Profitability | equitybydesign

Increase Your Company’s Profits: Know Your Numbers

September 27, 2018 by Monique Lusse Leave a Comment

Lusse, Monique. “Labyrinth at Golden Gate SF.” 2014. JPG file

Last week I introduced the 6 Strategic Steps to Increasing Your Company’s Profits & Improving Cash Flow.

Over the next six weeks, I’ll be taking a deeper dive into each one. So let’s get started!

Step #1: Know your numbers

To know your numbers is to be in relationship with your numbers. It’s about listening to the story that your numbers are telling you. It’s about seeing the patterns and trends.

Knowing your numbers increases your company’s profits because it gives you actionable information. Without knowing your numbers you are shooting in the dark, you don’t know where you are, much less if you are making progress to getting to where you want to go.

Knowing you numbers will show you “what is.” And while there are some things you cannot control, there are a ton of things you can. Looking at your numbers on a monthly basis will show you problems, opportunities, successes, hidden costs, trends, and patterns.

Your job as CEO of your company is to make decisions, to have vision, and to communicate that vision through decisions. It is your job to delegate the implementation and execution of those vision/decisions to others.

Speaking specifically about the internal financial operations of your business, these others include your bookkeeper, your CFO, and your tax accountant. You’ve got more people on your financial bus, but they are out of the scope of this conversation.

So that means that in order for you, as CEO, to make the best decisions , your bookkeeper needs to be giving you at least three financial reports (more on that below) on at least a monthly basis that show you were you are now and how the company has been doing so far this fiscal year.

Then you sit down with your CFO and do two things:

Go over the reports to get a good “rear view mirror” picture so that you get some actionable information and spot trends, changes, patterns, problem areas, and opportunity openings.
Use that information to look forward and make decisions on what to tweak.

Now “tweak” covers a lot of ground, from reallocating budget monies to changing your business model. The good news is that in doing this review monthly you catch things sooner rather than later. You make more minor changes and fewer pivots. You aren’t in reaction mode all the time, putting out fires. You are running your business. It’s not in running you. And this calm, this peace of mind allows your creative brain to do its thing. Your brain can focus on new revenue generating ideas, on client retention, on business development. And that’s how staying in relationship with your numbers increases your profits.

Here are the essential monthly reports to review:

profit and loss statement, budget vs. actuals
balance sheet
cash flow projections

And if any of these apply to your business, pull them, too:

accounts receivable aging
accounts payable aging
statement of cash flow
inventory
sales by item
profitability by job
profitability by customer.

It bears mentioning again that these monthly reports have to be current, accurate, and complete in order to be useful to you, the CEO. If your bookkeeper isn’t getting you these reports in that condition (or your don’t have a bookkeeper) that’s the first thing a CFO will help you with. Hiring, vetting, and working with a bookkeeper can be a tricky thing. You may not have the expertise to know what to ask for or to recognize warning signs. A CFO fills in the gaps of your financial knowledge.

Now for the patterns and trends, problem areas and opportunity openings. What exactly are you “reviewing” when you’re looking at your financial reports?,

For your P&L:

Are your sales this month, this quarter, year to date (YTD) up or down as compared to previous month’s this fiscal year and as compared to all of last year? What are the reasons for that? The answer to this question is the fun part. This is the actionable information I was talking about before.

Then you look at the following areas and ask the same questions:

cost of sales
gross profit
marketing
overhead
net profit

With this information you make decisions so as to mitigate the problems and repeat the successes. You delegate those decisions to your bookkeeper and CFO, then you check back the following month and see how you did. Rinse and repeat. And thereby increase your profits.

For your balance sheet:

If any of the following are less than optimal, then those are the areas that you strategize and brainstorm possible solutions with your CFO.

cash position is adequate
inventory turnover is healthy
accounts payable is current
accounts receivable is current
all liability obligations are met

For your cash flow projection:

What is your cash position going to be next month? next quarter? six months for now? If any red ink shows up on the cash flow, ask yourself

how you can turn that around.

Can you work with your customers to get money in sooner?
Can you work with your vendors to create an extended payment plan?
Is the negative cash the result of either
- lack of overall profitability because your business model is flawed and needs to be changed? or
- lack of actual profits because you don’t have enough sales?
Would you benefit from a line of credit from a bank?
Would bringing on outside investors be a better fit for you?
Is your compensation structure sound?

So that’s it in a nutshell.

And just so you know, I only work with five clients at any one time. This insures high quality and attention to detail. I’m close to capacity, so if CFO services is something you’d like to explore, please give me a shout and let’s have a conversation to see if we’re a fit.

And if some of the accounting lingo I’ve used is unfamiliar to you, stay tuned to next week’s post about knowing some basic accounting lingo. I’ll be breaking that down for you then. Truth be told, I had a hard time deciding which step to put first, ‘cause you can’t really understand your financial reports without knowing some concepts and terminology. But I like learning and teaching “in context,” so that’s why the numbers came before the terms. Again, truth be told, you’re going to be learning and deepening your knowledge and understanding always. There is no arrival.

Till next week!

To your financial success,

Monique

Share this item with a friend

6 Strategic Steps to Increasing Your Company’s Profits

September 18, 2018 by Monique Lusse Leave a Comment

Lusse, Monique. “Steps-Mill Valley.” 2014. JPEG file.

As the CEO of your company, there are some things you need to know about financial operations.

Here’s a six step process to increased profits and positive cash flow.

6 Steps to Increasing Your Company’s Profits

1. Know your numbers
2. Know some accounting lingo
3. Envision a new sales/gross profit/net profit target
4. Crunch the numbers with a What If? analysis
5. Budget your pick
6. Cash Flow your budget

Depending on your resources, intention and focus, this process can take anywhere from 1 day to 6 months. Your CFO will do all the heavy lifting and number crunching in these steps. But you can never abdicate or delegate the thinking part that goes into the vision.

Any questions about any of this?

Let me know in the comments.

I’m happy to answer them..

Share this item with a friend

How providing medical benefits for your employees benefits your business

August 30, 2017 by Monique Lusse Leave a Comment

Image: “Stethoscope on Money” by George Hodan is licensed under CC0 Public Domain

The triple bottom line of running a business calls for including “people” and “planet” along with the traditional bottom line, “profit”.

A bit of back story first: I had a deadly, benign, slow-growing brain tumor that manifested symptoms back in late 1986. Dr. Tom Kenefick, MD, long may he wave, is the man who went into my cerebellum in July of 1987 and got it out. He saved my life.

Having medical insurance is what got me to him.

Without that insurance, I’m pretty sure I would be dead. Why? When I didn’t have medical insurance and presented to three different doctors in early 1987 with excruciating symptoms, they each dismissed me. “It’s all in your head,” said one. He was right, but not in the way he thought.

I’m still here because I finally did get medical insurance when I got a job with a big bank in June 1987. “Wait, what?” I can hear you wondering. “How’d she get a job when she was dying from an undiagnosed brain tumor?” Divine intervention. Seriously. And that’s a much longer story which I’m happy to go into at a later date.

Now this is where the term “pre-existing condition” comes in. I had just acquired one.

As long as I was an employee and worked for a company that provided medical insurance, I could get medical insurance. That’s because, then as now (and who knows for how much longer, but that’s another story), insurance companies could not exclude people with pre-existing conditions in group insurance plans. And could not charge them more for that coverage.

While the Patient Protection and Affordable Care Act—also known as the ACA, also known as Obama care, which went into effect January 1, 2014— mandates that insurers must cover all applicants regardless of pre-existing conditions and must charge them the same rates, that is not the reality on the ground.

Which brings me to my point here today.

The best option today still remains medical coverage tied to employment.

And here’s how your small business can get group coverage. It’s because of the rules around what constitutes a “group.”

And that’s just 2 or more full-time employees. And because one of those employees is the owner, all you need is one more employee and, voila! Your company is eligible for group insurance plans.

I can hear you now, “But that’s going to cost too much. My business can’t afford that.”

My response: There are costs and there are investments. Providing medical benefits is an investment in yourself and your employees.

There are ways to mitigate the cost. The lowest hanging fruit here is to have your employee pay all or part of the premium. Plus, you have many different plans to choose from, with different premiums and deductibles. That’s how to lessen the cost.

But that’s not the whole impact of providing medical insurance. You are more likely to be really clear about what you want in an employee before you hire that person, and you are more likely to vet that person. So this improves your bottom line by hiring smart the first time.

Also, an employee with benefits is more likely to stay with you, thereby increasing your bottom line. This is for three reasons: by not incurring costs associated with employee turnover, by increasing value inside the company with institutional memory, and by having employees that stay healthy, they are more productive.

So here’s the dealyo if you’ve got a small, owner-run business:

Get yourself on payroll,
Hire one other person and put them on payroll.
Get a group coverage program.
Have the employee pay up to 100% of the premium.

This is how you satisfy the “people” part of the triple bottom line, as well as the “profit” part.

Want some help figuring out exactly what your options are and how you can get this done? I can help you figure out how to design more equity into your business. Set up a Financial Clarity Call with me and we’ll nail this down.

Share this item with a friend

What’s the impact to your bottom line when an employee screws up?

August 10, 2017 by Monique Lusse Leave a Comment

This is a follow-up to last week’s post about my customer experience with the Salvation Army. Yes, customer experience. They may be a non-profit, but they are big business ($2.9 billion in revenues in 2015) and they rely on donors for their success.

What’s the negative impact to the Salvation Army because of my disappointment? It’s a double whammy: lost revenue and added expenses.

Here’s what that screw-up cost them from the revenue side:

I will never call them again to donate furniture = definite lost revenue
I am telling everyone I know about how they screwed up = potential lost revenue
I will not donate money to them = lost short-term revenue
I will not consider them in any legacy planning I do = lost long-term revenue

Hard, but not impossible, to put a dollar value on that. Here’s a stab at it:

According to the Salvation Army website,

10 million people donated in-kind donations this past year.
The value of that in 2015 was close to $565 million.

So an average annual donation of in-kind gifts brings in approximately $56.50 to the SA.

If 10 people that I tell about my experience don’t donate again, that’s another loss of $565 per year.

And that’s just for one year. Multiply that over my and my friends donating lifetime and it gets up there.

Here’s what it costs them from the added expenses side:

training costs for the new hire when the employee gets fired or quits,
loss of productivity during the training process,
loss of productivity during the first 6-12 months of the new person’s employment due to the newbie getting up to speed,
unemployment compensation insurance rates go up the more people claim unemployment.

Money touches every part of your business. CFO services don’t just include review and approval of the bookkeeper’s work, consultation with the CPA for the best tax advice, or communicating key performance indicators and metrics to the owner. That’s just the beginning. Financial operations management is so much more

Because what gets tracked gets noticed and acted upon, I quantify the hidden costs of doing business, so the owner can make better decisions about policies and procedures.

Are you wanting to take a clear look at your numbers? If so, take the first step and schedule a Financial Clarity Call with me.

Here’s to your financial health.

Best, Monique

Share this item with a friend

Employee Screw-ups and the Cost to You

August 7, 2017 by Monique Lusse Leave a Comment

My article last week, When An Employee Screws Up, Whose Fault Is It? tapped into some kind of mini-zeitgeist.

The day after it was posted, one of my coaches, Christine Kane, sent this out to her list: What Exactly to Do When an Employee Screws Up. Step #2.2 is what I’m talking about.

And then this morning I open my email to this from Michael Hyatt, 13 Ways to Make Your Employees Pull Their Hair Out. #11 on his list is what got me started on my post.

There are financial ramifications to all this, and I’m gonna talk about them in this coming Wednesday post. Treating people well is not just the right thing to do, it actually has measurable ROI.

Thanks for being part of my tribe. Consciously designing equity and fairness into the fabric of your business is how you do well by doing good. Hit me up for a free Financial Clarity Call to see how we can do this together.

To your financial freedom,

Monique

Share this item with a friend

When An Employee Screws Up, Whose Fault Is It?

August 2, 2017 by Monique Lusse Leave a Comment

Image: “Waiting for the Flatbed” by Monique Lusse

Today was the day that the Salvation Army was coming to pick up a bunch of my mom’s furniture. I inherited her stuff, all her stuff, when she died last year. I understand now why many traditional cultures have a period of mourning, at least a year. Took me that long to get out of grief brain and make decisions about what to keep and what to let go of. I had been waiting for this day since I scheduled the pickup at the end of June.

Called their automated line at 7.30am this morning to find out what my 3-hour window was gonna be: 8-11am.

Fantastic.

Noon rolled around and still no truck. I called, got in the queue to talk to Customer Service, found out there were 22 people ahead of me; I hung up and called back later.

Got a lovely woman (after she talked to the five people ahead of me.) “Oh, we don’t pick up in Bonny Doon.” (rural region up narrow winding roads in the Santa Cruz mountains in California.)

Three deep breaths while I experienced an immediate surge of anger and let it pass on through.

“I specifically told the gal I made this appointment with back on June 26th that I lived in Bonny Doon and I asked her specifically if they came up this far because not many charities will and she said,’ no problem’.”

The very nice woman today repeated, “I’m sorry, but we don’t service that area.”

Three more deep breaths.

“May I speak with your supervisor, please?” I asked.

Jennifer, her supervisor, came on the phone after a long bit, and I explained it all to her. She said she’d have to listen to the tape of that June call and get back to me in 1/2 an hour, one hour tops.

She did.

Now here’s the point of this whole story. Her response.

“It clearly wasn’t handled properly. I will write this up and submit it to her supervisor and it’ll go into her permanent record and she will be reprimanded. She clearly didn’t respond to the prompts from the system to ask you where in the 95060 zip code you are because we don’t go above the university (UC Santa Cruz). And I’m sorry, but I can’t reschedule this.”

Yes, the employee messed up. But it’s not only and all her fault, just like it’s not all a student’s fault 100% if they don’t get a new concept.

And really, fault is not a helpful word here. A screw up is feedback. Feedback that something in they system isn’t working. It’s information.

In this case, management had also messed up. The employee hadn’t been properly or sufficiently trained. Reprimanding an employee and putting demerits in their personnel file is not managing. Not only is punitive and humiliating, it just doesn’t work.

People will mess up. That’s a given. Instead of looking for blame, look with curiosity. Why did it happen? And what can management do to support the employee so that this doesn’t happen again? What can we learn from this situation to improve our employee’s effectiveness AND our customers’ experience?

Don’t get me wrong, I’m not talking about coddling or never firing an employee. I am talking about accountability. Use the feedback to make the necessary tweeks, and hold everyone accountable: the employee AND the manager. Sometimes firing someone or reassigning them is the right thing to do.

Financial operations management is not all about number crunching and spreadsheets and financial ratios; it’s also about identifying those areas of your business that impact your clients and seeing if there are procedures in place that are not helping you retain your clients, or worse still, sending them away with nothing but bad things to say about you. Because money touches every part of your business, my job as a virtual CFO is to look at every part of the business and suggest improvements.

Ready to take a candid look at your business practices with an eye to doubling your profits? Schedule a free Financial Clarity Call with me and let’s see about getting this done for you.

To your financial peace of mind,
Monique

Share this item with a friend