your business will be so much clearer: You’ll know exactly what’s going on in your business at any given time. The result? Better business decisions stemming from deeper insight.
Jessica Routier, IAC-EZ
In their book On Strategy, the Boston Consulting Group has collected their thinking and writing from decades of practice. One of their “maxims” is “use more debt than your competition or get out of the business.”
This fascinated me. Many of us have grown up thinking that debt is bad. We pay off the mortgage as quickly as we can; we’re penalized financially by credit cards for carrying debt too long, and yet, these business experts say that debt needs to be used more. It’s certainly food for thought!
The issue of debt, credit, and lending is a tricky one indeed. Many businesses do need to use debt to run their business and few of us want a lot of debt hanging over our heads. But some debt is necessary for business to run. Recently, I’ve heard of several businesses that are getting orders from customers but are finding it hard to meet those orders because they can’t get the loans to pay for raw materials or equipment to fund the production of their products! That’s a tough situation! It’s no wonder that many entrepreneurs pay for some business costs on their personal credit cards or against their home mortgages. It’s risky but what other choice do they have?
It is nice to see some organizations – like GoBIG Network to help small businesses connect with venture capitalists. This might be the best interim answer right now. I’m also interested to seek sites like kiva.org helping impoverished entrepreneurs around the world with funds to run their businesses. I wonder if there are similar “microfinance” opportunities here for North American businesses who need a small loan but can’t or don’t want to go through a traditional lender.
Tell me what you think! Do you NEED to use debt? Do you want to use more of your debt? Are you forced to use debt? How are you finding the lending practices of financial institutions today? Where are you getting money to run your business?
Jessica Routier, IAC-EZ
Fresh out of college, I started working for a large company that staffed an army of sales people. Each one of us was ranked against the other and we’d compete in friendly (and sometimes unfriendly) ways to reach the top. The top producers got all kinds of perks: bonuses, vacations, even bragging rights. Those on the bottom of the ranking were either cut loose or motivated to strive harder.
It really was all about rankings. There’s the famous phrase “what gets measured gets managed”, which is true. Our rankings were based on a handful of factors and we focused on those factors because they helped us to climb in the rankings.
Some might say it was “cut-throat” motivation but that company certainly squeezed out every drop of performance from us. And I still attribute plenty of my success today to the skills and focus I learned there. Even though it seemed cold-hearted, there just might be a place for this in the small business world.
I wonder if entrepreneurs would be more successful if their financials were ranked against others.
The initial inspiration of this post came from a blog on the Go San Angelo website called “Financial statement keep score in business.”
Blog writer David Erickson is a Certified Business Advisor at the Angelo State University Small Business Development Center. He touched on the idea of financial statements keeping score. If you read his article, you’ll find that he covers the main financial statements in similar way to what we’ve covered here. But he hints at something far greater: Your financial statements could be – SHOULD be! – ways that you rank your own small business performance.
Obviously, you wouldn’t rank it against other entrepreneurs but you should rank your performance against your historical performance. Why not look at your P&L statement for each quarter and see how this quarter stacks up against previous quarters. Are you doing well? Are you struggling? If you do this over a period of years, you might find that certain quarters are good for you and others are not so good. Or, you can narrow to an even more granular level: the monthly statement.
Remember: what gets measured gets managed. So, if you want to manage your profitability, you should be measuring it regularly!
Jessica Routier, IAC-EZ
As small business owners try to increase their business, they need to invest in order to receive a return (called a “return on investment” or “ROI”).
Small business owners invest money in the hopes of making more money. They invest other types of resources, too, like time and effort and knowledge, in order to grow their business.
But there’s one type of investment that you might not think of. And, if you’ve come from a sales background, you might completely miss out on this opportunity! The investment into the customer relationship. Like time, money, and effort, this IS an investment with an expectation of ROI. But in this case, you’re investing yourself.
I recently read an article called “Paying Attention is a Good Sales Strategy” on the SmallBizTrends.com blog. They rightly point out that small business owners (and, very frequently, sales people) aim for the sale and ignore the nurturing relationship that leads up to it. And in today’s business world, that nurturing relationship is vital.
The article, written by professional coach Diane Helbig, gives 3 reasons why investing in that relationship is worthwhile:
- It enhances the bond between you and your client.
- It presents opportunities for increased business.
- It is a cost effective marketing strategy.
These are three very powerful returns that aren’t immediately considered by some entrepreneurs because they don’t come with an immediate price tag.
Case in point: On some sales, you might think: “If I invest 2 hours and $500 cash into selling to this customer, and I make $3000 as a result, I’ll make money.” That is a clear and measurable ROI. However, nurturing a relationship with a customer doesn’t have such a clear metric because it might require a few minutes of your time each week over a period of several months in order to sell. But along the way you’ll enjoy the 3 returns listed above.
The exact ROI on relationship building is fuzzy, but business owners would do well to invest in nurturing a relationship with their customers anyway.
Jessica Routier, IAC-EZ
