Cohen Consulting Group

A Report Card for Your Business Financials

February 28, 2019 by Mandy Leave a Comment

Do you remember the days when you got a report card from school? Now that you have a business, your business has grades as well. But it’s up to you to calculate them. Here are some grades you can compute for your business to give it a report card of its own.

Financial Grades

How successful is your business from a financial standpoint? These financial ratios can help you give yourself a grade.

Return on equity

This ratio measures profitability as it relates to the investment or money you have tied up in your business. The formula is net income / average equity. An ROE of 15 percent or more is an “A” for your business report card.

Return on assets

This ratio measures profitability as it relates to your business assets. The formula is net income / total assets. An ROA of five percent or more is an “A” for your business report card.

Asset turnover

This ratio measures efficient use of your business assets. The formula is sales / total assets. This number should be high for low margin businesses and low for high margin businesses.

Profitability Grades

How profitable is your business? You might know your bottom line number, but there’s more to it.

Gross profit margin

This ratio measures the financial health of a company as it relates to how much money is available to cover overhead. Calculate it as follows: (revenue – cost of goods sold) / revenue.

The value will be different depending on what industry you’re in, but some say a range of 25 to 35 percent is normal for small business.

Net profit margin

Net profit margin measures how profitable your business is in relation to the amount of sales you have. As an example, a business that can make $50K in profits on $500,000 in revenue is more healthy than one that can make $50K profits on $3 million in revenue. The formula is net income / total sales, and although it depends on the industry, a net profit margin over 10 percent is considered an “A.” Report cards were important in school, but they’re even more important in business. If you’d like us to set up one for your business, let us know.

Filed Under: Business Development, Money

Money and Marriage

February 21, 2019 by Mandy Leave a Comment

One of the biggest things that can cause fights in a marriage is money. No matter where you are in a relationship, it’s a good idea to discuss these major money topics so you’ll know where you stand.

Show me the money: Combine or keep separate or both

One of the best ways to avoid conflict is to put your money into three separate piles: yours, your spouse’s, and a joint set of accounts. In this arrangement, each of you has control over some money that is all your own. The household spending will then come out of the joint account, and you both will make contributions to it on a regular basis.

As a couple, you’ll need to discuss who will pay for what as well as what your regular contribution will be to the joint account. This is no small discussion. The more thorough you are, the less conflict you’ll have over money.

One spouse or partner will normally handle the joint finances, and it’s typically the person with the most accounting knowledge. However, you both should have access to this account in case of emergency.

Savings and future purchase goals

Do you have goals about upcoming large purchases? These might include:

A home purchase or improvement
Children’s education
Health care needs
Saving for retirement
A car purchase
A second home purchase
A vacation
Another item such as a boat, furniture, technology gadgets, a plane, or something else
A nest egg or cushion

If so, calculate how much you need and make a plan to set aside the money you need in the time frame you agree on.

Spending

Do you like to spend more than your spouse? Or is it the other way around? When money is flowing, there is usually no problem. When money is tight, that’s when the problems come in.

When there are conflicts in the area of spending, the best course is to focus on priorities. If you can agree on your priorities and goals, it can often shift spending habits.

Budget

You may want to set a budget to stick as close as possible to expected spending limits. Start by recording current spending in these areas, and then agree on the amounts you want to spend in the future.

Rent or mortgage payment
Utilities, including electric, gas, water, garbage, phone, internet, cable
Food and supplies, including grocery, kitchen items, liquor, and eating out
Entertainment, including travel, vacations, local events, holiday decorations, Netflix subscriptions, tech gadgets, books, etc.
House maintenance including repairs, cleaning, lawn care, appliances, and decorating
Automobile, including gas, insurance, licenses, and maintenance
Clothing and accessories, including dry cleaning
Health care, including pharmacy, doctor’s visit, and HSA contributions
Personal care, such as haircuts, nail care, etc.
Tuition and/or education expenses
Contribution to retirement and savings accounts
Charitable contributions
Taxes, including federal, state, local, school, and property
Paying down credit card or student loan debt

Retirement

What does retirement look like to both of you? Having this conversation will be enlightening. Know that dreams and goals can change over time as retirement approaches.

You’ll want to have an idea about what you’d like to spend during your final years so that you can make plans to start accumulating that wealth now. The sooner you start, the more years you have to build up your retirement assets.

Monitoring your progress

Keep an eye on your account balances to make sure everything is as it should be. Review bank and brokerage account statements and/or your budget once a month or at least once a quarter so there are no surprises or trends that sneak up on you. When you reach your goals, reward yourself. Managing money is hard work, and you deserve to pat yourself on the back when a goal is achieved. If there is anything we can do to help you make your financial dreams come true, please reach out any time.

Filed Under: Blog, Money

Five Money-Saving Things to Do Before Ringing Out 2016

December 22, 2016 by Mandy Leave a Comment

accounting-binder Hopefully you’re having a wonderful December with all of the holidays and parties this month. And if you’ve spent too much on gifts and decorations, never fear. Here are six ways to save on your accounting and taxes. But hurry, you only have until year-end to cash in a few of these tips.

1. Check your profits

After adjustments, are your books going to show a profit this year? If so, you may want to try to increase business spending before year-end so you won’t have to pay as much in taxes. Consider accelerating larger expenditures to reduce your profits and therefore, your 2016 taxes.

If you pay your business expenses with a credit card by 12/31/2016, you can deduct the expenditures in 2016 even if you don’t pay the credit card bill until 2017.

There are many tips on business deductions, so check with us to get the full benefit.

2. Eliminate payroll headaches

If your payroll system is causing you pain and suffering, consider switching. Year-end is the best time because switching costs are lower and year-to-date amounts don’t have to be entered. You’ll still want your old system to generate January’s W-2s, but if you start writing 2017 paychecks out of a new system, it will give you a clean break.

And if you’re not sure what system to move to, we have answers.

3. Make January smoother

January is typically a bookkeeper’s busiest month of the year. Many tasks can be done early, such as checking to make sure your W-9s are current and ordering W-2 forms if they are needed. To avoid last-minute headaches, check with us to see what can be done early. It may help keep your accounting costs lower.

You may also want to consider automating more of your accounting system. Adding an app to your existing system may save you time and money in 2017.

4. Give to your favorite charity

Giving to your favorite charity may reduce your personal taxes if you plan to itemize your deductions on Schedule A of Form 1040.

There are many personal deductions that can help reduce your taxes, so check with us for options to minimize your tax payment.

5. Get ready for tax time

Start collecting the documents you need for tax time so they’ll be handy when you need them. You may be able to upload them to your accountant’s portal, or simply set them aside in a special drawer or folder.

Go through your receipts to be sure you communicate all your possible deductions. If you’ve had a major event, such as a move, new child, new marriage, or new job, be sure to mention it to us.

When all of the parties are over and the relatives have left, try these tips to save time and money on your taxes and your accounting in 2017.

Filed Under: Budget, Money

Get Finance-Savvy with 10 Accounting Terms

December 10, 2015 by Mandy Leave a Comment

info-book It’s good to know some basic accounting terms, and here are ten terms with friendly definitions for your review.

Asset: Essentially, assets are what you own. These include your bank accounts, business equipment, and even the amounts that customers owe you.

Revenue: Revenue is what you make. Another word for it is Sales. You generate revenue in your business when you make a sale to a customer. The amount of the sale is included in revenue.

Expense: An expense is what you spend in your business on items that are not expected to benefit you in the long term. Expenses include credit card fees, office supplies, insurance, rent, payroll expense, and similar items that you need to incur to keep your business running.

COGS: COGS stands for Cost of Goods Sold. It’s a form of expense that directly relates to the product or service being sold. For example, if shoes are being sold, the cost of purchasing those shoes are consider COGS, while something like rent or insurance is simply an expense. COGS is more important in manufacturing, retail, and distribution companies.

Net Income: Another word for net income is profit. It’s calculated by subtracting expenses from revenue. If what’s left over is a positive number, it’s net income and if it’s negative, it’s a net loss. Besides your salary, it’s the amount of money you can either keep or re-invest into your business.

Debit: A debit is a term that tells you whether money is being increased or decreased. The hard part is that it’s opposite depending on the account and the company. Here are some examples:

A debit to cash increases it, so that’s good.
A debit to a loan you owe decreases it, so that’s good too because you are paying it off.
When you talk to a bank teller and they want to debit your account, it means they are taking money away, because your account is a liability to them. So it’s opposite.

Credit: A credit is a term that tells you whether money is being increased or decreased. The hard part is that it’s opposite depending on the account and the company. Here are some examples:

A credit to cash decreases it, as in writing a check to someone.
A credit to a loan you owe increases it, so you owe more money.
When you talk to a bank teller and they want to credit your account, it means they are putting money in, because your account is a liability to them. So it’s opposite.

GAAP: GAAP stands for Generally Accepted Accounting Principles. It refers to the set of standards that must be followed by accountants when creating accounting reports for people like bankers and investors who rely on them.

Liabilities: Liabilities are what you owe. If you have loans taken out for your business or owe vendors money for invoices of purchases they sent you, those are liabilities. Common liabilities include sales tax that you’ve collected but not paid, unpaid vendors’ invoices, credit cards that are not paid off each month, mortgages on buildings, and any bank loans you’ve taken out.

Equity: In mathematical terms, equity is the net of your assets less your liabilities. In more philosophical terms, it’s the net amount you and your fellow business owners have invested in your business adjusted by the years of net income you’ve made less what you’ve taken out of the business.

How many terms did you already know? Do you feel smarter already? Knowing accounting terms will help you understand this aspect of your business a bit better.

Filed Under: Bookkeeping, Money Tagged With: accounting terms

Three Costly Accounting Mistakes to Avoid

October 15, 2015 by Mandy Leave a Comment

bookkeeping Small business owners have a lot on their plates, and time simply does not allow you to become an expert in all the areas required for running a business. Here are a couple of common mistakes that we see all the time. Correcting them will help you be more productive and profitable in your business.

1. Mismanaging receipts

Maintaining receipts are challenging for everyone, but the IRS requires that you have proof of business expenditures. Periodically, we come across people who feel that keeping the credit card statements are enough; unfortunately, they’re not. You’ll want to create a process to keep your receipts all in one place so they don’t get lost.

Receipts printed on thermal paper (think gas station receipts and many more) will fade within a year or two, and the bad news is the IRS could audit several years back if they come calling. Correct this by scanning them in or taking a clear picture of them using your smartphone.

Some accounting systems and/or document management applications allow you to upload the receipt and attach it to the transaction in your accounting system. This is a great solution, and if you’re interested in this, please ask us about it.

2. Ignoring the accounting reports

There are gold nuggets in your accounting reports, but some business owners don’t take the time to review them or are uncertain about how to interpret them. Your accountant can help you understand the reports and find the gold nuggets that can help you take action toward profitability.

Some of the things you can do with your reports include:

Identifying your highest selling services or products
Projecting cash flow so you’re not caught short at payroll time
Getting clear on your top customers or your demographic of top customers
Evaluating your marketing or business development spend
Pointing out trends compared to prior years, budget, or seasonality effects
Checking up on profit margins per product or service to make sure you are priced correctly
Managing aging receivables or speeding up collections
Measuring employee profitability, if relevant
And so much more

Being proactive with your accounting will help you spot opportunities in your business that you can act on, as well as spot and correct problems long before they manifest into trouble.

3. Mixing business and pleasure

In your bank accounts and on your credit cards, mixing business and pleasure is to be avoided when possible. All businesses should have a separate bank account, and all business transactions should go through there. It takes an accountant much longer to correctly book a business deposit that was deposited into a personal account.

Taking out a separate credit card and putting all your business transactions on it will save your bookkeeper a ton of time. The credit card doesn’t even have to be a business credit card. It can just be a personal credit card that’s solely used for business. If you have employees making credit card charges, sometimes a separate card for them helps you control fraud.

The hardest area in which to separate business from pleasure is cash transactions. Be sure your accountant knows about these. The accountant can either set up a petty cash account or a reimbursement process so that you can get credit for cash expenditures that are for the business.

How did you rate on these three mistakes? Avoid these three and your accounting department as well as your business will run a lot smoother.

Filed Under: Bookkeeping, Business Tips, Money Tagged With: accounting mistakes, receipts

Ten Excuses to Have a Sale

June 11, 2015 by Mandy Leave a Comment

If you need cash fast, there’s nothing like having a sale to increase your bank account quickly. Here are ten excuses you can use to tell your customers you’re having a sale.

1. It’s Your Birthday (or Your Business’s Birthday)

We all feel generous on our birthday, so why not have a sale on your special day. You can even tie to discount amount to your day of birth. For example, if you were born on the 14^th, then you can offer customers 14% off.

Similarly, you can hold an anniversary sale on your business’s anniversary date. It’s a good way to let customers know how long you’ve been in business.

2. Your Partner Is on Vacation

If you have a business partner, you can use the excuse, “When the cat’s away, the mice will play.” You can pretend that your partner knows nothing about the sale, but has left you in charge and you’re going to have this sale. The customers will enjoy the reason and feel like they are getting away with something fun.

3. Holidays

Most stores have holiday sales, and you can too. There are so many unusual holidays that you can tap into just in case the holidays are at an inconvenient time. Here’s a website that will give you a list of special days, weeks, and holidays: http://www.holidayinsights.com/moreholidays/

4. The Full Moon

Why not? It might be the best sale you’ve ever had. The next full moon is July 2, 2015, and you’re in luck because July has a blue moon (when two full moons occur on one month) on July 31, 2015.

5. Small Business Saturday

November 28, 2015 is Small Business Saturday. It’s one day after Black Friday and the Saturday before Cyber Monday. Small Business Saturday is relatively new, but has been gaining momentum in the past few years.

6. Tax Holidays

In some states the sales tax authority provides exemptions for a few days on selected categories of items. For example, in August, Texas allows one weekend where sales tax does not have to be paid or collected on school supplies. You may not even have to mark down your items to generate a crowd for sales tax holidays. Here’s a Wikipedia page on it: http://en.wikipedia.org/wiki/Tax_holiday

7. Old Inventory Items or Overstock Conditions

A great reason to have a sale is when you have old inventory items you need to clear out. Similarly, if you’re overstocked on certain items, a sale will help them move.

8. Your Kid’s College Tuition Is Due

You can have a lot of fun by advertising that you simply need to make your tuition payments. Customers will get a smile out of helping you out and relating to a familiar need.

9. The Stock Market

If the stock market goes up or down, you can have a sale based on its performance.

10. Seasonal Dates

Dates such as the first day of summer, Spring Equinox, or even April 15^th, tax day (in the U.S.) can be potential sales days for your business. Think about seasonal dates related to your industry.

Try these ten ideas to get your sale noticed.

Filed Under: Blog, Business Tips, Money Tagged With: marketing

The Best Payment Terms for Faster Cash Flow

May 14, 2015 by Mandy Leave a Comment

invoice A great way to speed up your cash flow is to get paid faster by customers who owe you money. One way to do that is to examine your payment terms to see if you can accelerate them. First let’s talk about what payment terms are common. Then I’ll share a study that showed which payment terms generate the fastest payments.

English, Please

Traditional payment terms are spoken in the following format:

Percentage discount/(Days due from invoice date), “Net” (Days due before payment is past due)

An example is 2/10, Net 30. It means to the customer that if they pay within ten days, they can take two percent off of the invoice due amount. If they don’t want to do that, they need to pay the full invoice within 30 days of the invoice date.

You could write “2/10, Net 30” on your invoice, but you will get paid faster if you write it out in plain English.

Industry Standard

If your industry “has always done it that way,” I encourage you to challenge the status quo. Getting your cash faster is important to all small businesses, so don’t let your industry hold you back.

Discounts

Most corporations are required to take discounts if they are offered, so offering an early pay discount might help you get paid faster.

Insights

There are several studies on how to get paid the fastest. Of course they all have different conclusions! FreshBooks advises that “due upon receipt” terms can work against you as most people decide that that can mean anything. They suggest using wording that says “Please pay this invoice within 21 days of receiving it.” Here is their blog post on the topic:

http://www.freshbooks.com/blog/the-best-invoice-payment-terms-to-help-you-get-paid-faster-and-more-often

Xero produced a page on the topic as well. Their research suggests that debtors pay bills 2 weeks late on average. They also suggest using terms of net 13 or less in order to get paid within 30 days. Here is their page on the topic:

https://www.xero.com/us/small-business-guides/invoicing/invoice-payment-terms/

Feel free to contact us if you’d like help deciding on payment terms for your business.

Filed Under: Business Tips, Money Tagged With: cash flow, payment terms

Five Fun Things to Add to Your Invoices

October 10, 2013 by Mandy Leave a Comment

paidstamp When it comes to marketing, the company invoice might be the last thing you’d think about. But think again: it’s a great place to make every attempt to get paid faster and have your customer coming back for more services and products. Here are five fun easy-to-implement ideas to add to your invoices:

1. A Thank-You

A simple “Thank you for your business” or a “We appreciate your business” is a nice added touch on the bottom of every invoice.

QuickBooks invoices include a comment line where you can choose your comment or write one for yourself. You can also customize the form so that it appears on every invoice.

2. Your Current Special Offer

A customer that just purchased from you now trusts you; it’s the perfect time to let them know what else you have available that they could benefit from. Your offer could be a small amount off their invoice for referrals they send you, your monthly special, a sale item, or an item related to what they purchased.

Just add a quick text line to your invoice letting them know the special and where to call for more information. If you haven’t ever tried this, you will be surprised and delighted at the results.

3. A Prominent Due Date

Most invoices include terms, but you can make it even easier on your client by computing their specific due date. If at all possible, include the due date on your invoice so the customer can see clearly when they need to pay you.

Make the due date stand out, too. Bold it, print it in a different color, increase the font, or do all of the above. You want it to be really clear when that payment is due in your office.

4. A Payment Link

Can you take payments online? If so, include the web link that customers can use to pay you online. This might be to a shopping cart, Intuit Payment Network, PayPal®, or another online payment system. If it’s convenient for your client to pay, you’ll get paid faster.

5. A Friendly Warning for Overdue Invoices: “Does your mother know you haven’t paid this invoice?”

If all the above fails and the customer does not pay you by the invoice’s due date, you’ll want to have a process for re-sending the invoice and/or statement until the customer pays or until you’re ready to turn it over to a collections agency. Here are some sample sentences you can choose from:

“We hope you’ve just overlooked this bill and can send your payment right away.”

“We’re re-sending this invoice in case it got lost. Please send payment right away.”

“Could you check on the status of this payment for us? Our records show it’s past due.”

“Please contact us if you have questions or issues with this invoice. Payment is now past due; please remit immediately.”

“Hey, we need to pay the rent! Please send your payment as soon as possible.”

When the invoice gets older, sometimes it helps to add a little humor:

“Does your mother know you haven’t paid this invoice?”

Marketing to Get Paid

With these five low-cost ideas, you’re sort of “marketing” to get the payment sooner. They are easy to implement, cost very little, and will improve your cash flow. Try them and let us know how they are working.

Filed Under: Business Tips, Money

Five Fall Projects to Refresh Your Financial Results

August 29, 2013 by Mandy Leave a Comment

Autumn Leaves

As we move into the fall season and the final quarter of the year, it’s a perfect time to commit to a project in your business that will help you reach the year’s end in better shape. Here are five ideas:

1. Back-to-School Time

If payroll expenses are one of the higher costs in your business, then it makes sense to boost your team’s productivity and maybe also your own. Fall is back-to-school time anyway, so it’s a natural time of the year to take on a course, read a business book, or hire an organizer to help you get more from your workspace.

If you spend a lot of time doing email, consider taking a course on Microsoft Outlook® or even Windows; learning a few new keystrokes could save you tons of time. If you need more time, look for a book or course on time management. Look for classes at your local community college or adult education center.

2. A Garage Sale for Your Business

Do you have inventory in your business? If so, take a look at which items are slower-moving and clear them out in a big sale. We can help you figure out what’s moving slowly, and you might even save on taxes too.

3. Celebrate Your Results

Take a checkpoint to see how your revenue and income are running compared to last year at this time. Is it time for a celebration, or is it time to hunker down and bring in some more sales before winter? With one more quarter to go, you have time to make any strategy corrections you need to at this time. Let us know if we can pull a report that shows your year-on-year financial comparison.

4. Get Ready for Year’s End

Avoid the time pressure of year’s end by getting ready early. Review your balance sheet to make sure your account balances are correct for all transactions entered to date. You will be ahead of the game by getting the bulk of the year reviewed and out of the way early.

Also make sure you have the required documentation you need from vendors and customers. One example is contract labor that you will need to issue a 1099 for; make sure you have a W-9 on file for them. If we can help you get ready for year-end, let us know.

5. Margin Mastery

If your business has multiple products and services, there may be some that are far more profitable than others. Breaking these numbers out to calculate your profit margins or contribution margins by product or service line can help you see the areas that are adding the most income to your bottom line. Correspondingly, you can determine if you have any items that are losing money; knowing will help you take the right action in your business.

Refresh your financials this fall with your favorite idea of these five, or come up with your own fall project to rejuvenate your business.

Filed Under: Business Development, Business Tips, Money

Budgeting Breakthrough

July 19, 2013 by Mandy Leave a Comment

budget When you hear the word “budget,” what do you think about? Most people would say something similar to “Ugghh!” If you would rather do just about anything besides create a budget, you’re not alone. The word “budget” brings up connotations of endless numbers, constraints, the opposite of freedom and creativity, and hard work, none of which are very desirable.

Yet, the benefits of a budget are huge. Budgets can help you with cash flow improvements, keep you on track for higher profits, and alert you to items that need further action.

From “Budget” to “Profit Plan”

To be successful with budgeting, we need to get rid of all of the connotations that go with the word. Perhaps it might work if we rename “budgeting” to “profit planning.” And then, rather than focus on how little we should spend, let’s start with how much revenue we’re going to make.

Revenue Clarity

It’s simple to create a revenue plan if you go backwards. What revenue goal would you like to hit this year? Just like we would never get in a car without a final destination, a revenue plan gives us a number to aim for in our businesses.

Once you know your number, then we can use averages to come up how many sales or clients we need to generate in order to meet our revenue goal. Here’s a quick example: Let’s say you want to reach $5 million in revenue this year. If you average order is $10,000, then you need 500 sales. If you have multiple products and services, then you’ll need to sum the product of the average sale times the needed number of sales for each line.

From there, you can make marketing and production plans based on the number of sales or clients you need.

Protecting Your Profit

Think of the expense side of your “profit plan” as protecting your profit margins so that you can ensure financial gain from all the hard work you do. Setting budget limits on spending will allow you to control overhead and other items so you can keep more of what you make.

Exceptional Reporting

A great “profit plan” report will provide several things. You can compare budget to actual, or better yet, just be alerted to the accounts showing exceptions. You can also get an income statement that compares the current period with the prior year period so you can see how far you’ve come. One last option is a benchmark report which provides industry averages so you can measure how you fare compared to other companies in your industry.

A “profit plan” is a great tool for your business. If we can help you with the process or provide you with custom reporting, please give us a call.

Filed Under: Budget, Business Development, Business Tips, Money