By Amy Calfee

The cash-poor business: day 1

Everyone has gone home for the day and here you are scanning the accounts receivables report. You can’t believe what you’re seeing—so many customers are past due. How can you get them back on track to pay on time and in full?

You thought you were limiting your risk by accepting credit cards and only issuing credit to people. It looks like your payment terms are “net later.” Sure, it’s a tough economy and it’s going to get tougher if you don’t take action. You hate calling people asking for money, especially since you’ve already earned it.

Maybe you need to just get organized and implement new policies and procedures. Yep, that’s it. Start cracking the whip, dig yourself out of this hole and pull yourself up by the bootstraps! (There, just what you needed—a pep talk.) Ugh. You’d rather be doing anything else than chasing people for money. There’s got to be a smarter way to stabilize cash flow!

Small business debt dilemma

If you can relate to this scenario, you’re not alone. According to a recent online survey of business owners by the web-based legal service Rocket Lawyer, 49% of respondents wrote off bad debt last year. With 43% reporting accounts older than 90 days, these companies were on track to repeat the same performance.

While over half use legal contracts for protection, only 34% and 30% call late paying customers and send formal demand letters, respectively.

“Business owners struggle with the time and skills it takes to effectively manage collection activities. It’s also very personal. How do they get paid when their customers are suffering from job loss, house loss and the rising prices of everything,” said Michelle Dunn, credit and collections expert.

“Something to remember when you are lenient with customers who are past due: If they owe you money, they probably owe others money and whoever takes action first, gets paid first.”

Dunn, who has owned and managed a debt collection agency, teaches others how to collect debt and provides insights for business owners through her websites, speaking engagements, books and webinars (www.MichelleDunn.com or www.Credit-and-Collections.com), says that when it comes to debt collection, “You have to do it! If you don’t want to do it or aren’t confident about how to collect a debt, hire a qualified agency to do it for you.”

Irv Pollan, vice president of Jacksonville-based NCC Business Services of America Inc. (NCC, www. NCCBusiness.com) says, “Before contacting us, past-due accounts must be thoroughly documented to prove the customer actually owes the debt. We then take the appropriate steps to locate and make contact to negotiate a payment.”

“While a demand letter may seem like a simple thing, all debt collection activities must follow the letter of the law, ” he continues. NCC, a third-party debt collection agency founded in 1986, offers small businesses low-cost and time saving demand letter programs in addition to contingent fee-based services.

Being in debt and collecting debt is not easy. “We train our team to work effectively and monitor their performance,” Pollan says. “At the same time, we understand the overwhelming circumstances many people face and are in a unique position to help them get out and stay out of debt.”

What you can do day 2

Try following Dunn’s “it must be done” advice. If not you, then assign these activities to an employee.

•Call anyone with a balance over 60 days. Make sure everything is OK, ask what you can do to help them pay the bills on time and get a payment promise today.

•Send a letter following up on your call — mail it immediately! It can be short and sweet, but must be very specific. Make sure to mention how much will be paid and by what date.

•Follow up! If you get a machine, call again and send a letter.

The next 28 days

Remember that pep talk to get organized with new policies and procedures? Here are some steps to get you started.

1. Print out or buy credit applications. (See www.michelledunn.com/free.html for an example.)
2. Put them on a clipboard at the front desk and on your website.
3. Have every new customer fill one out.
4. Mail one to every existing customer with a stamped, addressed envelope.
5. Check all references on any completed applications.
6. Set firm credit limits.
7. Set terms for every customer and print them on all invoices and statements.
8. Research debt collection laws.

Differentiate differences

Remember that while the economy is struggling, so are your customers—many of whom have never had a problem paying their bills. Differentiate between customers who’ve always paid on time and are now having a problem and those who regularly pay late.

Taking any or all of these steps will only help you to collect money in the short term. Without making changes, such as having a credit policy, conducting credit checks or retaining a debt collection agency, you’ll be right back where you started next month.

You have arrived!

Hooray! You have reached day 31 and now have fewer accounts that are past due and you have the systems and relationships in place to effectively manage your accounts receivables moving forward. Much better!

Amy Calfee is the Chief Listening Officer (CLO) for Temerity Creative LLC. She can be reached at 904-733-3511.

17 tips to getting paid

1. Require payment at the time of service.
2. Invoice customers on a regular basis and as soon as the work is completed.
3. Make sure the due date is clearly visible on invoices.
4. Change your payment terms. If your terms are net 60 or net 45, change them to net 30 or net 15.
5. Offer an early payment discount to anyone who pays early, such as 1% or 2% off the bill for payment within 10 days.
6. Act early. When an account reaches 30 days, take action.
7. Call big accounts or accounts with large balances 10 days before the invoice is due to make sure they have the invoice, the correct address to send payment and that the invoice is scheduled to be paid.
8. Be as flexible as you can with payment plans.
9. When setting up payment plans remember that you want as much as you can get as frequently as you can get it.
10. Be picky about new customers.
11. Have a strong contract.
12. Run weekly accounts receivable reports and follow up with any accounts that are past due or becoming past due.
13. Don’t extend credit blindly.
14. If a business owes you money, visit them. If it’s a restaurant, go there for lunch. If it’s a printing company, get something printed or copied. Every time you walk in they will see you and it reminds them that they owe you money.
15. Direct the account’s salesperson to collect the money or withhold their commission until the bill is paid.
16. Reduce minimum orders. You could possibly get more orders for less money paid up front.
17. Use a collection agency.

By Nathaniel Herring

Nationally, economic indicators across the board suggest a rebound, however gradual, from the recent downturn—and businesses in all industries are taking note. The Jacksonville climate, in particular, continues to slowly brighten: The metro area added 5,500 private sector jobs last year, landing the area in the top 50 U.S. markets for job growth.

As the recovery continues to take hold, many business owners are considering more aggressive expansion strategies—and lending to small and mid-market companies is on the upswing.

Yet while banks are more actively lending, some business owners are hesitant to face credit standards and the underwriting processes. Companies looking to ramp up production, invest in new product development, hire more people, and otherwise march toward greater growth and profitability shouldn’t let this stop them—but they should plan on doing some work before going to a lender.

If you are planning to seek new capital through a business loan, consider the following tips:

Take a team approach

No matter where your company is in its business cycle, it’s crucial to maintain frequent and open communication with a team of professionals: your accountant, investment adviser, banker and other professionals. A balanced dialogue—that includes advisers who are well-informed about the market landscape and your business—is critical to helping you effectively shape the direction your company takes.

Your banker can serve as an insightful business adviser. Maintaining open and ongoing communication will help you take advantage of near- and long-term growth opportunities, as well as effectively weather downturns. When you sit down with your banker, be prepared to discuss not just your borrowing needs, but your overall business situation as well.

Plan ahead

Too many small and mid-sized companies focus on landing a large account without considering the end game: meeting needs, without going under. Put simply, businesses can’t afford to commit to a significant new project without securing the capital necessary to complete the job.

A forward-looking approach is essential in financial planning; if possible, forecast six to 12 months out for anything that can make a material change or put stress on working capital. Don’t wait until you have the purchase order in-hand before getting your bank involved.

Prepare a persuasive presentation

Present a clear view of your financials. To show that your company is financially sound and capable of taking on new endeavors, support your claims with detailed income statements and balance sheets, as well as at least three years of income projections.

In short, “Sales are up!” or “Talk to my accountant,” simply won’t cut it. While enthusiasm and confidence do count, you must articulate the specific value you expect from a new infusion of capital and demonstrate your ability to repay the note.

Another tip: Tell a compelling “story.” Give the financials context and dimension by providing background. What makes your business viable? How are you unique? What obstacles have you overcome? How do you stack up against the competition? If you’re meeting with a bank for the first time, consider rounding out your story with the following details:

•Company history

•Company accreditations, credentials, awards, recognitions

•Management team bios

•Product and services overview

•Marketing analysis and strategy

•Relevant operational and production plans

•Risk evaluations

Avoid common pitfalls

Many mistakes are easy to sidestep. Here are a few tips:

Get current valuations. Many business owners overstate the value of their collateral. Even though the bank will obtain an independent appraisal, it’s important that you have a solid understanding of your assets, including land, buildings and equipment.

Use setbacks to your advantage. Banks recognize that all businesses go through ups and downs, especially in a challenging market. Rather than downplay losses, discuss how you minimized the impact and what strategies you have in place to mitigate future issues.

Time it right. Banks underwrite based on a full year of financial reports, so consider this: Would your case for financing be stronger six months from now?

Be flexible. More stringent risk management policies in banking may mean your entire borrowing needs can’t be met with a single, lump-sum loan. Be open to exploring other options, such as an incremental financing program. Success with smaller infusions of capital over time can help increase your business’s credit-worthiness while assisting with cash flow.

Also, be sure to discuss all available funding options, including government initiatives like Florida’s Economic Gardening Institute—a program to support the growth of second-stage businesses—and SBA (U.S. Small Business Administration) guaranteed loans, with your banker.

Is it time for your business to take advantage of more favorable interest rates and improved lending terms to secure new capital? From gains in national consumer confidence to a two percent drop in Florida’s unemployment rate last year, signs of economic recovery are encouraging companies to explore opportunities for growth.

Before you decide to initiate expansion plans or take on that new, large project, make sure you have a banker on your team and your financing plans secured.

Nathaniel Herring is the city president of Fifth Third Bank (North Florida) and oversees the bank’s operations in the Jacksonville market. He is a Jacksonville native and has more than 19 years’ experience in the banking industry. He can be reached at 904-486-1927 or Nathaniel.Herring@53.com. For more information about Fifth Third Bank offers, visit www.53.com.

Small businesses near and far are thankful that technology is on their side, especially when it comes to financing. Tremendous strides have been made in the banking world in the last few years that makes getting a loan easier than before, but many small businesses are finding that there is none easier than online.

Online financing?

Touting themselves as something of a Match.com for lenders and borrowers, BoeFly (www.boefly.com) is an online loan exchange that efficiently connects small business owners with more than 2,000 business lenders.

“We connect borrowers and lenders by helping borrowers build a better loan package and helping lenders find those borrowers,” says David A. Nayor, co-president and chief operating officer for BoeFly. “Being former lenders ourselves, we noticed inefficiencies in the marketplace—mainly where borrowers were having trouble finding lenders.

“We took a step back and figured there’s got to be a better way,” Nayor continues. “Looking at other industries that use the Internet to connect parties more efficiently, such as eHarmony, Match.com, Cars.com, or eBay, we took that concept and applied it to small business lending with BoeFly.”

How it works

BoeFly is a loan-packaging service with software that helps the borrower gain a thorough understanding of what goes into a small business loan request and how to properly package it. Within that process, the borrower receives feedback from the exchange explaining where the strengths and weaknesses are in the deal and allows adjustments to be made as to what lenders want to see based on the marketplace of lender preferences.

“It’s not incredibly complicated, but it does take work to get a loan—no matter the size,” says Nayor. “There is a certain amount of work that lenders want to see in the loan request and we empower borrowers to be prepared before they connect with lenders. It also helps lenders find deals they wouldn’t have ever been privy to otherwise. Really, the success comes down to us matching borrowers with lenders, and ensuring it’s the right lender.”

Kevin Ellis, vice president of Small Business Lending at Atlantic Coast Bank, is one such lender that uses BoeFly to make connections. “With traditional methods, someone looking for lending would have to send their information, documents, and loan package to me. Then I would have to sort through it and ask for documents that may be missing,” says Ellis.

“With BoeFly, there is very little to sort through as everything is right in front of you to make an informed decision—the business plan, tax returns, estimates for build out costs and equipment costs, data on the franchise and the industry, resumes… the whole spectrum of things we would ask for, which sometimes when dealing with a busy borrower can take a long time to obtain,” says Ellis.

Making a deal

One such informed decision Ellis made after a BoeFly alert came across his desk was with Nick Borst, a Jet’s Pizza franchisee in Destin. Borst, who was looking to get funding to open this franchise, says he saved the online financing option for last not thinking he would find anyone, “but within 24 hours we had Atlantic Coast Bank interested.”

“It is probably the best example of the strength of BoeFly’s platform in matching me with the borrower,” says Ellis. “He’s in Destin and I’m in Jacksonville, and we were still able to make this deal happen in a matter of hours.”

“This project would have been up and running three months earlier if we would’ve started with BoeFly,” says Borst. “We tried several traditional avenues, and while they thought we would be great people to run it, they didn’t have the ability to fund us and we lost a lot of time with their processes. With BoeFly, you know the interest you receive from a lender is from somebody with a serious interest.”

“There is a lot of information you have to put in to the system, but the more you put in the better your chances are and the nice thing is you only have to put it in once,” continues Borst. “In our case, we had a very in-depth, several hundred page—probably too much—business plan and BoeFly helped us determine what was pertinent information and actually needed for the loan. They outlined what they and lenders look for which allowed us put the right information in the right spots.”

Ease of use

“The word that always comes back to us is that it is efficient,” says Nayor. “Efficient from a time perspective as the borrower only has to build a loan package once and efficient from a cost perspective as borrowers and lenders only pay a very small posting or subscription fee to use the platform.  There are no large commissions involved as BoeFly did not want to drive up the cost of the transaction or this interest rate that the borrower ultimately pays. This allows lenders to get more aggressive on their pricing and terms and it allows borrowers to find the best deal for them.”

Ellis adds, “It’s a different financial world these days. This is a great way that allows borrowers, lenders, franchisors—really everyone—to navigate this new environment and reach places and surrounding areas that wouldn’t have been available to them otherwise. It allows me to be mobile without being mobile.”

By David P. Grigaltchik

So, you’ve got a plan, a product and a partner, and you’re ready to launch your very own business and take the world markets by storm. In this article, we will explore the different legal issues that prudent business owners should address before going forward with any business venture. Essential to the operation of any successful business is the effective management of the three P’s of business: patrons, partners, and property.

Patrons

The success or failure of your business depends on one thing: your patrons, customers and clients. Having a large pool of clients is always a good thing, but, as with most things in life, quality counts for more than quantity.

Business owners learn early and are reminded frequently that customers may be their best friends or their worst enemies. Billing disputes and frivolous lawsuits regularly cost American businesses millions of dollars.

Since business owners typically lack the ability to pick and choose their patrons, they must learn to protect themselves through other means. Liability or malpractice insurance is something that business owners routinely pay for and hope to never have to use. Liability waivers may allow business owners to resolve adverse litigation quickly or to prevent it altogether, thereby avoiding having to pay larger insurance premiums.

By using waivers, business owners may guarantee certain rights to the patrons of their businesses, accepting liability in specific cases for the patrons’ financial or physical security, but limiting liability in other ways. By signing waivers, business patrons are essentially signing away their rights, and many such rights must be considered when drafting waivers, including rights to privacy.

Since courts are typically hesitant to limit the rights of individuals, waivers containing specific and clear language will have a higher chance of enforcement than waivers containing general and vague language. Waivers are not just for business owners whose businesses involve routine operations that have a high risk of causing financial or physical injury to clients.

As a rule of thumb, if you pay a liability or malpractice insurance premium, you should probably be using waivers. Waivers will not protect business owners who cause harm to their clients wantonly or take unreasonable risks. There is no reason, however, for business owners to live in fear of being held liable for the negligent actions of their employees or for damages caused by unforeseeable environmental factors.

Partners

Your business partner is your wing man. More than just a friend, your business partner is someone you rely on to keep your dreams of operating a successful business alive.

The process of starting a business is exceedingly simple in Florida. In most cases, in order to form a limited liability company, future business owners must simply file the Articles of Organization and pay a small fee. The Articles contain tiny snippets of information concerning your business; typically, the names of the officers and the registered agent, and the address of the company are listed, but little else.

This means that, at the outset, nothing exists delineating the duties, obligations, rights, privileges, or profit allocations among business partners. In other words, at the outset, your relationship with your business partner and, by extension, your business is held together with nothing more than a gentleman’s word.

With a little foresight, this precarious situation may be remedied by way of an operating agreement for your limited liability company. For a limited liability company consisting of two or more business partners, an operating agreement is an absolute must. Not only do operating agreements contain such essential information as the initial capital contributions of each business partner or member, but also provide for the allocation of profits, the timelines of disbursements, and the assignment of other duties.

Operating agreements may contain information specifying the employment of certain professionals, such as lawyers and accountants, and may designate members as specifically responsible for handling tax issues or other specific duties for the benefit of the company.

Consider that most people get married without ever intending to divorce, and yet divorce happens all the time. Similarly, even if the relationship between business partners is stellar, prudent business owners must have the vision and foresight to consider the possibilities of disagreement and dissatisfaction.

Property

Your interest in your business is a property interest. Like most property interests, it is freely alienable, which means that you are free to dispose of it as you like. It may be sold. It may be given away. It may be inherited upon your death. What’s true for you is also true for your business partner.

What happens to your business if your business partner no longer wants to be involved? What happens to your business if your business partner, god forbid, dies an untimely death? The answer is that you may end up having to deal with someone you never wanted to deal with, a business partner you don’t know, like or trust. In many situations, this will effectively bring an end to your business.

Once more, with a little foresight, you may address these issues before they arise by executing a buy-sell agreement with your partners. Buy-sell agreements govern the transfer of a business interest upon a business partner’s unwillingness or inability to continue with the relationship.

Typically, buy-sell agreements grant to the remaining partners the first option to purchase the withdrawing partner’s interest. Such agreements also contain provisions addressing the purchase of a deceased partner’s interest from the estate of the deceased partner. Buy-sell agreements may be tailored in many ways, in some cases making the purchase of the withdrawing partner’s share mandatory.

Regardless of how such agreements are tailored, they allow business owners to protect their interest in the business by giving them the option to continue to operate the business on their own terms following the departure of a business partner.

Gain foresight

In order to be successful in managing the three P’s of business, patrons, partners and property, business owners must have foresight and exercise such foresight by timely executing a series of available legal agreements.

In dealing with patrons, customers or clients, business owners should make use of waivers to limit their liability, thereby protecting themselves from frivolous lawsuits. In dealing with business partners, business owners should make use of operating agreements to ensure that all the rights and duties are clearly delineated at the beginning. In order to manage their property interest in their business, business owners should make use of buy-sell agreements to enable them to continue operating their business on their terms.

Many surprises will greet you in during all phases of business operation, from formation, through expansion, and into dissolution, but with a little foresight, you will be able to nip some of these in the bud.

David P. Grigaltchik is a business law attorney practicing law with his own law firm, David P. Grigaltchik, P.A. His office is located at: 6144 Gazebo Park Place South, Suite 215, Jacksonville, FL 32257. He may be reached at: 904-738-8398 or info@griglaw.com.

Think differently to save cash instead of saving taxes this year

By Greg Crabtree, CPA

Every business owner knows the drill; you made a profit this year so you need to spend your cash to save on taxes. Try to think differently this upcoming year to “save cash” not “save taxes.”

The inherent flaw in spending your cash is that you have to spend a dollar to save 40 cents in tax, which just seems like a bad idea. You come up with excuses to spend money you think you would have spent anyway—you buy new computers, some extra supplies, a new vehicle because you heard you can “write it off.”

The point is that if you did without those costs up to December, maybe you did not need to spend it after all! Most successful entrepreneurs spend a dollar at the last possible moment it is needed.

Build wealth or save taxes?

You can only build wealth from “after tax” income, so every attempt to lower your taxes lowers your ability to create wealth. The number one key performance indicator of wealth creation is “how big of a check did your write to the IRS.”

If you did not write a big check, you either cheated or you did not make any money—both are bad. Do not pay more taxes than you should, but you should be focused on building wealth above savings taxes.

What if I am cash basis?

For those who are a cash-basis businesses, you can easily fall into the trap of draining your cash paying off vendors at year end. While this seems enticing, you eventually take it to the illogical extreme and have such a huge amount pushed forward it causes you to make sloppy decisions at year end.

Here are just a few of the issues that you could encounter:

•Bank financing. Your year-end financials are more important than ever these days. By focusing on taxes instead of good business fundamentals, you distort your balance sheet at year end and spend the next year explaining why your balance sheet looks bad at December so you can get your line of credit or bonding renewed.

•Missed opportunities. Because you dumped all of your cash in December, it takes longer than you think to build it back in January and February. By not having cash available to start new projects, you delay or miss out on new opportunities. To delay acting on an opportunity wastes a day of potential productivity that can never be recovered.

•“Deferring Taxes” versus “Saving Taxes.” Did you really save taxes or did you just defer them? Be honest with your language when you spend your year-end cash. It is not saving taxes unless you are saving at a high rate this year and you pay a lower rate in the future.

Not likely to happen. Most entrepreneurs defer taxes at year end and push their rates down into the lower brackets to end up paying at a much higher rate in the future when they have kicked the can as far down the road as they can.

•Borrowing money to finance that year-end equipment purchase. This is the ultimate tax trap. You borrow $100,000 to buy that new piece of equipment (that could have been delayed) and you end up taking the expensing election on the equipment. Inevitably, this purchase pushes you down into the 20% or lower bracket.

The only way to repay debt is to make after-tax profit. To make enough profit to repay the loan, it pushes you into the higher brackets and you end up paying close to 40% tax to generate enough cash flow to get out of debt (if you are lucky).

A better way to think

You need to approach taxes as the logical outcome of a profitable business that is your primary wealth-building engine. These are the keys to make this happen:

•Owners wages. Set your wages out of the business at a market rate for the job you have in the business. Then live off of that wage. Do not fall into the trap of consuming the profits of the business.

•Get profitable with the business you have. Once you properly set your wage as an owner, your net income gives you a true picture of the profitability of your business. If you are not profitable, the key is to make all labor productive and eliminate any labor that does not add value. You have to get your current business model profitable before you grow.

•Grow your own capital. Once you are profitable, retain after tax business profits until the business is fully capitalized. One definition of being fully capitalized is having two months of operating expenses in cash with nothing drawn on a line of credit. A business that has two months of cash can act on opportunities as they come up and you do not need to “get permission” from your banker.

•Get shareholders healthy. Once the business is fully capitalized, you can then take distributions to get your personal finances healthy. Get out of debt first (yes, that means all debt… including your home!), and then build up your emergency fund.

•Strategically redeploy profits. Once your business and personal finances are stable, then you can make strategic decisions about the after-tax profits of the business and decide if you want to grow the business larger or just continue to harvest the profitability of the business.

•Beware of “consumption cancer.” Everything you buy owns a piece of you and creates a financial drag. If you learn to live off your wages and leave the profits of the business for wealth creation, you have mental clarity of what produces wealth, what is investing and what is consumption. If you set a lifestyle target before you have the income to act on it, you will stand a better chance to control consumption.

It is time for entrepreneurs to get back to fundamentals and build profitable businesses that do useful things and grow your own capital. Stable businesses are the ones that create jobs that last and build a strong economy that can weather the storms of the market.

Greg Crabtree has worked in the financial industry for more than 30 years and founded Crabtree, Rowe & Berger, PC, a CPA firm dedicated to helping entrepreneurs build the economic engine of their business. In addition to serving as the firm’s CEO, Crabtree leads the business consulting team—helping clients align their financial goals with their profit model and their core business values. He is the author of Simple Numbers, Straight Talk, Big Profits! He can be contacted through www.seeingbeyondnumbers.com.

By Chris Bryan

Are you struggling to see the benefits of your lean initiatives? If so, you’re not alone. You started your lean journey with the expectation that the benefits would flow to the bottom line. Unfortunately, the early financial numbers may not be what you expected.

Many companies abruptly take an exit from their lean journey when early indications don’t show expected benefits. Implementing the principles of lean is a long-term initiative, however, and will ultimately provide a significant competitive advantage—but it will test your vision and leadership mettle.

Lean principles

The goal of implementing lean principles is to find and eliminate waste along the value stream. Most companies appoint a lean champion. Employees are trained and lean teams are formed to map key production processes. This process is called value stream mapping.

The objective is to identify steps and resources that add no value to the consumer of your product. Once non-value added steps are identified, the value stream map is redesigned and waste in the process is eliminated. Production planning changes dramatically. Manufacture-for-stock is reduced or eliminated in favor of manufacture-to actual-demand. When a lean team has redesigned the process, an implementation event, or kiazen event, is planned to execute the changes.

Kiazen events usually take one to several days of intense work. When the event is complete, production resumes using the new lean production flow. It is common for lean teams to shorten manufacturing times, free floor-space, reduce in-process part movement and shrink (or eliminate) inventories. Compelling evidence shows that firms, large and small, benefit from implementing lean principles.

Nothing rivals the excitement and energy generated during the early stages of a lean journey. You will feel great about gathering your employees for training, forming lean teams and redesigning your value stream maps, and everyone will be eager to participate in the initial kiazen events. The optimism is intoxicating. Soon, however, you will face the task of measuring the progress of your lean initiatives.

Challenges measuring lean initiatives

Looking to your standard financial statements in the first few months of a lean journey is likely to give you a confusing picture. Unfortunately, standard accounting methods don’t reflect the progress made by lean teams in the early stages.

Costs associated with training employees, reconfiguring production space, relocating inventory, and conducting kiazen events all hit the profit and loss statement immediately. Liquidating excess inventory, an important initiative in lean, may hit profit margins and increase trade accounts receivable in the short-term.

Worthwhile lean projects that may not result in significant costs, such as clearing production floor-space and establishing point-of-use inventory locations, may not result in immediate cost decreases (rent or depreciation).

If that isn’t enough, standard production cost accounting methods actually reward operations managers for over-producing. Often, manufacturing overhead allocations are based on direct labor hours and other activity-based metrics.

When lean teams work to reduce excess inventory, production quantities may decline, direct labor hours and other metrics may decline and create unfavorable absorption variances. When new, lean production processes are implemented and production is limited to actual customer demand, unfavorable variances may persist.

The good news is that variable manufacturing costs can be reduced immediately; however, it takes time for you to reduce semi-variable and fixed costs that make up the manufacturing overhead pool.

When your generally accepted accounting principles (GAAP) financial statements and traditional product cost reports don’t represent the early progress being made, it’s easy to be distracted from the ultimate goal. To keep your direction and focus, develop a system of specific measures that will ultimately drive broader measures of performance.

Use specific measures to motivate

It is necessary, especially at the beginning of a lean journey, that you implement a system of measurements that can be communicated back to your lean teams. Specific measures and short-term incentives based on achievement are key tools to motivate your lean teams to exert extra effort, develop creative ideas, and to challenge inefficient but deeply entrenched processes.

These measurements will encourage you and your staff to keep driving the right events even when your financial statements do not yet show the fruits of your labor. The benefits of implementing lean principles will, in time, improve your financial statements and become a testament of your leadership skills.

Considerations in measuring lean

Shareholders, owners, partners and other financial stakeholders all rely on your financial statements to measure the performance of your operation. It’s a great advantage when you can link the benefits of your lean activities directly to improving numbers and trends from your audited or reviewed statements.

This is especially true if your business needs to acquire new, more efficient equipment through financing. Consider preparing a three-tiered reporting pack that links production-floor activities to broader performance measures that drive financial metrics.

The first tier reporting can be used to summarize each kiazen event. The summary should include a brief description of the event and how the changes implemented are expected to benefit either the profit and loss statement or balance sheet. (For example, the event may reduce costs or lower inventory.)

The expected cost and benefit of the event can be estimated with your accountant, but the estimate need not comply with traditional accounting rules. One of the benefits of documenting specific kiazen events is that it allows lean champions to later revisit the event and check if the results are meeting or exceeding the estimate.

The second tier can present monthly lean team metrics that don’t show up on financial statements, but will drive the top-tier metrics directly derived from the financial statements. Examples of middle-tier metrics to support inventory reduction metrics include takt time, consigned inventory value, and JIT supplier performance.

The top tier should contain four to six broad measurements of business performance that can be derived with at least one key piece of information from the financial statements such as sales per employee, inventory turns, return on net assets, return on sales, profit to operating cash conversion ratio, and gross profit margin.

Your vision and focus will become evident over time. One of the most significant and often immeasurable benefits of implementing lean, however, is the ability to take advantage of market opportunities in your industry. Lean initiatives can provide your company with additional capacity to capture new customers and make solid gains in market share.

This reporting pack proposal will help you concentrate on the proper metrics early in your lean journey. If you maintain focus, your business will gain a substantial advantage against your competition through operational excellence and market leadership.

Chris Bryan is a CPA and CFE with Christopher S. Bryan CPA, Inc. offering CFO services and fraud prevention services to local and national clients. He is a six-year veteran of measuring and reporting the lean journey. He can be contacted at 904-437-7022, cbryan@christophersbryancpa.com or through www.christophersbryancpa.com.

By Lewis Hunter

As a business owner, you are accustomed to, and perhaps even thrive upon, solving today’s pressing problems and pushing on totomorrow. But have you looked beyond this week, this month, or even this year?

The average owner spends 80,000 hours building their company but only six hours planning its transfer. As a result, 80% of business owners fail to get top dollar when they sell. That is like winning a free lottery ticket on a drawing for a $1 million jackpot—you may have won, but you missed out on a much bigger prize.

Just as winning the lottery is not a viable strategy for achieving your dreams, nor is hoping that you will sell your business for enough money to support your future lifestyle.

Use a business transition plan to control your exit and maximize your payout. Plan now when you will exit, how and for how much, rather than leaving it to chance.

Analyze your current situation

As with any journey, you must know where you are before you can determine where you are going. Transition planning involves reviewing your business and personal life.

Review your personal finances; focusing on the wealth gap you must close to support your goals for life after your business. If you want to retire, how much money will you need and what price would you have to sell your business for to net that amount?

For your business, document your vision and strategy for the company. Identify critical success factors and measure performance against them through operational metrics. Undertake legal and taxation reviews to ensure compliance with regulations and to protect against risks.

Identify your objectives

Set clear, measurable, attainable objectives for your life after your business, and your business’s life after you.

Business owners typically start planning transitions for one of three reasons:

•A personal health scare, or death or illness of someone close to them, has reminded the owner of their own mortality. They contemplate what would happen to their business and their loved ones if they suddenly stopped working.

•The owner has tired of their work and wants to do something different, such as go into public service or spend more time with friends and family.

•They desire to leave a legacy, ensuring the company survives them and that their work continues to benefit others.

Don’t wait for one of these to occur. Identify your long-term financial and lifestyle needs, the needs of family and stakeholders, and your desired business legacy.

Select your options

Whether you will transfer your business, continue working or retire, there are many ways to accomplish your objectives. Some options to consider and factors to review:

•Internal transfer—Consider whether the next owner(s) would be capable of running the business. Be impartial, even if they are one or more of your children or a long-time employee. Also, ensure you achieve your personal financial goals without irreparably impairing the company. Use trusts, buy/sell agreements, employee stock ownership plans or management buyouts, for example.

•External transfer—Your influence over your company’s future may wane with an outside buyer. Their plan should align with your vision for the business and the needs of your stakeholders, including employees and customers. Would the buyer be making a strategic acquisition with the intent of operating, and perhaps growing, the business over time? Or would they be a financial purchaser, hoping to squeeze cash and profit from a future sale? Will you solicit bids for the company or negotiate with a single prospective buyer?

Identify the options available to you and evaluate each one based on your objectives. Choose one and put a contingency plan in place so the business can operate and your personal goals can be achieved if you cannot complete the transition as hoped, perhaps due to health or performance issues. Use insurance and legal protections.

Create your plan

When will you transition and for how much? What will the acquirer look like? How will your family’s and stakeholder’s needs be met? Compile the answers in your plan and state how you will attain your objectives. Be specific.

The wealth gap between what your business is worth and what you need to sell it for can provide your timeline. If it is worth $1 million today and you need to sell it for $2 million, will it take three years to close the gap? Five?

Decrease the company’s dependence upon you. Allow time to build business value by grooming leaders, implementing systems, improving processes and increasing revenues and profits.

Your transition should occur when you want and in your accordance with your wishes for the future ownership of the business and at a value that fulfills your wealth objectives. Spell out roles and responsibilities for key individuals, draft the management structure, and detail how you will be paid.

When your transition plan is complete, break it down further into tasks with due dates and responsibilities assigned.

Create your plan, build your business’s value and transition when you are ready—then you won’t need to win the lottery to achieve your dreams.

Lewis Hunter is a Jacksonville-based business transition specialist with ROCG Americas, LLC, an international consulting firm that helps owners of small- and medium-sized companies start, build and exit. He can be reached at 904-400-6610, lewis.hunter@rocg.com, or through http://business-transition.com/.

Get ready

•Set up a team of advisors.

•Draft a letter to your spouse or loved one, stating whom to contact and what to do if you die or are incapacitated before you transition.

•Perform a business valuation.

•Measure the wealth gap between your company’s current value and what you need to sell it for to achieve your personal financial goals.

•Create your transition plan.

•Optimize your business.

•Build business value by eliminating the company’s dependency on you as much as possible.

By Mark Bajalia, Esq.

As a business owner, you will very likely need to make a claim under one of your insurance policies at some point. If you do, you may receive a “reservation of rights” letter from your insurer.

A reservation of rights letter often leaves insured parties confused and unsure about how to respond; however, you will find information about what a reservation of rights letter is and the various options and opportunities it presents for an insured party follows.

What it is

A reservation of rights letter does not necessarily mean the claim is not covered under the insurance policy. It does mean that the insurer thinks it may have grounds to deny coverage for some part of the claim or the entire claim. For example: Most policies have what is called an “intentional acts” exclusion. If it appears that the damages or injuries were the result of an intentional act on the part of the insured party, then the insurer may send a reservation of rights letter indicating that, under the terms of the policy, it may have grounds to deny coverage.

In some cases there may be claims that are covered and claims that are not and the insurer may send a reservation of rights letter indicating that it is providing coverage for only a portion of the claim.

Why they are sent

Insurers send reservations of rights letters to keep their options open. If the insurer does not reserve its rights and provides a defense to the claim, but later discovers that circumstances exist that trigger an exclusion or otherwise call into question coverage under the policy, then the insurer will be stopped from raising a coverage defense.

Under those circumstances, courts could, and have, said that the acts of the insurer in providing a defense without reserving its rights constitutes a waiver of its right to deny coverage. Thus, rather than deny coverage outright, the insurer will send a reservation of rights letter and keep its options open.

Essentially, the insurer is letting the insured party know there is going to be an investigation but is preserving its right to deny coverage if the investigation shows that it is not a covered loss.

What are your options?

You have several options when you receive a reservation of rights letter:

•Ignore it: The insurer may be correct in reserving its rights as to part of the claim.

•Dispute the reservation: As the insured party, if you disagree with the reservation of rights and your insurer’s interpretation of the policy language, you should go “on record” that you dispute the reservation and set forth the reasons that you dispute it.

You should also send it to the claims representative by certified mail and request a response. This will cause the insurer to reassess its position and even if the insurer’s position does not change, you have created a paper trail, which may be useful if the coverage dispute ends up in court.

•Ask for more information: Some insurers will intentionally keep the reservation of rights letter vague to keep their options open. An insured party should counter by asking for specifics as to the purported basis for the coverage issue and the rationale for it.

•Start the clock: Once an insurer reserves its rights, it must eventually declare whether or not it is going to provide coverage for the loss. If the insurer continues to investigate the claim but never conclusively disclaims or accepts coverage within a reasonable time frame, then the insurer may be stopped from doing so. Keep following up with the insurer and periodically ask the insurer to state its position.

•Explore new opportunities: If an insurer reserves its rights, you may have the right to hire your own lawyer to defend the claim, not one picked by the insurer. The insurer will nevertheless be required to pay for your lawyer of choice.

Courts have said that when an insurer hires a lawyer for the insured party, it creates an inherent conflict of interest, which may allow the insured to retain its own counsel. Thus, when confronted with a reservation of rights, it may create an opportunity for the insured party that didn’t previously exist.

•Seek a declaratory judgment: Despite the reservation of rights, if you or your attorney feels that coverage for the loss does exist, then you can seek to have a court review the policy language and the facts as presented and make a determination as to whether coverage exists.

In essence, you are asking the court to “declare” what the policy language means and whether coverage exists. This forces the insurer to address the coverage issues before proceeding on the merits of the underlying lawsuit or claim. The prospect of spending more on legal fees to defend itself in a declaratory judgment action may also encourage the insurer to go ahead and provide coverage and defend the claim.

If you feel strongly that the insurer is reserving its rights on false grounds, you may want to sue the insurer for breach of contract and bad faith claims handling as well. Ultimately you need to understand your rights and protect your rights when you receive a reservation of rights. When in doubt, consult an attorney with experience dealing with insurance matters.

Mark Bajalia is a partner and a managing member in Brennan, Manna & Diamond’s Jacksonville office. He is an experienced commercial, business and insurance litigator, having prosecuted and defended numerous cases in state and federal courts and in arbitration. He is rated AV Preeminent by Martindale Hubble, has been recognized as one of Florida’s Legal Elite by “Florida Trend” Magazine and has been selected as a Florida Super Lawyer in the field of business and insurance litigation.

By Cindy Stover

Attention Jacksonville small business owners: What measures are you taking to protect your company from fraud?

According to a 2010 report from the Association of Certified Fraud Examiners (ACFE), incidents of occupational fraud are 31% more likely to occur at small businesses as opposed to larger companies. To add insult to injury, as many as 40% of small business owners are embezzlement victims, and a staggering one-third of all bankruptcies are the direct result of internal theft.

More alarmingly, a recent TD Bank Small Business survey found that although nearly three-quarters of American small businesses polled are incorporating some steps to protect their business, only 1% of respondents cite falling victim to fraud as a top business concern, even as cases of criminal fraud are on the rise.

Five proactive steps

Here are five proactive steps you can take immediately to help prevent fraud. Remember, the best defense is a good offense!

#1. Manage finances using secure online banking. Banks and other financial institutions are at the forefront of developing and using security measures that help ensure financial information remains confidential and safe.

Online banking is a secure and essential tool for any small business owner. The benefits of this useful service include 24/7 access to real-time information, account transfers and payment management. You can easily schedule and manage your payments, submit remittance information, and have an audit trail of all transactions.

It’s important to check your account activity regularly. Having instant access to your history helps you closely monitor your account for any discrepancies. If you see any, contact your financial institution immediately.

Many banks also offer free (and secure) online bill pay—saving you money on postage costs and mitigating the chance of a paper check being lost or stolen in the mail.

#2. Protect computer systems and practice online awareness. Being complacent about cyber protection can lead to the compromise of critical information and detrimental consequences for your business. Every computer at home and in the office should have installed and regularly updated firewalls and anti-virus software.

While conducting business online, be aware of “phishing”—an electronic scam that attempts to obtain confidential personal or financial information from its target. It takes the form of a fake message, usually an email, which appears to be from a financial institution or service provider.

While some emails are easily identified as fraudulent, including some containing enticing headlines, others may appear to come from a legitimate address. Never reply to any email or pop-up message that requests you to update or provide personal information.

Given the influx of new digital technologies and operational tools available for small business owners, it’s increasingly important to learn about the latest trends and techniques used by cyber criminals. If an offer received via email or on a website sounds too good to be true, it probably is!

#3. Safely handle sensitive documents and financial statements. The Web isn’t the only place where thieves can steal valuable information. Some of your own employees and outside parties can steal important mail, credit card information or checks and commit fraud.

Printed financial statements, social security numbers and other sensitive papers should be disposed properly using a shredder or saved in a securely locked device. To avoid the hassle of handling several papers, certain banks allow customers to opt out of paper statements and receive online statements instead.

Technological advances have even put photocopiers at risk. Most photocopiers built since 2002 contain a hard drive that stores every image scanned, copied or emailed. When a business sells or upgrades their copier, the machine is usually cleaned up and reconditioned, but often times the hard drive is left intact and isn’t scrubbed.

Once resold, it’s possible for anyone to simply pop out the hard drive, and access and sell confidential information, such as income tax and bank records, social security numbers, and birth and medical records.

Treat documents in the standard office copier just as they would any printed document, and guard that information accordingly.

#4. Obtain fidelity insurance. Crime and fraud-related losses generally aren’t covered by property insurance policies. As a result, it’s important to protect money losses from workplace fraud.

Fidelity insurance protects your business against criminal acts such as robbery, embezzlement, forgery and credit card fraud. Liabilities secured under this type of insurance usually include money loss coverage (burglary or theft) and employee dishonesty (embezzlement and forgery).

According to the ACFE, 80% of workplace crime and abuse is performed by employees. Tough economic times often result in increased incidents of fraud and embezzlement. Although fidelity insurance means an additional cost for your business, it will save a lot of headaches should your business fall victim to workplace fraud.

Search for low rates and partner with a broker who can help you shop for the best deal.

#5. Incorporate appropriate checks and balances. Every small business owner should perform an internal review and assessment of company finances on a monthly basis. Make sure payment amounts match all invoices and check for any missing documents. Running random audits or having a third-party audit your books once a year will show your employees you are serious about fraud and deter them from committing deceptive acts.

If you think you’re a victim of business fraud, immediately contact the fraud department of any of the three major credit bureaus to place a fraud alert on your credit file. Also, contact your banks, credit card issuers and other creditors where your finances and information are available.

Following these five preventive tips will help protect your finances and allow you to focus on the success of your business!

Cindy Stover is market president of TD Bank’s, America’s Most Convenient Bank, North Florida market and is responsible for the commercial, government and community banking business for Florida’s Northwest, Northeast, North Central and Mid-North regions. Stover has over 27 years in banking experience and is involved in many local community organizations. TD Bank works hard with its customers to prevent fraud and takes several measures to protect their privacy. Visit its online security center for more tips at www.tdbank.com/security.

By Keith Johnson

As a small business owner, you probably already know that in this economy, getting any kind of business is hard. In order to be successful, you need to consider expanding the variety of revenue streams—and that includes dealing with businesses that may not be based in the U.S.

Success steps

Going global with your business is not easy. Once you decide to do business with non-U.S. companies, there is a lot of work to be done.

•Understand your industry. Know your industry and how it works in the country(ies) you wish to do business in. You have to know how your product or service will attract and keep buyers in the target markets. You also need to know if your product or service is priced competitively.

The value of what you sell must exceed that of not only your competition in your customer’s home country, but also from other U.S. companies that also want to expand their business by going global.

•Knows the laws of trading. You have to understand the laws of trading with a foreign business. What may be legal in the U.S. may not be outside of it, and vice versa. While bribery is acceptable in many nations, it is highly illegal under U.S. law. Your product may pass safety regulation muster here in the U.S., but maybe not in other countries.

•Be familiar with various currencies. Having a solid knowledge of currencies is necessary to be able to track differences in currency values between the U.S. dollar and a Euro or Dinar or Yen. You may find yourself caught short agreeing to a sale that when currency differences now and during the sale period are taken into account, your expenses will exceed your expected revenues because of the loss of value in the dollar.

•Have an infrastructure. A business owner must­ have the infrastructure in place to facilitate trade between the U.S. and other nations. There are many different companies that specialize in facilitating trade by working with customs, financing, collections, and shipping. Trying to do all of it yourself is at best, very draining on your time and resources, and at worst exposes you to serious problems with your shipments and even legal complications.

•Learn the culture. Last, but not least, a successful business owner needs to learn the culture of the trading partner. Again, what is acceptable here may be highly offensive in say, Brazil. What customs are acceptable in Egypt may be frowned upon here. You need to take the time and do the research on your customer’s country so that an innocent remark may not spark a diplomatic crisis.

Personal experience

While most of my clients are U.S. based, I do have some tax clients that are not. One client supplies materials in support of the U.S. base in Kyrgyzstan. While the owner is American, preparing the tax return is a challenge as I have to understand international taxation and how best to report the foreign business activity—but I do enjoy the opportunity to grow professionally.

Another client is a school supporting a U.S. Air Force base in South Korea. Again, while the owners are American, doing the return requires me to understand some tax regulations governing relations between the U.S. and South Korea. I try to look at each such opportunity as a chance to improve my skills for the next clients.

To be honest, I have only met one of my clients thanks to the power of modern technology. Having an Internet presence and a strong SEO and social media plan allows people from all over the world to find your business easily and get them to consider your business as opposed to your competitors.

Earlier this year, I had the exciting opportunity to go to Cuba for two weeks to prepare tax returns for support personnel at the Guantanamo Bay Naval Air Station. While I worked with U.S. personnel mostly, I was exposed to some Cuban culture and it also allowed development of the government procurement side of my practice.

The right resources

Sounds a little daunting, and it is. However, fear not! There are a lot of resources here in River City that can help get your business prepared for international expansion.

Earlier this year, I earned a certificate in International trading from the UNF Small Business Development Center. It is about 20 hours over six weeks that explains all of the nuts and bolts of international trading. The knowledge, networking, and materials gained from the course have helped me a great deal. The cost is $299, but there are programs from Worksource that can help pay for it.

There is a wonderful resource here in Jacksonville named Jorge Arce. He is a local director for the U.S. Department of Commerce. The Commerce Department is committed to helping small businesses develop and execute a plan to export products and services

Finally, I would be remiss in not mentioning Larry Bernaski and Enterprise Florida. Enterprise Florida is the state agency that is charged with helping Florida businesses take advantage of their favorable geography and help grow an export business. Many of these services are either free or at a nominal cost, but the investment can be well worth it.

Survival box

In order for your business to survive today, you must think out of the box and consider all options in and out of the U.S. You must consider a business owner in the Ukraine for your product just as much as someone from Orange Park. Fortunately, there are a lot of resources at your fingertips to get your through the maze of regulations and cultures to get your goods to market. They have helped me, and now it’s your turn. Good luck!

Keith E. Johnson CPA, is owner of Keith E. Johnson CPA PA in Jacksonville, Fla., a full-service CPA firm providing accounting, auditing, consulting, and tax services to individuals, businesses, and non-profits. He can be contacted at 904-727-0077 or kejcpa@comcast.net.