Expand your business carefully

Businesses grow in stages, and often that growth is linear. Year-to-year profits expand incrementally as new products are developed and new services offered. Sometimes, however, a company will want to seize new opportunities and expand rapidly. Perhaps a competitor drops from the market and your firm is suddenly faced with a new client base. Perhaps an improving economy makes opening new stores in another region a viable option. Perhaps a vendor that supplies one of your company's key components has started searching for a buyer.
Proceed with caution! Although rapid expansion may provide opportunities for increased profitability, growth is also fraught with hazards. Not a few companies have crashed and burned because they plunged into new markets or acquired existing businesses without adequate forethought. If your company is mulling over expansion, consider the following:

• Know your priorities. A firm should never lose sight of its core mission. Be slow to expand into products that, on the surface, seem similar but may actually take your firm in a different direction. If your company manufactures furniture, should you really buy a firm that produces airplane parts?

• Know your investors. Some companies have established hand-shake agreements with investors, then spent thousands of dollars only to learn that financing was not forthcoming. Make sure you have adequate recourse should needed funds fail to materialize.

• Partner wisely. For example, seek other firms that can assist with larger-than-expected orders. To prevent backlogs and problems with quality, scrutinize the capacity of your suppliers.

• Acquire carefully. If in doubt about any aspect of the business you're considering for acquisition, seek expert advice. "Winging it" is a sure recipe for disaster.

• Plan for growth. Many aspects of your business may be affected by expansion, including accounting systems, organizational structure, inventory management, and sales. Be sure to examine every major system and function to determine how they can be integrated into a larger entity.

• Monitor growth. As your business expands, always keep a watchful eye on your firm's financial status and progress. Don't wait until the end of the quarter to discover that cash flow has dried up.

• Keep existing customers happy. A popular restaurant, for example, that expands too rapidly and fails to maintain quality may find itself losing customers to the eatery across the street. Remember, it's generally harder to attract customers than to keep them.

aconner@atconnercpa.com

Safeguards for reducing employee theft

The U.S. Commerce Department estimates that American companies lose $20 billion to $40 billion annually to employee theft. It's a huge problem, and small retail businesses tend to suffer disproportionately. Why? Smaller firms often operate on razor-thin profit margins. As a result, when employees misappropriate assets or "cook the books" at a small company — especially over long periods — the impact can be devastating.
Fortunately, employee theft can be prevented or minimized — even at a small retail firm — by implementing the following common sense safeguards:

• Detailed background checks. Following up with listed references and interviewing former employers is especially important for job candidates who will be placed in sensitive assignments. But even those folks who work in your warehouse or on your sales team should be reliable and honest. Any indications of fraud in a potential employee's work history should be investigated. Your firm's application form should request relevant details that might highlight potential problems. After all, it's much easier and less costly to pass over an applicant than to terminate a long-time employee who's been stealing for years from your company.

• Posted ethics policies. Sometimes employees just need to know what constitutes theft, and what behaviors management will or will not tolerate. Making sure that everyone is informed beforehand can prevent misunderstandings and, if litigation ensues, may provide a stronger defense for termination actions.

• Routine audits. If staff know that their work will be reviewed, inventory will be counted, and accounting records studied by someone outside their department, they may hesitate to steal assets or revise journal entries inappropriately.

• Reduced opportunities. Alternating duties among departments is another way to cut down on employee theft. Knowing that someone else will take over his or her work may act as a deterrent when the temptation strikes. For years, banks have required employees to take vacations. Why? So their duties can be performed and their records reviewed by others. Technology can also help. Surveillance cameras, for example, can be pointed at cash registers and placed throughout inventory storage areas. Delivery receiving systems and merchandise security tags also have been used to reduce theft at small businesses.

• Tone at the top. All of the above measures may fail if employees perceive that management is not averse to conning customers, ripping off suppliers, or stealing business assets when no one's looking. A zero tolerance policy for fraud must begin in the firm's executive office.

aconner@atconnercpa.com

Give your graduate some financial lessons

It's unfortunate, but many schools — including institutions of higher learning — spend little time educating their charges about the fundamentals of personal finance. Some kids view credit cards and loans as pipelines to free cash. Some never learn to balance a checkbook. Others consider saving for the future as a drag on today's fun and a waste of perfectly good pizza money. All too many make poor choices in their twenties and thirties, then look back with regret from the vantage point of middle age, wishing they had saved more and spent less.
If your son or daughter will graduate this spring, why not give a graduation gift that keeps on giving? Financial wisdom. To launch the discussion, consider the following three topics:

• Avoid debt if you can. Buying things on credit — whether you're purchasing a car, a house, a vacation, or an education — generally costs more than if you paid for the same item with cash. In the case of larger items, you could end up spending many times more. Cash is king. Many sellers provide discounts to buyers who pay cash. If at all possible, buy stuff with money that's already in your bank account. If you must take on debt, negotiate the lowest interest rate and shortest loan terms you can, assuming you can afford the monthly payments. To avoid accruing interest, pay off credit cards each month. Minimum and "interest-only" payments are the enemy.

• Know what you're spending. Track your expenses for a month or two. You might be shocked. Morning lattes, restaurant meals, impulse purchases at the local department store — all these can drain your finances almost without your awareness. Learn to live within a budget. Prioritize. Be an exception to the rule.

• Save; then save some more. Unless you want to depend on social security in your old age, it's wise to start saving early. The sooner you start, the less you'll need to set aside over time. Be sure to contribute to your company's 401(k) plan if it's offered. When you get raises or cost of living adjustments, increase your contribution percentage. Consider setting aside some of your income in a Roth or traditional IRA as well, and resist the temptation to withdraw money from retirement accounts too soon.

Develop habits of financial discipline now, and reap dividends in the future.

aconner@atconnercpa.com

Make sure your inventory numbers are accurate

 

For many companies, inventory is a significant dollar amount on the company's financial statements. So it's crucial that recorded inventory balances reflect actual values. When such accounts aren't properly stated, the cost of goods sold and current ratios — numbers that often matter to decision makers — may be skewed. If banks discover that your company's inventory accounts are overstated, they may not extend credit. If, when necessary, inventories aren't "written down" (their values lowered in the accounting records), fraud may go undetected or the company's net profits may appear unrealistically rosy.

Inventories decline in value for a variety of reasons. You might be in the business of selling electronic equipment to retail customers. Over time, yesterday's "latest and greatest" gadgets become today's ho-hum commodities. Such goods still have value, but they can't be sold at last year's prices. Your inventory is experiencing "obsolescence."

Inventory "shrinkage" is another term that's often used to describe declining inventory values. Let's say you run a construction materials company. Unbeknownst to you, a dishonest supervisor is skimming goods from your shelves. A periodic inventory count that's compared to your company's general ledger might show that inventory is declining faster than it's being sold. As a result, you may decide to investigate and to reduce inventory values in your accounting records.

Other examples of shrinkage might include a clothing store that loses inventory due to shoplifting or a warehouse facility that's hit by a storm. In both cases, inventories may need to be written down in the company books to more accurately reflect actual values. If your company holds goods that are subject to evaporation, some of your inventory value might "vanish into thin air." Under another scenario, a shady supplier might bill your company for goods that aren't actually shipped or received. If invoices are recorded in your accounting records at full cost, your inventory may end up being overstated.

For some companies, several sources feed into inventory values. A manufacturing concern, for example, might add all the expenses needed to prepare goods for sale — including factory overhead, shipping fees, and raw material costs — into inventory accounts. When those supporting costs fluctuate, inventory accounts are often affected.

To ensure that your inventory numbers remain accurate, it's a good idea to conduct regular physical counts and routinely analyze the accounts for shrinkage, obsolescence, and other evidence of diminishing value.

aconner@atconnercpa.com

Run the numbers before doing a "no-cost" refinancing

 

When lenders admonish you to refinance your mortgage because "interest rates are at historic lows," they aren't kidding. Just ask anyone who lived through the late 1970s when mortgage interest rates climbed to over 15%. But when you refinance a mortgage, it's especially important to slow down, read the fine print, and beware of offers that sound too good to be true. As many economists have preached, "There's no such thing as a free lunch." In other words, don't expect to get something for nothing.

That maxim holds true even with "no-cost" refinancing. You may skate through the refinancing process without opening your wallet or writing a single check, but be assured that someone will cover the costs. After all, appraisers need to be paid. Title companies charge for conducting title searches. Setting up title insurance isn't free. Lenders, escrow agencies, local governments — all want payment for their role in refinancing your mortgage.

In a "no-cost" refinancing, how are such routine closing costs covered? A lender might simply roll the closing expenses into the balance of your new mortgage. You might refinance a mortgage to reduce your monthly payment and total interest expense. But if a lender adds closing costs to your new mortgage, you may find that the benefit of that lower interest rate disappears. That's especially true if you end up with a larger mortgage balance over a longer term.

A lender might also increase the interest rate on the mortgage to cover closing costs without passing them on to you — at least initially. You don't pay the costs upfront, but the lender recovers those costs over the term of the loan because you're paying more interest.

Let's say you apply for a "no-cost" refinance of your $150,000 mortgage. The refinanced mortgage will be paid off in 15 years. If one mortgage has a fixed annual rate of 4.5%, you'll pay about $56,500 in interest; if the interest rate is increased by just half a percent to 5%, your total interest will be $63,500 and your monthly payment (principal and interest) will be about $40 more. Accordingly, it may make more sense to pay the closing costs upfront and avoid the higher interest rate.
Bottom line: Be sure to do the math before signing papers on that "no-cost" refinance.

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Are you making these business website blunders?

 

Although potential customers may have a genuine interest in your products or services, they may prefer to view those offerings over a cup of coffee at home. That's why it's crucial that your business website is easy to use and current. Make a customer's online experience pleasant, and new orders may be just a click away. Annoy those same customers, and they may never darken your door or fill out your order form.
Unfortunately, many business owners, though savvy about providing excellent customer service and stocking quality merchandise, often fall short when designing a website. Whether you're planning to launch a site for the first time or revamping your homepage to draw in more customers, be sure to avoid these common blunders:

• Lots of glitter but little gold. Flashing arrows, hip-hop music, and multicolored wallpaper may steal the show at your daughter's sleep-over, but your business website should project a professional image. Most folks who surf the Web — especially those who browse from their smart phones — want information in a hurry. Don't make them waste valuable time (and data usage) while waiting for your fancy web page to load. Keep it simple.

• Stale data. When you browse a web page and see that it was last updated five years ago, do you sense a vibrant cutting-edge enterprise? Or do you wonder whether the company is still in business? Make sure your site displays current prices, merchandise that's available today, and up-to-date information.

• Navigation to nowhere. Faulty design often becomes evident when a customer tries to navigate from one web page to another — and gets lost. Each web page should have the same "look and feel" so visitors can get their information quickly and easily.

• No freebies. Don't make potential customers pay for every scrap of information. Your business website should include current content that's free to any visitor. If you're in the business of selling electronics, provide the latest consumer reviews. If you refinish furniture, offer advice on maintaining antique pieces. If a visitor finds your information useful, he or she may stick around for a sale.

• Poorly written content. Don't clutter your website with grammatical gaffes, spelling errors, or industry jargon that's incomprehensible to the common man. Remember, your Internet presence reflects your business. Like the sign above your door or your ad in the yellow pages, your website leaves an impression — positive or negative — with every viewer.

If we can be of assistance with any of your business concerns, give us a call.

aconner@atconnercpa.com