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Watching Your Money: The Where, How, and When
A central duty of every entrepreneur is cash management. Although making sales is essential, failure to maintain scrutiny over cash needs will chip away the rewards of growing revenue. Keeping an accurate accounting of revenue and expenses throughout the year is the crucial starting point.

Cash outflow for past expenses is a good guideline for assessing upcoming cash needs, so stay aware of your recurring monthly operating costs. Still, even with these figures, you have to dig a little deeper to construct a workable design for the future.

Keep in mind that expenses explain only partly how business cash is used. You may also have loan repayments and equipment purchases. Always know the current and upcoming debt that appears on your business balance sheet. The original costs of fixed assets, such as equipment, are also on the balance sheet, along with the amount of these costs that has been deducted as depreciation. As these assets become fully depreciated, it's likely that replacement costs loom on the horizon.

After determining the full amount of your cash needs over the next three to six months, identify how much revenue you anticipate. Never assume you will be paid when expected. Add a buffer of one more month past the normal due date of your receivables. More revenue is earned as your business grows, but the payments will tend to arrive later. Meanwhile, your rising operating costs must be paid while you're waiting to collect income.

If cash shortages occur, you may need to seek borrowing channels or ask some clients for retainers as your business builds.

Is Your Business Customer-Centric?
Today's customers expect you to stand behind your products and services, care about their issues, and promptly resolve their problems. They expect you to be customer-centric.

A customer-centric organization is one in which customer satisfaction is the absolute highest priority. Customer centricity is a deeply embedded business mind-set based on the principle that every aspect of your company is focused on creating an optimal customer experience.

How can you do this?

It begins with clearly articulating a philosophy of putting customers first.

Create awareness both internally and externally. Communicate the impact of customer satisfaction on the company's performance, and make sure all stakeholders know that customer satisfaction is a core business value. Make it obvious to anyone who walks in the door that customer satisfaction is the ultimate goal.

Walk the walk and demonstrate your personal commitment to customers. At the same time, empower your employees by giving them the authority and confidence to do what's right for customers.

Reward employees who go the extra mile for customers. Integrate customer centricity in compensation plans with incentives, bonuses, and rewards that celebrate customers' successes.

Get the entire team involved with customers, including back-office personnel, your marketing and services associates, and key decision makers.

Of course, the process of creating a customer-centric culture in any organization starts with hiring the right employees and creating the right expectations. Developing a customer-centric culture requires time, resources, and dedication, but its long-term financial and branding benefits are well-documented, demonstrating that the rewards are well worth the efforts.

Key Strategies to Reduce Employee Turnover
Turnover is costly. The time and expense associated with recruiting and training replacement workers can amount to nearly three times a departing employee's salary. What's more, the loss of a key staff member can mean loss of vital institutional knowledge, reduced productivity, damage to customer and vendor relationships, and decreased internal morale.

Most people leave their jobs not because of money but because they're dissatisfied with their work environment. Knowing this, there are steps you can take to retain your employees and reduce turnover.

Take the time to get to know your employees personally. Understanding their career and personal goals and what's important to them will help you know how to reward them. Make everyone in your company feel as though they are vital to daily operations as well as to the organization's long-term success.

Maintain open channels of communication. For example, let your employees know how the company is performing even when things are slow. Your workers will appreciate your candor and feel more engaged with the company.

Solicit employees' input on what can be done to enhance the work environment, improve processes and operations, and address issues facing the business. Create an environment where everyone feels comfortable sharing ideas and providing feedback.

Offer training and development opportunities, and encourage employees to grow in their jobs by taking on additional responsibilities. Pair these with a clear promote-from-within policy that rewards motivated employees with upward mobility.

Finally, consider offering flexible work options such as telecommuting and job sharing.

Financial Evaluation: Think Like an Investor
A small-business owner views an enterprise as a source of immediate income, while an investor examines the company for its long-term value. Looking at your business as an investment is certain to yield a new perspective.

Positioning your business for a long and profitable future is different than merely seeking current profits. Short-term income is the result of sales generation, but a sound long-term investment is something else. It's a consequence of ongoing, sustainable, and rising short-term sales.

These elements can be challenging to fuse together without creating friction. Fortunately, an assessment of financial reports can allow business owners to manage their growth and build something worthy of investors. Two measures are important to consider.

Liquidity Measures

You may think that revenue and profit are the only relevant measures of business success. But an investor's evaluation begins with the balance sheet.

This report conveys the amount of cash and the costs of assets held by the enterprise as well as how much has been borrowed. It tells you everything about company liquidity, which is how easily you can get money from your investment in the business.

Calculating key ratios using figures on the balance sheet reveals the company's liquidity. Current ratio is the most commonly used measure. Simply divide current assets by current liabilities, and expect a result greater than one. Current assets are cash and receivables plus easily liquidated inventory. Current liabilities are all the bills you owe (accounts payable) as well as loan payments in the upcoming year.

Turnover ratios further reveal the liquidity of a business. This ratio demonstrates how quickly you collect accounts receivable, sell inventory, and pay bills.

A valuable company has high turnover ratios. It quickly collects on its invoices and promptly pays its bills. Turnover analysis reveals that accounts receivable and accounts payable are not staying on the balance sheet for extended periods, and any inventory is swiftly sold. An efficiently liquid business is not overstocked with inventory.

An accountant can assist you in identifying these ratios. Of course, this is possible only if you have up-to-date bookkeeping that provides a balance sheet along with an income statement, so don't neglect these records.

Performance Measures

An investor would also consider the performance trends of your business. Revenue growth rate is a key factor in this performance measurement. This is calculated by dividing the change in revenue between two periods by the revenue in the oldest period.

If revenue is rising, it must be evaluated relative to turnover ratios. You have to make sure growth isn't putting a squeeze on liquidity. This may occur when greater revenue triggers mounting costs, which are not being paid because of the time required to collect accounts receivable. Consequently, maintaining positive cash flow is crucial.

Is your business achieving a good balance of liquidity and revenue growth? This can be determined by examining the cash flow statement. This statement reveals whether your cash flow would provide a sound investment.

Consult with your accountant to ensure you remain current and accurate on each of these statements. As the biggest investor in your business, you should always know where your business stands.
Michele Ball
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This newsletter and any information contained herein are intended for general informational purposes only and should not be construed as legal, financial or medical advice. The publisher takes great efforts to ensure the accuracy of information contained in this newsletter. However, we will not be responsible at any time for any errors or omissions or any damages, howsoever caused, that result from its use. Seek competent professional advice and/or legal counsel with respect to any matter discussed or published in this newsletter.
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