Thursday, October 27, 2011

Congressional Reform Act of 2011

This concept is sweeping the nation. I think it has merit and is at least worth discussing. It would have to be passed over the objections of Congress. If there was ever momentum to work toward a resolution the problem of Congress, now is the time.

Congressional Reform Act of 2011

1. No Tenure / No Pension. A Congressman collects a salary while in office and receives no pay when they are out of office.

2. Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the American people.

7. All contracts with past and present Congressmen are void effective 1/1/12. The American people did not make this contract with Congressmen. Congressmen made all these contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term's), then go home and back to work.

Monday, October 17, 2011

Let them Eat Cake

DNC Chair Debbie Wasserman Schultz insisted to CNSNews.com October 4th that “anyone’ can see that the economy is improving even though 115,730 people lost their jobs in September (the most in more than two years). Pres. Obama admitted that Americans were not better off today than four years ago.

Fed officials “saw considerable uncertainty surrounding the outlook for a gradual pickup in economic growth,” with the economy showing only a weak bounce after the recession in contrast to past recoveries. Reasons for this weakness remained “unclear” although some blamed business and consumer debt and the distressed housing market.

Interesting isn’t it?

Here is a piece of good news. Bloomberg has gone on record as saying that a string of stronger-than-projected statistics -- capped by the news on Oct. 7 of a 103,000 rise in payrolls last month -- has prompted economists at Goldman Sachs Group Inc. and Macroeconomic Advisers LLC to raise their growth forecasts for third quarter growth to 2.5 percent from about 2 percent. That’s nearly double the second quarter’s 1.3 percent rate and would be the fastest growth in a year. The interesting aspect to this is that Bernanke projected the economy to grow at 3% back in July.

Here's the really good news: Restaurant industry sales in 2011 are expected to reach a record $604 billion and sales are projected to improve 3.6% over 2010 sales. Every dollar spent in restaurants generates $2.05 in the overall economy and restaurant employees comprise nearly 10% of the entire U.S. workforce. One of the barometers of economic improvement: When we start feeling flush enough to order the wine and the dessert again.

Fundamentally, I trust the fact that we are all starting to buy dessert as the most pragmatic indication that things might actually be getting better. We know that the government is not going to help in the short term. If we are going to see this thing turn around it is going to be one dessert at a time. There isn’t going to be a bailout of the pie factory or a fork ready stimulus plan at the diners. It’s going to be businesses feeling better about the economy and willing to talk about it over dessert.

Tuesday, October 4, 2011

It’s not the Lobby Groups, It’s the Politicians Stupid

I read, with some alarm, an article circulated by the Associated Press entitled “Protest against Wall Street spread across US” ( Chris Hawley 10/04/2011). The alarming part was quotes from demonstrators like “We feel the power in Washington has actually been compromised by Wall Street,” Jason Counts computer analyst in St Louis. Alternatively, “we support the notion that rich folks are not paying their fair share.” John Samuelsen, President of the Transport Workers Union in New York. How about “How to fix the deficit: end war, tax the rich” chanted by a group dressed as zombies marching on Wall Street.

The article did represent the other view voiced by one passer by wearing a suit named Roland Klingman, who works in the financial industry, “If they believe everyone down here contributes to policy decisions, it’s a serious misunderstanding.”

The political systems have been extremely successful in deflecting their personal agendas onto the masses. If it is true that the financial industry is adversely affecting the policy decisions in Washington, (and I do agree with this), it is a problem of the political system, not the financial industry. The financial industry wouldn’t try to influence policy if they didn’t have a historical perspective that says they can. If politicians want the public to take up arms against those who adversely influence their future, they should demonstrate against the politicians that enable this behavior.

Politicians are in a unique position to take action which we the public cannot. Politicians can end the influence of any lobby group by passing legislation to do so. Why don’t they? Political parties live and die on contributions. Contributions are the lifeblood of political parties much the same as revenue is to a business. They use influence to gain contributions. It’s not just big business that is the target. The people who are protesting the financial industry are the people that have benefited, at one time or another, from an entitlement program targeted toward them. These entitlement programs are designed to solicit contributions for the sponsoring party.

I understand the rage that most of us are starting to feel over the state of politics in America. The people have taken a back seat to fund-raising. Both political machines are far more interested in catering to the deep pockets then the public they represent. We need focus and reasoning in our actions.

If we allow any political party to emotional highjack us into believing that they, the politicians, are the victims, we have lost. If we want to believe; it is the contributor who is causing the harm, not the recipient; we are fools and deserve exactly what we get.

Many Americans are a gullible people with short memories. They are happily lead in any direction in which they feel will improve their personal comfort in the short term.

I’m not pro or con Lobby Groups, just as I am not pro or con political parties…. They have their place…. I am opposed to political groups putting their own agenda and well-being above those who they are paid to represent. Our 546 political representatives in Washington are starting to act like the royal family of America. They feel above the law and beyond the reach of the people.

Tuesday, September 6, 2011

Exactly How Do I Put a Value on Outsourced Accounting?

This is a stream of consciousness concerning the value of accounting for small businesses. I’m not an accountant, I’m a business guy trying to understand how to put a value on what I should spend for accounting. I am concerned with the adage that a man who represents himself in court has a fool for a client. Should I do my own accounting?

Aside from the obvious need to file taxes, it is stated that accounting provides four essential services to a small business. First, it records revenue obtained through the sale of products and services. Second, it provides an accurate record of the expenses associated with the sale of those products and services. Third, it keeps a record of monies owed in relationship to those expenses and finally it is a record of what the company owns.

This is very succinct. So what? Running a company is about cash. Knowing your profitability is important in the long term. However, staying in business in the short term is about cash management. Cash based accounting helps the owner understand their cash position more clearly in the short term, but makes it difficult to determine if the company will be profitable in the long term. There are four types of taxpayers that cannot use cash based accounting; Corporations over $5M, C Corp Partnerships, tax shelters and taxpayers with revenues over $1M requiring inventory. (You might want to talk with your tax preparer about reporting inventory if you are using cash based accounting). Accrual accounting is great for accessing the financial health of an organization over time, but tells you almost nothing about your cash position on a real time basis. Mid-size to large organization use accrual accounting with cash projection reporting. That is they run a separate set of books that keeps track of cash sources and cash uses.

Therefore, it would seem the best approach would appear to be accrual based accounting with a cash projection worksheet. Sounds like double work. I don’t have the time to do this myself. The way I save time is using summary data as opposed to detailed data. The problem with summary data is that it tells me almost nothing about how to run my business better. If I hire someone to do this thing for me, how does the effort pay for itself? I’m a guy that believes you don’t invest in a business expense that won’t pay itself back with profit. So how much net profit will I generate by having a bookkeeper or accountant? That’s a tough one….

Well for one thing, I know inventory consumes cash. Increasing the velocity of my inventory (that is the inventory turnover rate) will help me hold on to my cash longer. In my business, it won’t earn me much interest, but it may help avoid a late penalty on a payment due. Having a detailed analysis of how much I buy verses how much I sell, by item, will help me conserve cash. It might also help me identify waste, spillage or theft.

Knowing the profit margin on each product I sell could help me set pricing better. The market is going to drive many of my prices, so I might end up discontinuing products I can’t make money on. This could help me pay for help.

If my accounting could tell me how much profit-per-employee I make it might help me manage my labor cost more closely. I might also be able to assess how much I really spend on marketing if I can include all the ancillary expenses like meals and give-a-ways. Knowing how much I spend will help me understand its value better. All I really have to do is find a one per cent reduction in expenses or a two percent increase in revenues. With the right help it might be there…. There might even be more…. However, I’m going to have to find someone who understands both my business and how I manage my business… they need to understand both accrual based accounting and cash projections to really be useful..... what I don’t need is another employee to manage….

Tuesday, August 30, 2011

Sustainability is the Key to Success

There are three key areas that most business owner under-value when it comes to driving sustainability in their business. It is safe to say that many small business owners never even think about sustainability in relationship to operational issues. But, sustainability is the key to success.

Three areas that a lack of sustainability will kill a business

Labor

Many managers think that high turnover is an issue of bad hiring practices. Generally, that is not always true. High turnover is attributed more to mismanagement after they are hired than making a bad decision during the hiring process. What does high turnover cost you?

Your employee never achieves optimum productivity. The longer someone does something the more productive they become doing it. They stop thinking about what they need to do next and start thinking about how to do it better. When they leave, you lose that productivity. You also lose some of your productivity as you go through the hiring process to replace them and the training and mentoring process to make the new employee productive. During the hiring process you are down two employees not just one.

Here is another important point to remember. People do business with people they like and trust. When there is no continuity in your customer facing employees this customer/client-employee bond either doesn’t mature or becomes broken. The emotional tie between your customers and your business is weakened. Referral business is the cheapest and most profitable lead generation any company can have. A lack of continuity can adversely affect referrals.

So what can you do from a management perspective to keep employees? First, understand that motivators and demotivators are not linked. The elimination of a demotivator does necessarily motivate. Providing a motivation does not always overcome a demotivating characteristic. You can give a person a promotion with more responsibility, which they crave, and they will still leave you because they don’t like the corporate culture. Removing excessive overtime might remove a demotivator, but it won’t motivate anyone to work harder. Understand what works and what doesn’t work. Create motivators while removing demotivators. Don’t assume that work is called work because it is work. Life can be better than that.

Everyone is different; learn what works for each one of them. People are not robots that need to be treated uniformly. Don’t let the lawyers convince you that everyone should be treated like a clone. Be fair with everyone, but create programs that reward people in ways that are unique to their needs. This takes knowing them, not a pleasant task for some managers. This also takes time to build programs that are more flexible. This might require too much thinking for some people.

Lead Generation

The second area that businesses waste a lot of time and money because of a lack of sustainability is lead generation. In this world of multiple electronic channels, which many seem nebulous at best, there is a tendency to try anything once. It takes time to fine-tune a new lead generation process. Owners need to take the time to fully understand the details of what they are trying to achieve before they start. They need to fine-turn their idea of a prospect. They need to fine-tune their idea of an offering. They may even have to fine-tune their perception of the buying process. Marketing is changing. People don’t buy the same way they did before. They have access to much more information. They have less geographic constraints to whom they do business with.

Plan on going through several iterations before you see results. Using a start-stop approach will only burn cash, confuse your employees and produce limited results as best. I don’t know how many times I have heard an owner say “We tried that and it didn’t work for us.” Did they have a plan for sustainability before they started, or were they just hoping to find something that might work?

Cash is King

Spend money only when you know, or reasonably expect, it will make money. Everything you do must have a tangible return on investment. Even branding strategies must have a payback somewhere out there, or why do it? Track what you spend against what you get back. The only way to sustain a program is if it generates as much income as expense. Otherwise, it will die a slow death as the cash runs out. Don’t throw money at something just to see if it might work. There is no such thing as discretionary income to a business, it’s all critical to the operation. You can’t bet money you can afford to lose, there isn’t any.

The key is to fully fund a program before you implement. Most businesses plan on using cash created by the program to fund the program. That is a recipe for disaster. Use the cash generated by the program to fund another program. Then you will see growth.

Think about sustainability. Think about how you will use what you are planning to do it replenish the resources you use to accomplish it. Ideally, it should pay you back more than what you use.