Depreciation

This, in an overly simplistic definition, is the process that companies use to spread or allocate the cost of a physical asset over its useful life. There are multiple methods of depreciation and this will determine a lot about how the "books" look and how many years of depreciation are used.

What does this look like? Management will need to determine what method is appropriate, the useful life of the asset itself, and assign a scrap/salvage value. The common methods used for calculating depreciation are:

  • Straight-line: the expense amount is the same every year during the assets useful years.
  • Sum-of-the-years-digits: the amount of expense declines year by year.
  • Double-declining balance: this is essentially straight-Line multiplied by 2.
  • Units of production: the expense will change year to year based on the number of units produced or hours used.

What to remember: Every company will need to choose the way that best suits their needs and objectives. i.e do your research and talk to your CPA.

Should you encourage the use of debit/credit cards?

To some companies it would be unheard of to ask this question, but to others it's a different story entirely. Being able to process credit and debit cards does have its benefits and draw backs. For the team here at Dataweld, processing cards is just a fact of doing business regardless of the cost we may incur. Whatever your viewpoint on this topic, today I want to offer a reason why being able to processes a customer's card is an invaluable service (at least for us...).

Efficiency:
I can't yell through writing, but that's what I would be doing right now. If you have any kind of recurring invoice (especially ones where the amount remains the same), then your customer should be able to pay with a credit or debit card. They should also be able to do this without you being involved and prefereably with them only having to take the time to setup the initial autodraft.

Here's why I feel so strongly about this:

  • Why do the work of processing payments and taking and depositing checks to the bank when a computer can do it for you?
  • Autodraft means that you get paid immediately.
  • You don't have to send the invoice (at least not the paper one).
  • Less time spent reminding customers that their invoice is due.
  • and less time overall spent on this task.

What to remember: We're all very busy, so if you're looking for a way to streamline operations we would strongly suggest starting here.

Websites: Calls to action

Websites are great. However, if no one ever uses the site then is it really a good tool for the business? I would definitely say no, but I would add to that answer that if your site is stagnating then it needs to be re-evaluated and re-tooled so that it becomes beneficial to the company.

What does this look like?

  • Look at your Calls to Action. If you wouldn't click on them, then a potential customer will probably feel the same way.
  • Update the look as well as the content of the site to be more relevant.
  • Start adding new content on a regular basis.

There's much more to this topic, but these basic ideas should help to get you moving in the right direction.

What to remember: You can agonize over the site, scrutinizing why things aren't working properly. The better option, simply put, is if something isn't working then remove it and try something new. Don't be paralyzed by indecision.

Common Accounting Mistakes: Part 2

Failing to use a budget: If you don't have a budget, then you should start creating one today. I'm not trying to be cliche, but if you fail to plan then you plan to fail. Leaders have said for a long time that businesses do better when there's a plan for the money. Can you get by without a budget? Sure, you can also continue to not change the oil in your vehicle and hope that nothing goes wrong... Regardless, if you know where the money needs to go and have that "written" down, then there's less of chance of something being left off, out, or forgotten. If for no other reason, there's a simple fact that "writing" something down tends to make a person/company much more likely to remember, stay on track, and follow through.

Why is this important?

  • Forecasting
  • Planning for emergencies
  • Helps to keep you from spending money that isn't there
  • It brings insights into spending habits
  • and possibly a little peace of mind

What to remember: Having a budget is extremely important, but don't spend too much time on it, get help and advice where needed, and keep it practical so that you'll actually use it.

Making Plans

I've read a lot about Warren Buffett, and there's one quote that always sticks out to me which is "you never know who's swimming naked until the tide goes out". I watched someone ask him about this statement and he said it's about being prepared and responsible in your business practices. He went on to explain that a company has to be prepared for when the tide inevitably goes out, because things won't always be great. He also said to remember that things won't always be bad and that during those times we need to be learning how to improve as well as how to make the team and the company stronger. While plans will be different for every company, hopefully this will provide you with some food for thought.

Websites: First Impressions

I've always been told that first impression are extremely important. Therefore, why wouldn't we put the appropriate effort needed into designing a website? In many cases a company's website is there first point of contact, it's that place where the potential customer gets to know a company. Ok, maybe their just looking for a product, but regardless, what someone sees may make the difference in whether or not they make a purchase.

What does this look like? This area is far to large to condense into one short article, but I'll put a few ideas below.

  • User Friendliness i.e. if the site is difficult to navigate or confusing in any way, then chances are you've lost or almost lost the sale at this point.
  • Aesthetics Not everyone wants to put the time into how their site looks, but this makes a big difference. Some fonts are easier to read than others. Certain colors are "easier" on the eyes. The design also needs to "fit" a company's style. In other words gear the site to your demographic and what appeals to them.
  • Functionality Put plainly, the site has to work. Meaning there can't be broken links and missing images or content.

What to remember? Take your site as seriously as you do your products and any other marketing that you do. The site is essentially another employee representing the company 24/7, therefore it better be exactly what it needs to be to win people over. As a side note, you don't have to re-invent the wheel, but you still have to make the site your own.

Common Accounting Mistakes: Part 1

Errors of Omission: People forget things and most of the time it's simply because of the fact that it's difficult to keep track of all of the data. There is so much going on in a business's day to day operations that making sure everything is accounted for can be a difficult task.

Errors of Transposition: This is one that we harp on because too many companies continue to try and enter information by hand. Sometimes, you'll need to enter things by hand, I hear you, there has to be some initial entries, but why make an entry by hand if you don't have to? By using a computer you'll save time, and in turn money, as well as you won't be losing money due to human error.

What does this look like? Let the computer work for you. For all intents and purposes, a computer can have unlimited memory and, generally speaking, won't accidentally swap the 0 and 1 when putting in a 10... If you're trying to keep track of barcodes or expensive assets it's better to be able to scan a barcode or, better yet, a transponder than it is to write down that information and hope that you got it correct.

What to remember? We all make mistakes and we all have a lot to learn, so why not use the tools that are available to lighten the load?

Mobile Office?

We've talked a few time about working in a mobile environment. Some people love it while others aren't as excited... regardless, being able to work in a mobile environment has become a necessity for many companies. While I could talk about how this is a great benefit for team members or how it makes a company more agile and efficient, I won't. Instead I'm writing about a couple of tips that can help in creating a mobile work environment. 

So what's needed? While I won't try to cover every possible scenario, I will go over a couple of ideas that can make this transition a little easier. At the end of the day, whether an idea is adopted often comes down to whether or not it was easy and convenient to adopt and/or how user friendly it was.

What to think about:

  • Choose the correct device for the environment. Do you need a tablet or just a phone? Depending on what you're trying to accomplish, a larger phone like the iPhone 8 Plus or X could be more than enough screen. On the other hand, if you're trying to do design work or need to have a large amount of information on one screen, then a tablet may be better suited.
  • Get the appropriate apps. Having the right apps could be the difference between this working and being completely abandoned. What needs to be considered is how to handle email, contacts (i.e. CRM), remote access to the internal server, expenses, etc. Some of the pre-installed apps may be fine to a degree, but spending a few dollars may be worth it. Many people who use Outlook for their email also use the app, which has its quirks, but is generally good. Of course, Gmail is great and with all the other tools available from Google it's possible to have all your spreadsheets, text documents, and notes in one place for the team to collaborate. Expenses? Using a site like Expensify could streamline that process because it's customizable or a simple spreadsheet can meet your needs.

I could definitely write more about the nuances surrounding why a team would choose a tablet over a smartphone or vice versa (afterall, with wifi calling you can also call on a tablet). I could also go on for awhile about many more apps, but there's simply not enough time. The point here is to do research, ask questions, to be open to new ways of operating, and to always be thinking of how you can help the team be more collaborative, efficient, and effective.

Websites: Cover Page or Full Site?

The answer to this may seem obvious, but, as with any business decision, there are multiple variables. While I would generally encourage a business to invest in a full site, there are scenarios where something simpler is both more realistic and practical. 

  Things to consider:

     
  • Do you have the time?
  •  
  • Do you have the capital to invest?
  •  
  • Do you have the people?

What does this look like? For starters, do you have the time to devote to building an in-depth website? The answer may be no and the capital may not be available to pay someone to build it for you. That's when a basic cover page can be useful and practical. Also, you may not have a need for an in-depth website. A local shop around me has a very simple cover page with their basic information (contact, location, etc.) and social media links. It's literally one very well done page.

What to remember: Just because a particular business is doing well doesn't mean that every company should switch to their method. What we have to remember is that every company is different and therefore needs a different plan. We don't want to reinvent the wheel, but trying to copy another business's model just because it worked for them probably isn't wise. Research, gather ideas and then find what works for you company in your particular scenario.

Cost of Goods Sold

This is the total of all costs used to create a product or service (this product has to have been sold). To put it another way, this is the direct cost associated with creating a product.

What's included in this (generally speaking)?

  • Labor
  • Materials
  • Overhead

What's the formula?
Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory

Why is this important?
Knowing the cost of goods sold is another indicator of how healthy or unhealthy and organization/business is financially speaking. This figure helps a company to determine whether or not a product is being produced efficiently and if the product itself is actually profitable. In other words, this is very important, make sure that you know this number.

What to remember? We've said many times recently that numbers don't tell the whole story and they don't, but having the right numbers can make all the difference. Also, just because a product is needed or seems to bring in a lot of cash doesn't mean that a company should keep producing it.

Websites: Getting Started

Before you get started on building a website, it's important to make a list of goals.

Things to consider:

  • What do you want to show people?
  • Where will you get your images?
  • What colors will be on the site?
  • Is it time to redesign the logo?
  • Who will develop content?
  • Is it better for the site to be content or image rich or something in-between?
  • What is going to capture your customers attention?
  • How will you represent you mission on the website?
  • How will you represent yourself?

What to remember: Don't stress if you feel unprepared, look at other companies that you admire for inspiration, think MVP (Minimum Viable Product), in other words, get the site up knowing that you'll continue to develope the site overtime.

Balance Sheet

The balance sheet is essentially a financial statement that tells whoever is looking at it what a company owes and what is owns (this is of course in a summary format).

Why is this important? The balance sheet gives a company a tool that makes it possible to see where they stand overall. It shows how much cash is available as well as the amount of debt and liabilities, what's coming due "today" and what's coming due in the future. Having this information in this specific format can help to inform and speed up the decision making process.

What can you pull from this?

  • Debt-to-Equity Ratio
  • Acid-Test Ratio
  • Operational Efficiency
  • Working Capital
  • etc.

What to remember: This is a picture of one point in time and should be compared to both previous periods and other companies in the industry. In other words, don't look only at the balance sheet when making decisions.

Websites: The Presence

There's more than enough research out there to show that every business should have a website. One of those reasons is presence or, in other words, so that people/potential customers have a place to find you. With the ease in which it takes to setup a website and, as little capital that is needed, there's not really a good reason to not have one.

Why is this important: Customers need to be able to find you. A website has the information about how to contact you, where your located, what events you'll be attending, etc. While social media can be used to accomplish this goal, that information can get lost in the mix. It should be used, but as one of many tools. i.e. keep your website updated with current information. This lets people know what's happening with the business, where it will be, and then alert them to changes/updates via social media.

What to Remember: No one knows your business better than you. In other words, your online presence is yours and you need to make it look like yours.

Net Profit Margin

By definition, this is the percent amount left over from revenue when a company has paid all the operating expenses, interest, and taxes. In other words, this is the final number that tells a company what percent of every dollar that they actually held on to after everyone has been paid.

What is the difference between this and gross profit margin? Gross margin is the difference between revenues and the cost of goods sold, which leaves a residual margin that is used to pay for selling and administrative expenses. Net margin is the residual earnings left after all expenses have been deducted from revenues.

The Formula:
Net profit margin = (Net profits ÷ Revenue) x 100

And to be more specific: (Total Revenue – Total Expenses)/Total Revenue = Net Profit this is then divided by Total Revenue which gives us the Net Profit Margin

Why is this important? This essentially shows how well a company can turn revenue into profits. It can also help to shed light on things like poor expense management, low sales, bad customer experience, etc. Regardless, this number is a signifier that either things are going well or maybe not so well.

What to remember: As I've stated several times recently, numbers don't tell the whole story, but they are a powerful tool that can help shed light on both the good and the bad within a company. Know your numbers.