CategoryUncategorized Archives — Page 4 of 11 — C. Lynn Northrup, CPA, CPIM

Improving Profitability

Before achieving profit improvement, you need to be able to measure it. Here’s how. Profit is the difference between revenue and expenses. Investment represents the assets required to generate profit. Profit improvement should be measured in terms of return on investment plus consideration of financial risk.

Our job as business coaches and advisors is to help businesses increase profitability without exposing them to unacceptable levels of risk. The first step is understanding that there are two elements of profit improvement:

1. Margin
2. Productivity

Put these elements to work by making some basic calculations. The first calculation is determining margin which is equal to net profit divided by sales (NP ÷ Sales). Productivity is sales divided by total assets (Sales ÷ Total Assets). Now we have a basis for determining profitability improvement.

Profitability is equal to the net profit ratio (NP ÷ Sales) times the rate of asset turnover (Sales ÷ Total Assets). The objective is helping businesses improve their net profit margin and/or their productivity. Improvement involves making changes in what’s being done. The changes need to impact either margin or productivity, or both.

There are six variables to consider in achieving profitability improvement:

1. Selling prices
2. Physical volume of sales and the mix of products or services sold
3. Variable costs
4. Non-variable costs
5. Amount of asset base needed to support the business
6. Risk and how the asset base should be financed

Businesses can grow themselves into trouble unless careful consideration is given to financial management. This is where skilled CFOs can make a difference.

There are three ways to achieve increased profitability:

1. Maximize the sales price charged per dollar cost for products or services provided.
2. Minimize the cost incurred per dollar of revenue generated.
3. Maximize the volume of products or services sold per dollar of revenue and per dollar of assets employed.

These steps are not easy fixes. Change is tough, especially when struggling with the complexity of financial challenges. A virtual CFO can be the difference between success and failure. They have the skills to guide you safely through the process of change and achieving profit improvement.

The Changing CPA World

The world is changing fast and everyone is struggling to keep up. This is true both for businesses and the CPAs that serve them. Instant information is available to everyone making it easier to look up questions on the internet, do their own accounting, run payroll and prepare tax returns.

Business owners frequently need help but don’t know it. CPAs are still traveling down traditional paths and not always in a position to effectively assist their clients. Business operations and financial management can be complicated. Business owners will frequently self-medicate when they should get help. And in many instances, CPAs aren’t adequately trained or skilled in providing in business advisory and consulting services.

Business advisory services range from specialized CFO and controller support, strategic planning, operations, marketing, information technology, and human resources. Most business owners don’t have skills to cope with all these areas of expertise. In addition, there aren’t too many CPAs that have the training and expertise to provide advice to clients in all these sectors. Therefore, it is critical for CPAs to develop their business advisory and CFO skills to be able to help their clients.

Business owners need trusted advisors that can help them address the unique problems in their business. CPAs need to shift their focus to helping clients identify these special needs. This is the future of the profession. This requires training and the development of new skills. Business owners also need to recognize that they can’t know everything and be willing to seek help when and where it’s needed.

The role of CPAs as business advisors is to enhance the productivity, profitability and wealth of their clients. Creating awareness of client needs is critical. CPAs must be willing to collaborate with expert advisors skilled in providing the necessary services. This creates win/win situations for all parties.

The challenge is that most small and medium size businesses have never experienced the benefit of working with a skilled consultant. Another barrier is that they don’t understand how they can benefit from an advisory relationship with their CPA. The key is understanding that using an expert advisor is an investment and should not be perceived as a cost of doing business.

Businesses need to understand:

• Why they need an advisor/consultant.
• Why the advisor is ideally suited to perform that function.
• What will be the approach of the engagement?
• What is the goal of the engagement and how they get benefit from it?

Consulting engagements are complex and require special expertise. Consultants sell knowledge and expertise, not products. They transact returns from investment, not sales. Their fees represent an investment, and not a cost of doing business. When businesses and CPAs develop a better understanding of advisory engagements, both will benefit from their investment.

Blue Ocean Strategy

What is Blue Ocean Strategy and why should I care about? My simple answer is that it is a strategy consisting of differentiation and lower cost which embraces the entire system of activities within a company to create a unique situation.

Here’s how it works. Value is created in areas where the company’s actions have a favorable impact on its cost structure and from the value propositions offered to customers. Competition is not the center of strategic thinking. This enables cost savings to occur as a result of eliminating and reducing the factors which are normally the focus of competition.

Value is enhanced by raising and creating features and components that are not typically offered within the industry. The structure of an industry can be shaped and is not just taken for granted. Over time costs are reduced as economies of scale kick in due to higher sales volume generated through creation of superior value.

Blue Ocean Strategy involves the following four step action process:

1. Eliminating factors that the industry takes for granted.
2. Reducing the factors which can be reduced well below standards for the industry.
3. Creating factors that were never offered by the industry.
4. Finally, raise the factors that can be raised well above the standard for the industry.

Characteristics of a good strategy include the creation of focus combined with differences from the normal strategic process and linking these concepts with a compelling tagline. This means thinking beyond normal boundaries and exploring new possibilities. These actions take you to “blue oceans” where little or no competition exists in contrast to “red oceans” which are infested with intense competition.

The key to Blue Ocean Strategy is extending beyond existing demand. Your thinking should focus on finding non-customers before thinking about customers. Market areas and customers that haven’t been targeted are going to be the essence of finding “Blue Oceans” and successful strategies.

Retiring Boomers Translates to Big Opportunities for CPAs

Changing demographics created by baby boomers represent big opportunities for CPAs. There are 10,000 boomers hitting retirement age each day and they need help in a lot of areas. While financial planning is usually the focus, there is an abundance of practice development opportunities.

Here are some shocking statistics. Over 13% of the population in the United States will be 65 by 2020 and more than 16% will be in excess of 65. By 2030, most baby boomers will have hit their 65th birthday. This means that more than one in five Americans will be 65 or older and about 10 million of them will be over age 85.

Money tops the list of problems since boomers haven’t saved enough to retire and survive through their later years. They also aren’t prepared to deal with declining health. Plus, they may have to contend with elder care either for parents or themselves. Combine these challenges with social security, Medicare, Medicaid, and estate planning there are lots of possibilities for added value business. There are a lot more people with questions, no answers, and the need for guidance.

CPAs can help retirees and elders on a wide range of areas. Typically, seniors turn to attorney’s for guidance which makes sense in many areas. However, CPAs educated on the needs of baby boomers and elders can become valuable and needed advisors to a huge segment of the population.

The first step for CPAs is getting up to speed on the issues. The next step is letting people know how you can help them. In addition to CPE programs there are a lot of resources to gain knowledge about elder issues. A good place to start is by gaining expertise on social security, Medicare, and Medicaid.

One of the opportunities for CPAs to help baby boomers is with basic budgeting and cash management. Boomers try to do their own planning and budgeting when objective input from a CPA would be a better option. Most boomers haven’t planned very well. Many will need to, or want to, pursue a business. Helping these boomers get started on the right foot can translate into added value revenue.

A simple budget spread sheet can be a useful tool for CPAs to assist boomers create an understanding of their situation and develop a plan for the future. Consider all possible income streams such as social security, pensions, plus any other sources of revenue. Expenditures should include housing, travel, medical, automobile, and all living expenses that boomers will incur. Most boomers think expenditures will be reduced in retirement. This often is not the case. A good analysis can become the basis for projecting into the future and providing boomers with guidance on possible options.

The budgeting exercise helps provide an independent sense of reality on retirement finances. Most boomers have lived week to week and haven’t saved for retirement. Now they will need advice on how to make it through their aging years. CPAs are a logical source to provide much needed advice on how these seniors can manage their future.

Having additional knowledge to help seniors gives CPAs an edge in developing an elder practice. Here are some thoughts on how to gain the needed knowledge and information. Take CPE on estate planning tools. This will give you a foundation on the basics of wills, trusts, and powers of attorney. You can use these tools to help these seniors manage their affairs. You need to have signed powers of attorney for business and medical reasons in case these people can’t manage their own affairs. If you are advising boomers on carrying for elder parents, having these documents in place is essential and critical.

Most boomers don’t think about elder care and what it entails. CPAs who understand the complexities of assisted living facilities and nursing homes can provide much needed support to seniors. Take the time to learn about assisted living facilities, nursing homes, and other senior housing possibilities. I learned about these issues because of the need to deal with aging parents and in-laws. Usually these areas aren’t addressed in depth until it becomes a necessity.

Many boomers who are suddenly faced with caring for aging parents have lots of questions and need assistance. CPAs can provide useful guidance by being knowledgeable on the various facets of senior housing and care. There are a variety of options for seniors, including ways to keep them in their home as long as possible. By understanding the array of possibilities will put you in position to offer solid guidance.

Most of the questions raised by boomers will be directed to assisted living facilities and nursing homes. I think the best way to gain knowledge about them is to visit and take a tour. These organizations will inform you on their billing structure and other financial information. During your tour make an effort to observe the quality of the staff, the rooms, and the food. Another consideration is the capability of the medical staff. Finally, take note of the variety of activities and transportation options available to residents.

When visiting nursing homes it is essential to realize that they provide skilled care which is a big difference from assisted living facilities. Also, determine if they accepts Medicaid since not all of them provide this option. This can become a big issue when elders run out of money and need to be moved. Most assisted living facilities have special areas to care for dementia and Alzheimer residents called memory care units allowing residents to stay until the end.

Gaining knowledge of senior housing facilities can also become a great networking and marketing opportunity as these organizations are happy to know of available resources for their residents. CPAs who understand elder care and associated issues represent a valuable and needed resource.

CPAs who understand the shifting demographics can position themselves to provide significant added value assistance to a segment of the population that needs all the help it can get. While it will take some time to gain the necessary knowledge and market it, I encourage CPAs to step up and fill the need. Seniors need your help.

Health Insurance Deadlines

The Affordable Care Act more commonly called Obama care has some changes kicking effective October 1^st that impact both individuals and businesses.

Individuals:

If you have health insurance through an employer the changes will most likely not have any impact on you. However, if you do not have health insurance through an employer, you should check the new government website www.healthcare.gov to determine if one of the insurance exchanges will benefit you.

Business Owners:

If you are a business owner, Obama care requires that you provide notice to your existing employees about the health insurance changes that become effective by October 1^st.  This applies to all future employees upon their employment. The law will apply to your business if you have at least one employee and at least $500,000 in annual revenue. You will be required to provide the notice to all employees.

Here is a model notice for employers who offer a health plan to some or all employees:

http://templatelab.com/FLSA-with-plans/

Here is a model notice for employers who do not offer a health plan

http://templatelab.com/FLSA-with-plans/

Here is the Department of Labor website link if you need more information:

http://www.dol.gov/ebsa/healthreform/

For individuals, it is important not to miss the open enrollment dates from October 15^th to December 7^th. I wanted you to be aware of these deadlines and will post more information next week.

Retirement Risk

Boomers are struggling to save for retirement. This is one of the reasons for writing Navigating Retirement and the Challenges of Aging. Here are some facts revealing the hole they have dug. Only 43% of workers between the ages of 45 and 54 have saved more than $50,000. On top of that only 42% over age 55 have accumulated savings greater than $100,000. This means that normal retirement will never be normal. This is the first risk.

The second risk is health. Boomers don’t think they will ever get sick or that their health will deteriorate. Reality tells us that bad things can happen to your health as you age. Combine potential health issues with the lack of saving on top of rising health care costs and you guess it. A disaster!

My book doesn’t have all the answers but it does offer lots of help for Boomers as they face the future. One additional bit of information that emerged from my work is that 15% of retiring Boomers want to start a business of some kind. They know they need to do something because they are facing a new type of life which will take more money than they have saved.

In reality, health is the more important issue because without it, money doesn’t matter. Furthermore, if you don’t have your health it will be tough to work part time or run a business. My message is begin focusing on both health and money. Combine risk management with solid planning and do it as soon as possible and on a regular basis.

The combination of effective planning and monitoring risk is an essential step for entering this new phase of life. I am in the process of providing numerous resource links and advice on how to best accomplish these tasks on my web site.

Elder Care Planning

Before you can develop a meaningful plan for elder care you need to carefully assess each situation. The assessment should begin with opening up the lines of communication with your elders. They may not want to talk about it, but it is essential. Without effective and honest communication there can be no assessment and no plan. Family dynamics are frequently difficult at best. The best approach is to listen carefully to your elder’s thoughts and ideas and with no preconceived notions or ideas. Start with a clean canvas and attempt to come up with viable and workable solutions that best fits their situation. In addition to your elders, the lines of communication need to include other family members because they need to be on board and in agreement with the planning process.

When dealing with older people try and maximize their ability to make choices for as long as possible. This gets to be a fine line and you’ll have to tread carefully. My experience is that you will clearly know when it is time to take over certain responsibilities. Before you can really start to develop an effective plan, you need to make an assessment of your elder’s situation which should include health, money, housing, transportation, and their social network. Your planning should be focused on minimizing crisis situations and reducing confusion. Good planning helps to avoid these situations.

Your initial assessment should include gathering essential information on the support network used by your elder. The list should include the names and phone numbers of the key services and support system that will be needed and utilized. Some things that should be considered include doctors, pharmacy and medications, insurance agent, bank information and contacts, repair services, friends and neighbors, and any one that will be interacting with your elder.

Each person’s situation is unique. I think the planning process needs to start with health and an elder’s ability to take care of their day to day living needs and hygiene in a safe manner. You will want to talk with your elder’s doctor, any therapists, and even their neighbors. This may seem like spying but getting objective input from people who have observed your elder is critical. Knowing and understanding a person’s ability to drive, cook, and maintain living quarters is a must in making an assessment and developing a meaningful plan for them.

The next step after gathering this first set of information is to evaluate housing. Look at the exterior and interior lighting, the existence of stairs and determine if they are safe. Also, check the location of the home relative to shopping or medical services. Is the house in poor repair, cluttered or untidy? Does the home have wheelchair accessibility? Your goal is to evaluate whether or not your elder is truly capable of living in the home that is safe and in maintaining their own individual safety.

This is an excerpt from my book, Navigating Retirement and the Challenges of Aging which covers a complete range of issues facing our aging population. The key is effective planning for elder care and the retirement phase of life.

Seniors Need to Know

There are five key things that seniors need to know as they prepare for their retirement and the later phases of their life. The problem is they may think about these issues but fail to get the help they need as they approach their 65^th birthday. My e-book Navigating Retirement and the Challenges of Aging provides these answers:

1. Money?
2. What am I going to do and where?
3. Social Security?
4. Health Care?
5. Caring for Elders?

These critical issues need to be addressed well before reaching the age of 65 and should become part of a regular planning effort. Dealing with these issues head on is essential because delaying just makes things more difficult.

Money

Everyone needs to understand where the money will come from and think about what could happen if it isn’t enough. Itemize your assets and liabilities then determine the cash inflows and the cash outflow. It is pretty tough to plan until you get these answers. If you don’t like the answers, you need to come up with a plan on how to make things work.

What and Where

The next question deals with what are you going to do after you stop working. Depending on your retirement vision (or reality), you need to decide where you will live. These are big questions and will require change and adjustments.

Social Security

So you will be eligible for social security. When do you start drawing it and are there ways you can maximize your benefit? Navigating Retirement has an entire chapter devoted to the best strategies for getting the most out of your social security.

Health Care

Maintaining good health as you age is critical and having good health insurance is essential. Medicare kicks in at age 65 and but it doesn’t cover everything. It is essential to register for coverage with Social Security three month before you turn 65. Failure to do so could result in penalties. Navigating Retirement explains what you need to do, when, and health care coverage options. The book also explains typical health issues that seniors encounter.

Caring for Elders

What if suddenly you need to help care for one of your parents, your spouse, or another loved one? This is an area where seniors are not well prepared. However, caring for a loved one can suddenly become a reality. Again, Navigating Retirement provides you with the essential information to address these questions. More and more seniors are coping with the challenge of caring for a loved especially as Alzheimer’s and dementia strike our loved ones.

These are only five of many issues and questions that senior are facing. They need answers and my goal with Navigating Retirement and the Challenges of Aging was to provide them with simple and straight forward guidance.

Aging and Retirement Challenges

Aging and retirement is supposed to be the time to relax and enjoy after the result of years of hard work. Don’t we wish it were that easy? Even if you are one of the lucky ones who planned and saved in addition to having a plush retirement pension, don’t think you’re out of the woods. The best way to deal with these challenges is to create a vision for your retirement.

This process isn’t easy, but it will pay off. Here is what I want you to do. Commit your retirement decision process to writing since it will make you think more clearly and improve your chances for success. Develop a vision of what you want or plan to do in your retirement years.

Here is a checklist of seven things to consider. Begin thinking about each of these questions and it will help you create your unique retirement vision. Start your thinking process and begin the process of creating your vision.

1. What are your hobbies and what will be your fun activities in retirement?
2. Will you need to continue working or make a career change?
3. Where would you like to live (geographically)?
4. What are your housing requirements?
5. What is your state of health and are there any issues?
6. Have you planned your retirement finances?
7. Have you considered the need to provide eldercare giving?

First, write down answers or thoughts for each of these questions. It will start you to think about things that had not previously entered your mind. Your thoughts will shift and change. These changes are normal. I have provided a decision guide in the appendix, which will help you through the process of developing a good retirement vision.

Having fun in retirement and hobbies should be the easiest part of the vision process. Everyone has dreams about what to do in their leisure time. In some cases, the things you would like to do will take precedent over the things you have been doing. It may be golf, gardening, or travel. Maybe it will be a combination of a number of things. Things you wanted to do but you have put off because of work.

Some people have dreamed about pursuing a hobby when they get to retirement. The difficulty is that dreams and reality don’t always mix. What they imagined things to be turn out to be different. After a person has worked for a long time at his profession, it is tough to turn off the switch. They find that they have a tough time leaving the work routine. This is something to consider in your planning process.

For baby boomers getting ready to retire or change their life, this is an essential step. Going through the process of thinking about the future will pay big dividends. I think these seven steps will help clarify your thinking and planning.

Coaches Can Help

Business and life can be a lonely journey. How often have you thought how nice it would be to have someone to give you advice and support in making tough decisions and keeping your business on the right path? I have given this topic a lot of thought lately. This blog has provided lots of great advice, tips, and ideas over the years.

I teach Accounting and Finance for non-financial managers and an MBA refresher class for the University Alliance and Villanova University. It is really business and guidance in contrast to what many people would characterize as just being a CPA. In addition I write for a top golf sports psychologist who works with PGA touring pros. It boils down to providing advice to high performance individuals and helping them get to the top.

I think my web site offers the same level of guidance. People just don’t realize they can get high performance coaching just by asking. They think CPA and related it to accounting, finance, and taxes. Coaching entails a whole lot more. You can get help with strategy, creating vision, change management, marketing, and operational improvement. In addition, you might need help with organization management or succession planning.

Based on traveling the country and working with and for some of the top professionals and managers in business has provided me with a unique background of skills and knowledge. I can provide financial advice if that is part of the coaching equation, but in addition you have the benefit of access to a trusted business advisor.

Coaching will be our new focus and in the coming weeks and months I will be working to fine tune the delivery model so you have access no matter where you are located. Join me as we make the journey into providing new levels of service and support so you can get to the top of your game.