Business Finance Archives

Optimizing Performance With Effective Dashboards & KPIs

Posted on June 21, 2024 | by Renatta Luna | Leave a Comment

Operating a business demands precision, agility, and informed decision-making. Dashboards and KPIs (Key Performance Indicators) guide you to direct your organization toward your desired outcomes with clarity and efficiency.

The Purpose of Dashboard

The true purpose of a dashboard lies in its capability to aggregate, visualize, and communicate data instantaneously. Like the dashboard of a car that shows speed and fuel level, your business dashboard should display important information that allows you to quickly make changes and improvements at the moment.

Unlike a car’s dashboard which is only for a driver, the business dashboard is not just only for the CEO. Anyone in your organization can create it to measure and guide all kinds of performance and productivity metrics.

Dashboard

The dashboard represents the final, completed visualization. We like dashboards to be 3 to 7 easy-to-visuals on a single sheet of paper (or screen), each focused on presenting one key performance indicator (KPI).

More than 7 becomes unworkable. Each visual should focus on displaying 1 Key Performance Indicator (KPI), and clearly show the trend lines over the last 3 to 12 months.

Key Performance Indicators (KPIs)

The Key Performance Indicators (KPIs) are the data points, or metrics, that most matter to your business. Best KPIs are ones that will help you to predict events in the future. For instance, the number of website visitors might help you predict the number of new paid subscribers next month.

A number of sales calls made by your sales team might help you predict the volume of new customers 3 months from now.

Predictive KPIs are always best, but measuring actual financial performance is also important: at least 2 of your KPIs should be straight from your Income Statement, such as “Gross Margin Percentage” and “Net Profit”.

OKRs (Objectives and Key Results)

If you use OKRs (Objectives and Key Results), then your KPIs can measure the Key Results. OKR has become a popular and powerful way to define strategic initiatives, and a dashboard can help make sure that your OKRs are on track.

If you don’t use the OKR methodology, that’s okay. KPIs will take you a long way if you choose them carefully.

Also, KPIs are not limited to financial measures. Number of “days without an accident” is a popular KPI in a manufacturing environment, as are quality controls such as Reject Rate or Line Stoppages.

Find KPIs that speak to your operations and improve the overall business health. Good financial performance will follow.

Finally, selecting KPIs that resonate with the organizational vision and mission reinforces the dashboard’s purpose and value. With the right KPIs, the dashboard will become an integral part of strategic reviews and planning.

Designing Your Dashboard

The design phase of a dashboard is where the functionality and the visual come together. The objective is to construct an interface that is not only reflexive but also comprehensive, allowing users to get complex information quickly.

Every employee should be able to see how close they are to reaching their KPIs each month or quarter. Some companies create multiple dashboards, so each department has one.

One key to simplicity is fun — incorporate colors and shapes in creative ways: For cumulative goals, use a “thermometer” graph. For competitive goals, use a horse-race analogy and show the race to the finish line.

When the data is conveyed easily, it will allow your employees to gain insights and respond appropriately.

Creating Effective Dashboards and KPIs

Timing and relevance of dashboards are big challenges when trying to use them. Dashboards must be close at hand, quick to update and read, and have up-to-date data.

As more people in your organization use them, a culture will form around data-driven decision-making. And as the boards become more useful, people will update them more regularly. Good, real-time data is the benchmark for useful dashboards — don’t settle for anything less.

As your business evolves, you should have a business dashboard. Don’t be afraid to incorporate new KPIs and refine existing visual elements.

As your goals and plans change over time, don’t hesitate to update your dashboards and key performance indicators (KPIs) accordingly.

The best dashboards are iterative — changing as the needs of the business change. Keep your dashboard fresh and you’ll position yourself for sustainable success.

Begin Making Data-Driven Decisions

Are you looking to harness the full potential of your business data but unsure where to begin? Contact us for free business analysis. We will discuss dashboards and identify the KPIs to propel your business towards its strategic objectives.

The Risks Of Commingling Personal Funds With Business

Posted on January 10, 2024 | by David Worrell | Leave a Comment

Commingling personal funds with business finances is a ticking time bomb. Before you get into trouble, we want to provide you with the dangers and practical steps for safeguarding your finances. This extends beyond basic bookkeeping; it’s about protecting you, your family and your business!

Legal Risks of Commingling Personal Funds

Commingling funds—mixing personal and business finances—can risk the corporate liability shield. This “shield” is a layer of legal protection that separates your assets from your business debts and liabilities. Legally speaking, the shield becomes weaker when personal and business finances are not separated.

In case of a lawsuit, owners who Commingle funds can become personally liable for the actions of the company. This is what is commonly referred to as “piercing the corporate veil.” If someone sues you and your business is not its entity, your assets may be used as payment for your business’s debts.

So, if an employee is driving a delivery truck and runs over a child, the parents sue the company AND the company’s owner(s). If the shield is strong, the owner might walk away. If the shield is weak, the owner could end up forfeiting cash and assets (like her house!) to make good on a legal judgment.

Impact on Financial Statements and Company Valuation

Besides creating a potential legal nightmare, commingling personal funds can also obscure the true health of your business. It complicates financial statements, making it challenging to assess and value the company’s performance accurately.

This lack of clarity makes business management more difficult, and could even impact the valuation of your company at a sale or exit. Why? Because a buyer is unlikely to give you credit for dozens of miscellaneous “personal” expenses. So by using the company’s coffers as your own, you’ve unwittingly lowered your profitability and thus your sale value.

Here are some ways to prevent this from happening.

Practical Steps For Separating Personal and Business Finances

Open a Separate Business Bank Account: This is the first and most important step in establishing a clear boundary between personal and business finances.
Implement Strict Expense Policies: Define and adhere to what qualifies as a business expense. Keep all of your expenses separate.
Use Dedicated Accounting Software: This helps in tracking business transactions efficiently. Also, accurate accounting is legally required.
Regular Financial Reviews: Conduct monthly or quarterly reviews to ensure no commingling has occurred.
Educate Yourself, Your Family and Staff: Awareness of the importance of financial separation is key.
Hire a Professional Bookkeeper: They can ensure adherence to best practices, and provide an important outsider’s perspective on your use of business funds.
Document All Transactions: Maintain detailed records, including receipts.
Establish a Regular Salary for Yourself: Avoid random withdrawals from the business by paying yourself regularly and evenly.
Separate Credit Cards and Loans: Use different credit accounts for personal and business needs.
Regularly Update Financial Statements: It’s crucial for accurate financial reporting.
Prepare for Taxes Efficiently: Having separate accounts simplifies tax planning and compliance.

To give you a better idea of the dangers of not taking these steps, let’s look at the following fictitious (but possible) scenario.

Case Study: ConstructRight, LLC

Consider the story of ConstructRight LLC, a successful home builder. John, the owner, regularly used his personal credit card for business expenses and used the business ATM card to withdraw cash for personal use. He drove a company car, even when not working, and had his crew perform maintenance on his personal property.

As ConstructRight expanded, these practices created significant problems.

John faced difficulties in securing loans. Lenders were hesitant due to the muddled financial statements that couldn’t clearly distinguish between personal and business expenditures. This ambiguity in financial reporting made it challenging for financial institutions to determine the company’s true financial health and creditworthiness.

The real impact of John’s financial practices hit hard when he decided to sell ConstructRight. The business valuation came in substantially lower than he expected. The reason? Potential buyers were deterred because they could not determine the business’s true profitability and operational efficiency.

But the consequences didn’t end there. John’s personal assets, including his home, were put at risk. Since he had misused company funds for personal purposes, this blurred the legal distinction between his personal and business “entities”.

When ConstructRight faced a lawsuit from a customer, John’s personal assets were no longer protected by the corporate liability shield. They became fair game in the legal battle, and when he lost the legal fight, he also lost his home and savings.

The example of ConstructRight LLC highlights the importance of maintaining a clear boundary between personal and business finances. Not only does this financial separation ensure legal protection and more accurate financial reporting; it also preserves the integrity and valuation of the business.

The Role of Professional Advice

Financial advisors possess in-depth knowledge of best practices in financial management. They can guide you through the intricacies of financial planning, helping you avoid common pitfalls like commingling funds. They provide an unbiased perspective on your business finances. This objectivity is crucial for making sound financial decisions untainted by personal bias or emotional attachment.

Companies like FuseCFO can provide a disciplined approach to your accounting and finance. Then, with an accurate and clear financial picture of your business, a great finance team can help you formulate strategic plans for your business’s future.

Importance of Separating Personal and Business Finances

Separating your personal finances from those of your business is a best practice and a form of protection. It isolates your personal and family assets while allowing your company to grow. To continue this conversation with a small business financial advisor, schedule a free business analysis with us.

Why Do I Owe More in Taxes Than I Took Home in Cash?

Posted on December 12, 2023 | by Renatta Luna | Leave a Comment

As tax bill season approaches, many business owners face a frightening scenario: owing more taxes than they have in cash. It’s a daunting thought, but don’t panic. Here’s how you can see it coming and, more importantly, avoid it.

What Is “Taxable Profit” for a Small Business?

Small businesses are taxed on their “Cash Basis Profits.” In theory, this is to your benefit because it means that your taxable profit should equal the actual cash left over after you pay all your business expenses.

But the theory won’t protect you if you aren’t careful. Five dangers will misalign your cash on hand and your taxable profit. Doing any of these things might make paying taxes more painful — now or in the future.

Loans: If you borrowed money during the tax year, ensure the loan is not treated as taxable income. Don’t pay tax on money you did not earn! Likewise, don’t mistake a loan for cash you can take home. Loans should be used in the company to produce more profits. Taking out a loan so you can pay yourself is a slippery slope!
Equity: If you put additional personal cash into the company, sold stock, or converted a loan to equity, ensure it is not categorized as income. Equity contributions are not earned and are not taxable.
Loan Payments: Paying back a loan is never considered a tax-deductible expense and will not reduce the tax you owe. So if you have profits, and owe taxes, be careful that your loan payments do not overwhelm you and prevent you from having cash on hand at tax time! Too much debt will eventually catch up with you and overwhelm your ability to keep enough cash on hand for taxes and other things.
Owner Draws: Also called “distributions”, payments made to the owner (or expenses paid on behalf of the owner) are not tax deductible. So taking draws will leave you with a higher tax burden and a lower cash balance to pay the tax. Watch out that Owner Draws don’t drain the company’s ability to make tax payments.
Timing: Excess cash is not always associated with strong profits. Sometimes having cash means you’re doing a better job managing cash flow. Be careful not to drain the bank in a good cash year and then run into a big tax bill the next year.

How to Avoid a Cash Crunch

All of the above items can put your cash balance out of synch with the taxes due. To avoid getting stuck with too little cash at tax time, try these tips:

Always Save for Taxes: Regularly set aside a portion of your earnings in a separate account for tax purposes.
Make Estimated Payments: The IRS loves to hear from you quarterly and may even penalize you for not paying income taxes quarterly. Generally, the non-payment penalty is small, but it is not zero. Quarterly estimated taxes are due on the 15th of January, April, July, and October.
Or…Keep Estimated Taxes On Hand: If your business is variable (and you can afford the non-payment penalties), consider keeping the estimated taxes on hand. Business is unpredictable, and profits early in the year might be offset by losses later on. If you’ve sent the cash to the IRS, you may have paid tax on profits that never materialize and you won’t get your cash back until the next spring.
Consider the Long Term: Save extra for taxes in bad years in anticipation of more profitable years when cash may be tight. It’s true that strong growth typically leads to poor cash flow, so having a tax fund tucked away can save the day!
Engage in Proactive Tax Planning: Regularly consult with a tax preparer or CPA and explore tax-saving strategies. (We will happily refer you to a good tax preparer.)
Stay Informed: Keep accurate books to estimate taxes and manage cash flow effectively. Professional services from companies like FuseCFO can be invaluable in this regard.

Understanding and planning for your tax liabilities as a small business owner is vital to avoid the surprise of a large tax bill without the cash to cover it. Proactive planning and consultation with tax professionals can significantly ease this burden. Schedule your free business analysis with us today.

How Much Cash Should I Keep in My Business Cash Reserves?

Posted on December 12, 2023 | by Renatta Luna | Leave a Comment

Too much cash in your business can be a waste; not enough can be downright dangerous. Striking the right balance in your business cash reserves is key, but it’s a delicate dance that requires careful consideration and strategic planning.

Rule of Thumb: The 2-Month Benchmark

A good rule of thumb is to keep the equivalent of two months’ worth of all expenses. This includes payroll, cost of goods sold (COGS), overhead, and debt payments. Why? Because running out of cash isn’t just inconvenient; it can be disastrous. To safeguard against this, having a credit card and arranging a line of credit is wise before you find yourself in a pinch.

Rationale Behind Having Two Months of Business Cash Reserves

We used to joke about “business just stopping one day,” but the pandemic made that a reality. Keeping two months’ business cash reserves on hand can help weather such unforeseen events.

Other potential disasters might include customers who default on payments, a bad batch of products leading to returns or discounts, or a PR mishap that slows down your sales (be careful what you say on TikTok!).

Why Not Keep More?

While having enough business cash reserves is crucial, holding onto too much cash can lead to problems. Employees might become careless with spending, and you may stop watching your money closely; this can lead to errors or even fraud. Additionally, excess cash can negatively impact your company’s valuation, particularly if you’re looking to sell.

A buyer may see how much cash you have in the bank and (mistakenly) assume that is how much cash your business needs to stay healthy. The more cash is needed to run the business (called “working capital”) the less a buyer is willing to pay you!

Too much cash does not add value

Cash sitting in the bank isn’t working for you. (Investing in growth would be an exception to this. To learn more about that, read our previously published article on Return on Invested Capital or ROIC.) Either take your excess capital home or invest it.

If you have a little extra, consider putting it in a CD or other safe investment, especially now when rates are over 5%. For those with more business cash reserves, consider distributing it to owners, investing in bonds, or getting creative by investing in your customers’ or vendors’ companies.

At Fuse, we’ve made over five private investments. We have invested extra cash into our customers, our vendors, and even a general “Angel Investment Fund.” Frankly, the results have been outstanding. We have better relationships with customers, better alignment with partners, and happier employees fully committed to their clients.

Advanced Tips for Cash Management

Want to increase your cash on hand? There are several tricks to keeping as much of it as possible. Here are a few tips:

Maintain a 13-Week Cash Forecast: Keep an eye on your future balance.
Measure Your Cash Cycle: Work to reduce the cycle days and free up more cash.
Evaluate ROIC (Return on Invested Capital): Decide where the best use of your cash is.
Always Have a Growth Plan: Even if it’s not actionable today, having a plan ensures you’re ready to maximize future investments.

Maximize Your Business’s Potential

No matter how much cash you keep in the company, Fuse can help you navigate your business’s financial journey. Our free, no-obligation business analysis focuses on enhancing your growth and profitability. We’ll assess your financial health, explore cash flow strategies, and ensure your accounting is on point.

Ready to unlock new opportunities for your business? Schedule your free analysis now.

Save on Credit Card Fees with ACH Payments: Boost Profits by 20%

Posted on November 9, 2023 | by David Worrell | Leave a Comment

When your business earns money, you want to keep it. Sounds simple. However, you are likely giving away more of it than you realize. If your customers pay by credit card then you’re giving 3% to Visa and MasterCard. This may sound small, but the average business has a profit margin of just 15% of sales. So giving away 3% (of sales) starts to hurt: It’s equal to 20% of your profit!

Credit Card Alternative: Automated Clearing House (ACH)

I know what you are thinking: you rely on those credit cards to get paid. Isn’t that 3% the cost of doing business? Maybe, but there are better (and cheaper!) options.

The absolute best solution is the Automated Clearing House (ACH). An ACH is an interbank service that transfers funds without checks or credit cards. You are likely already using these in your everyday life. Have you ever permitted a company to withdraw money from your account to pay monthly bills?

Companies use ACH to get paid for mortgages, car loans, utility bills, and HOAs dues. Flip the script and begin receiving money this way, too. Here’s a tip: If you charge customers at least $10 per transaction, ACH is the cheapest, easiest, and most efficient way to get paid.

QuickBooks IPN for Low-Cost ACH Payments

For those using QuickBooks, you can leverage Intuit’s Intuit Payment Network (IPN). When you send your customers invoices out of QuickBooks, they can select a link to pay by direct debit from their checking account. This is no different than an e-check or ACH. The transaction fee may be as low as $1.00.

Looking Beyond QuickBooks

There are other ACH providers to choose from. regardless of your service, you will save a substantial amount of money by choosing ACH over credit cards. Here are a few options for you to choose from.

Payment Depot: They support ACH payments and credit cards. There is a monthly subscription of $79 plus 1% of your transactions (but never more than $10 per transaction). In other words, if you receive $100,000 through an ACH transaction, it’ll cost you just $10, not $1000 (which is 1%). Another benefit of Payment Depot is that it has no long-term contract that will bind you, and it comes with 24-7 customer support.

Square Invoices: Unlike Payment Depot, Square Invoices can be used for free. There are subscriptions available, and the most expensive one is just $20. The processing fee for ACH transactions is also 1%, but there is no cap. You will pay 1% regardless of the amount. They allow unlimited invoices, track your invoices, and have good reporting.

GoCardless: The name says it all. GoCardless is solely an ACH processor and is especially good for businesses that offer subscription services or receive regularly recurring payments. GoCardless has a 1% transaction fee capped at $2.50. (There is an additional transaction fee of 0.3% for payments over $1000.) Other than the transaction fee, the service is entirely free.

Ultimately, QuickBooks to other ACH options can really pay off. Whether it’s the low-cost structure of Payment Depot, the free invoicing from Square, or the subscription-friendly GoCardless, there’s something out there for every business.

Don’t forget to check out others like Melio and Bill.com too. Even Zelle, Venmo and PayPal can be configured to help you keep your transaction costs low. The key is to pick one that feels easy to use and fits your budget. Once you find the right match, you will save money with each payment.

Get in Touch with FuseCFO

We aim to help you maximize your business’s profits and growth potential. Schedule a free business analysis with us so that we can learn more about your business. Get started today, and let our experience be your competitive edge.

How To Factor Corporate Philanthropic Efforts Into Your Business’s Finances

Posted on December 9, 2021 | by mpitre72 | Leave a Comment

Guest Post By Sam Bowman

Your business can simultaneously help a nonprofit, develop ties within its community, and extend its market reach. However, corporate philanthropy requires careful planning and attention to detail. With the right approach, your business can factor philanthropic efforts into your finances — and help your company and the community as a whole.

Why It Pays to Prioritize Corporate Philanthropy

Corporate philanthropy can provide a competitive advantage. It can serve as a form of public relations or advertising and allow a business to showcase its brand within its community. Meanwhile, it lets a company highlight its commitment to a cause. It can lead to high-profile sponsorships that help a business extend its reach, increase its earnings, and distinguish itself from rivals.

Thanks to corporate philanthropy, a business can improve employee morale as well. Giving workers opportunities to volunteer at a nonprofit can help a company engage with employees and keep them happy. These employees may be more prone than others to support their company in any way they can. The result: a business can use corporate philanthropy to help its employees feel and perform great.

How to Account for Corporate Philanthropy in Your Business’s Finances

Corporate philanthropy can help your company stand out from its competitors. It does not require you to break your budget, either. Now, let’s look at five tips to help you make room for corporate philanthropy in your business’s finances.

1. Compensate Your Employees

Let your employees perform their everyday duties at a nonprofit and compensate them accordingly. This enables a nonprofit to add temporary help to perform tasks across a wide range of areas. For instance, you can have your accountants help a nonprofit get its finances in order.

Or, you can offer human resources support, so a nonprofit can develop and implement effective HR policies. By compensating employees who work with a nonprofit, you can help your workers do good deeds with little to no impact on your finances.

Plus, you may be better equipped than ever before to encourage employees to commit time, energy, and resources to nonprofit work. The result: these employees will do their best to deliver outstanding results for a nonprofit.

2. Give Up Your Time

Set aside a work day for your employees to work at a nonprofit. Doing so enables your workers to commit their full attention to focus on what’s most important: helping a nonprofit.

Giving up time to help a nonprofit can help your business’s finances in several ways. First, your employees can take solace in the fact that they are contributing to a good cause. This can ultimately translate to superior productivity in the workplace going forward.

Also, your employees can promote your company during their nonprofit work. They can show your community what your company is all about, without putting a dent in your marketing budget.

3. Offer Seasonal Help

Allow employees to help a nonprofit at busy times throughout the year. For example, you can offer marketing support to a nonprofit that wants to promote special events around the holidays. Furthermore, you can provide access to your accountants if a nonprofit needs assistance during tax season. Tax season is tough for everyone, but it can be confusing for nonprofits that run with skeleton crews, especially if they generate significant revenue.

The seasonal help a nonprofit needs varies based on the organization. As such, learn about different nonprofits in your community and find out if certain seasons are busier for them than others. Next, you can offer assistance to myriad nonprofits at different points during the year.

4. Donate Goods and Services

Offer goods to a nonprofit instead of money. Product samples and other goods may be readily available to your business. You can donate these goods to a nonprofit, so the organization and its stakeholders can use them. In addition, if the products have your business’s logo or name on them, they can help you promote your brand in your community.

Along with goods, you can donate various services to a nonprofit. A business’s expert web developers, for example, can help a nonprofit build, launch, and maintain a website. Provide services that a nonprofit can use, free of charge. This can help your business foster goodwill with a nonprofit. It can lay the groundwork for a long-lasting partnership with a nonprofit and its stakeholders, too.

5. Establish Partnerships

Seek out nonprofits in your community and partner with them. Over time, you can foster partnerships that help your business thrive. As you develop nonprofit partnerships, continue to explore ways to grow these relationships.

Your company can work with a nonprofit to find opportunities to spread the word about your respective goals and missions. That way, both organizations can get the most value out of these partnerships.

Use Corporate Philanthropy to Gain a Competitive Edge

Corporate philanthropy can benefit your business, employees, and community. With the right approach, your business can empower its employees to support a nonprofit. Moreover, your philanthropic efforts can help your company grow.

Get started with corporate philanthropy and account for it as part of your business’s finances. Then, your company can use philanthropy to help a nonprofit, make a difference in its community, and gain a competitive advantage over its industry rivals.

Tag: Business Finance