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Business Valuation

Business Growth, Business Valuation

Patti ONeill and Gale Bergado’s Insights on Reducing Business Expenses

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No matter how far around the block customers are waiting, in business, only one line counts. The bottom one. That’s why reducing business expenses is critical. Getting a grip on the costs of doing business brings you benefits both short- and long-term. “Cost controls” generally mean saving money (who doesn’t like that?) and laying the foundation for greater efficiency and profitability in the future. But how do you start? Well, the good news is that here at ONeill & Bergado … we eat this stuff for breakfast. Patti ONeill and Gale Bergado’s Insights on Reducing Business Expenses “There are so many things hiding in plain sight that are routinely pointed out to us to no avail.”  – Megan O’Grady You have two kinds of basic costs in business: fixed and variable. A fixed cost could be the monthly payment for your long-term lease. An example of variable costs might be what you pay a supplier. So, some great ways to start reducing business expenses is by looking at the financial blueprint of your business. All budgets in order? Does every department know what they have to spend? More to the point, do you know what they have to spend? Next, make sure you have a good reason for reducing business expenses before you start to implement cost controls. Why areyoutrying to save cash? Looking to save in one area to spend (and improve, you hope) another part of your business? Set up a spreadsheet with one axis for your departments and another for expenses. Assuming no one figure leaps out at you, you’re off and running. Question the prime suspects Reducing business expenses is easier in some areas of your San Jose Area business than others — staffing, purchasing, and property, to name a few. (You’ve probably got your own list in mind.) Starting to reduce business expenses first means examining each of these areas. Staff. Two standbys might help your San Jose Area business here: outsourcing or turning to freelancers to reduce FTE staff, and using technology to do the job of people. Check standards of your industry, too, to avoid overpaying even in this tight labor market. Right out of the gate these seem like tough decisions. But one big step in starting to reduce business expenses is scrutinizing all aspects of your San Jose business, with the current bottom line and eventual profitability your highest priorities. It’s not fun. It is business ownership. Purchasing. Are your suppliers cutting you the best possible deal? Is there another supplier just as good, but cheaper? There’s strength in numbers when buying, too. Can you partner with other San Jose Area businesses and get yourself volume discounts? Property. This category is a moving target right now. As businesses continue to recover and resume more normal operations, one question on everyone’s mind is whether recent work-from-home practices can continue. You’ll have to answer this one for yourself and your business/industry, but can some of your employees continue to work from home to cut your office/workspace expenses? Don’t forget to factor in utility costs – sometimes there’s cash to be found in just turning off the lights. These are just a few examples of areas that could be overspending. One giant red flag: Is any area of your business running over its original budget? Who to bring in Reducing business expenses takes a team. Your managers and employees, for instance, are boots on the ground for your budgets. Ask them where to save money and time. You’re also more likely to get their buy-in if you’re open and honest about the process right from the start. Your customers know more about your products and services than anyone. Ask them what you offer that they never need or use (no need for you to keep paying for that). Suppliers and vendors probably work with your industry a lot; ask their opinion, too. Then there’s the consultant question. An objective third-person is great, but consultants aren’t cheap. And even the best of them often produce reports that go on a shelf and nobody reads. As always when hiring most professionals, go with references from others in your industry. Remember to negotiate their fee. Always remember that you’re not trying to control costs in a vacuum. You have to identify what else will be impacted in your San Jose business if you decide to reduce business expenses. Will a cutback create a problem elsewhere? As you can see, this job is more than setting up a spreadsheet. Reducing business expenses is a never-ending job, but this should get you started on the process. If you’re wanting somebody who can take an objective look at your books and set them up RIGHT — to control for the proper things — let’s chat about it: Patti  (408) 241-4100  Gale 408-775-7800 To your bottom line, Patti ONeill and Gale Bergado (408) 241-4100 ONeill & Bergado

Business Growth, Business Valuation

A Financial Systems Check-Up For Your San Francisco Bay Area  Business

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Your San Francisco Bay Area business obviously makes and spends money. The pluses and minuses add up (you hope) to being able to stay in business, and a look at the books tells you if your San Francisco Bay Area business is doing okay or headed for trouble. What are your books telling YOU? In our experience, it’s often the company’s financial system (or lack thereof) that makes the answer easy to discover or downright difficult. Have you looked at your own business’s financial system lately? Would you know how to read between the lines to interpret what you see there? Because a financial system for a San Francisco Bay Area business should provide a clear answer to that question. Such a system helps you function and takes the form of different records that let you — and such others as investors, lenders or auditors — see how your business is doing. Let’s take a closer look at what folks like us will be looking for, shall we? A Financial Systems Check-Up For Your San Francisco Bay Area  Business“I value self-discipline, but creating systems that make it next to impossible to misbehave is more reliable than self-control.” – Tim Ferriss First, a definition of terms to get on the same page. What you bring in and what you spend travels under a few different names. Bookkeeping. Aka recordkeeping, bookkeeping is the foundation of any business financial system and lets you keep tabs on what’s flowing in either of the two directions that money takes in your business (in your door and out your door). Depending on the size and complexity of each business, we’ve seen literal books kept, even handwritten, in a ledger or loose sheets of paper. You can also create simple electronic ledgers using Excel or some other spreadsheet program, or using a function in of the simpler business accounting software packages. Invoicing.First step in generating income is invoicing. You must get paid. The invoicing segment of your system should accomplish three things (these aren’t complicated): 1) Ensure that you get paid in a timely way. 2) Be something that you don’t need to spend too long maintaining 3) Communicate clearly to you and your San Francisco Bay Area clients. (Is the amount the customer owes front and center on your bill?) While most businesses include due dates on their invoices, many do not state their consequences for late payment. And how do you know it’s being delivered? Get a dependable delivery system: beyond snail-mail, a lot of businesses use email with a read receipt. Income. Today there are a dizzying number of ways to get paid. Cash or checks remain okay for many businesses — though as always be sure to have safeguards to validate personal checks. You can use electronic transfers and payments direct to your bank, or you can use online payment services such as PayPal or Venmo. Your payment policies can be more complex. These are the details of your payment schedules and discounts. For instance, does your customer get a discount for paying early or incur an extra fee for paying late? Refund policies are also key: spell them out clearly and completely because often there’s eventually conflict in a refund or return. A word of caution here: managing cash flow is another part of a financial system, and one that can cause confusion. Cash flow isn’t just income and outlay, but a matter of your day-to-day liquidity. If your business needs something, do you have the cash to pay for it? Cash flow is distinct from profitability, which tends to be more long-term. Managing cash flow also means having a sense of timing, knowing if you can spend cash against income that isn’t actually in your account yet. Filing.Your financial system can’t exist without good records: the bills, receipts, invoices, and many many many other documents that pour into your business. You need to keep these on hand and in clear order for a set period. You can keep paper copies in a filing cabinet, or go digital and scan and store documents in the cloud or on such external media as thumb drives. Most companies these days pick the digital option for convenience, space savings, and, hackers aside, security. The taxman cometh. One more reason to keep good records is taxes. Good document management saves the stress of scrambling for records when it’s time to prepare your tax return for filing — not to mention backing up your argument in a dispute with a tax authority like the IRS. Often storing documents is the least painful of preparations in this segment of your financial system. The bigger challenge is usually paying the taxes. It’s key that your financial system can help you estimate and bankroll for federal, state, and local taxes. Once or twice a month you will need a good system to check the books and either set the money aside or send the amount due. Mess up in this part of your plan and you can face fines (or worse). Financial systems differ with each company. If your business needs help with this, let’s talk: Patti  (408) 241-4100 and Gale 408-775-7800 To making business easier, Patti ONeill and Gale Bergado(408) 241-4100ONeill & Bergado

Business Valuation

Things To Consider Before Selling Your San Francisco Bay Area Business

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You’ve put in the years, labored long days, sweat the bad times, and high-fived in the good as your business grew. Now, it looks like it’s time to step away into the next life stage, slay the next dragon. It’s time to sell. (You think.) Whether you’re headed to another career or a seaside retreat, get what your business is worth before you walk away. Because if you’re not careful, you won’t. And, by the way, there are TAX implications that will absolutely come into play if you’re considering this. Your entity structure can make a big difference for what is possible. And we might want to consider together what entity formation you’re operating under, if you have this in mind. Let’s talk: Patti (408) 241-4100  Gale 408-775-7800 And one more thing before I dive in… Wednesday, September 15th is the due date for third-quarter estimated taxes. If you’re reading this, and it’s already past … don’t fret, just pay it now … there’ll be some small penalties, but nothing crippling. The idea is to avoid LARGER penalties if the clock continues to tick. Things To Consider Before Selling Your San Francisco Bay Area Business“Everything you’ve ever wanted is on the other side of fear. ”  -George Addai When you’ve been in the grind of running your business for a while, there inevitably comes a point where you begin to daydream about selling your business and moving on. The funny thing is, the actual sale can often show up right out of the blue. And since that’s true, you don’t want to be caught off guard by a lack of preparedness. Think, what would you want to see if you were the prospective buyer? (Solid numbers, for starters.) How do your assets compare with your liabilities? What’s your income stream? Make sure your annual financial statements are on hand and up to date showing your financial position, cash flow, and operations expenses. Have a professional (someone like yours truly) audit your financial statements going back about three years – which makes for a good-looking record, complete but not too long, especially concerning your profits. Don’t forget to include more recent financial info like Paycheck Protection Program (PPP) loans, if you had one. (Related to this topic and depending on your business, be prepared to talk with prospective buyers about any recent supply chain troubles.) This whole process lets you spot and highlight your best numbers for an eventual buyer. More importantly, you can find and fix any money or tax issues – because nothing can kill your deal faster. Get what you’re worth. It also puts you in a position to talk up how you beat your competition. By the way, you’ll want industry standards on hand to show how your San Jose business stacks up – and, more importantly, to make sure you get a good sales price. What if some of the numbers aren’t great? Then admit it. A buyer worth your time isn’t going to expect perfection in your operation, and it’s way better they hear about a problem from you now than unearth it in their due diligence. The buyer doesn’t want any surprises during this sale process. You want them even less. More landmines Your books are only the start when getting ready to put your business on the market. Here’s what else to do. Make nice with the taxman. Tax troubles are another surefire deal killer. If you have any doubts with any of the tax jurisdictions you deal with – your state or the dreaded IRS – make a call to see if you can check off that your tax history with them is squeaky clean. Be sure all of your filings and payment obligations are up to date. Keep your tax preparer in the loop – which leads us to the next possible trip-up. It’s time you got professional help. Selling your San Francisco Bay Area business is one of the biggest deals of your life. Do NOT risk tackling this without the help of a lawyer and/or tax expert.Remember: Odds are your buyer is going to know more ins and outs of this process than you do and probably with their own professionals advising them. Don’t go it alone. Ditto with marketing the business sale. Without experts to help, you might find yourself with fewer potential buyers – and you definitely don’t want that. Your employees aren’t leaving, remember? Do you have key people right now that thebusiness is going to want to keep? Talk early and often with a prospective owner about how to retain those folks. Sweeten the pot? This one gets overlooked a lot: If you’ve got a major account that depends on just you, groom an employee now to take it over. Your buyer is going to want to know that losing you doesn’t mean losing that account. Don’t forget — you do still have a job. Big, life-changing deals are exciting – and distracting. Don’t become so wound up in the sale that you forget the day-to-day management of your San Jose business. It’s not going to impress the potential buyer if you drop the ball on the current sale or your inventory comes up short because you forgot to place a big order. Force yourself to keep paying attention. Have a plan. Really, are you ready for this move? How exactly does the sale fit into your plan? Let’s say you aim to retire. Are you ready emotionally to leave the rat race? Got a plan to fill your suddenly free days? And whether you plan to kick back or immediately go into another business, is this sale going to net enough to meet those goals? This could be one of the biggest things you ever do, so take the time to think through and prepare for it — and find a professional you can trust to walk you through the process. We’re always here to help you… and your San Francisco Bay Area business. Patti (408) 241-4100  Gale408-775-7800 To your bottom line and a beautiful exit,

Business Growth, Business Valuation

San Francisco Bay Area SMB Owners – Don’t Panic About The Business Supply Chains

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Remember when the monster cargo ship Ever Given jammed the Suez Canal? After the Givenhad been stuck just five days, almost 400 other freighters were backed up waiting to pass through the Canal. Experts began predicting temporary shortages of everything from exercise bikes to coffee, cheese to semiconductors. For once, they were right — and not just because of one stuck ship. Recent events have proven how the world’s business supply chains can snap pretty easily (even now as I write, dozens of giant freighters wait off the coast of California because there’s no dock space). And have you been in Costco or Walmart lately looking for toilet paper or toys from China? Sometimes all that happens is a great chance for the store workers to dust the empty shelves and for you to pull out your phone and hope you can find online what you came into the store for. Well, your customers are no different if your business supply chain is weak. And soon they’re going to take their business elsewhere. Frustration is the one thing not in short supply these days. But don’t panic. I have thoughts. Before I get to them, one more reminder that October 15th is the deadline for extended federal personal tax returns for 2020 (for the vast majority of the country). If you need a quick chat on this, grab time here: (408) 241-4100 Now, let’s talk about those business supply chains… San Francisco Bay Area SMB Owners – Don’t Panic About The Business Supply Chains “Teach a parrot the terms ‘supply’ and ‘demand’ and you’ve got an economist.” – Thomas Carlyle First, as a frustrated San Francisco Bay Area business owner you’re not alone. There are many reasons that stuff is scarce for everybody now: If one thing gets hung up in transit in the business supply chain, then other stuff made from that first stuff gets hung up, too — often stuff your San Francisco Bay Areabusiness needs to function and to sell. Foam for furniture, electronics for cars, chemicals for paint. Prices spike for necessities like lumber for pallets. The dozens of other points in the chain are also vulnerable to labor shortages and other breakdowns. It’s like getting the kids off to school on a crazy morning: One hitch and the whole schedule can fall apart. … just like your relationship with your San Mateo customers when they’re staring at your empty shelves. Seat of your pants You may find yourself relying on gut feelings and improvising through your company’s supply crunch in the coming months. Money makes the world go ‘round — and it can make the supply chain go ‘round, too. Don’t spend like crazy, of course, but the hard truth right now is that you may have to pay a little extra to keep supply lines flowing. That means keeping your capital liquid and available as much as possible. Maybe a flexible line of credit can help keep your inventory stocked. Your other moves: It will get better (fingers crossed) Remember, when the business supply chain breaks, it’s not just your cupboard that’s bare — everybody loses money. And everybody’s struggling to fix the problem. Managing supply chains is no longer some minor business function stuck in the back office. The big boys have learned the hard way to make it an operational priority — probably for months to come — and give the job the resources it requires. Your business is in the same boat, so to speak, just on a smaller scale. You’ll get through this, and we’re here to help you do it. (408) 241-4100  Stay safe and sane out there, Patti ONeill and Gale Bergado (408) 241-4100 ONeill & Bergado

Business Growth, Business Valuation

How San Francisco Bay Area Businesses Can Raise Prices Without Losing Customers

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Are you watching your COGS these days? (I, ahem, hope you know what those letters stand for, because if not … well, then we should DEFINITELY talk. (408) 241-4100 ) Has it gone up? You’re probably not alone given what kind of signals the economy is sending these days. In which case (and you’ve probably already thought about this), figuring out how to raise prices without losing customers is especially important. You can ignore the likelihood of everybody looking to cut costs as their COGS increase (if you are B2B), or as San Francisco Bay Area consumers feel the tightening in their wallets as prices go up. OR (and I like this way better), you can be strategic. So, I thought I’d offer you some ideas today. How San Francisco Bay Area Businesses Can Raise Prices Without Losing Customers“Things work out best for those who make the best of how things work out.”  – John Wooden It’s heartbreaking to watch San Mateo small businesses go out of business or not bring home enough bacon simply because they get trapped into thinking about their customers and their pricing in the wrong way. And as such, they end up losing customers. When you differentiate yourself based on price alone, you simply cannot provide value. You end up competing on the wrong playing field, and it’s not one in which you’re built to win. Yes, price competitors have been in operation since the days of the Greek agora, but it’s important to understand that if YOU want to build a sustainable, scalable — and, one day, SALE-able — business, a core foundational piece of that puzzle is that you must be charging enough for your goods and services. Many San Francisco Bay Area small businesses remain in perpetual survival mode because of how they price their products. They believe their only competitive advantage lies within their pricing, so they run an ever-accelerating race to the bottom. But even in shaky times (which, if you’re looking at current economic numbers, we are NOT currently facing), people still have money to spend. So, it stands to reason that if you’re not bringing it in, you’re simply not doing a good enough job showing them that your place of business is the best place to spend it. You see, it’s all about understanding the specific value you provide. And if you’re not clear on it, your prospective customers certainly won’t be. So, how can you do better in communicating your specific value? Well, I’ve got three ideas for you today… How to Raise Prices Without Losing Customers Tip #1: Reassess your primary selling pointsYour prospects have no way to know if you are the best option for them. To regular consumers, most options are the same — in almost every industry. When you compete on price, you attract … those who are shopping based on price. And, of course, they see you as “just like everyone else.” Then the real question is what makes your San Francisco Bay Area business different? And how do you show that to the marketplace?  That’s what you need to focus on and figure out how to quickly tell that simple story. Your prospects must turn to you because they trust you and because they see your business as worth the money — not because you’re the cheapest option. How to Raise Prices Without Losing Customers Tip #2: Tap into customer psychologyWhy can Nordstrom charge higher prices for products found elsewhere (i.e. cars, purses, ties, shoes)? It’s because of the VALUE they’ve attached to their brand (i.e. social prestige, enhanced customer service, increased self-esteem). They’ve moved themselves out of the commodity market and into the heart, emotions, and primal urges of their clients.  You need to (and can) do the same thing in your business. Yes, your customer can get a widget or receive a service for XYZ … but what AREN’T they getting when they work with that other option? Focus on identifying these aspects of your offering. Your value is not derived from the “features” of your product or service … it is found in the intangible — emotional — benefits from working with or purchasing from YOU. How to Raise Prices Without Losing Customers Tip #3: Evaluate your offerings for bundle opportunitiesFor service professionals, there are only so many hours in a day and you’ll reach an income plateau very quickly when you are billing by the hour. Not to mention that you have to start every month over at zero — and there’s little stability in that. So, my advice? Begin billing on a flat fee/value basis.  If you’re scared to shift, just think of the *value* your customers will experience having a professional using flat fee billing. They won’t be nickel-and-dimed for every phone call, email, and message that comes through the office. They can communicate with you as they wish without fear and they can pick their price point of choice if you have multiple flat-fee options. Many people are willing to pay more for certainty. It’s a win-win for them — and it’s very much a win-win for the health/sustainability of your business. For retailers or product providers, you can only play “margin games” for so long. So, identify monthly services that might augment the experience of using your products. Consider what your customers actually want (on an emotional level) and the problems they face in using your services. Restaurants could initiate a “VIP club” with special perks, automatic billing, and exclusive choices. Merchants can create enthusiast groups, or lessons and coaching. The point is to go *beyond* the widget … and into the heart of your customers’ desires. Remember this: There are always consumers out there with more money to spend. And they NEED your products or services. It’s up to you to convey the intrinsic value of working with you (even at a higher price point) in order to make a revenue shift with what is left of the year. If you need help thinking this through, we’d be happy to give some insights and get you on the

Business Valuation

When a Local San Francisco Bay Area Business Is Shutting Its Doors

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This might not apply to you. So it could just be something to file away for the future. But I’m hearing enough rumblings from other accountants and seeing some of the signs … SMB owners could be in for a tough ride over the next little while and that could mean any San Francisco Bay Area business could end up shutting its doors. And sure – nobody likes to think about the end of something. Endings are sad and hard. And then there’s the psychology of it all – it’s difficult to think about closing your business when you’ve invested so much of yourself into it.  But sometimes you find yourself there, the math is just the math, and you’re facing the end of an era for your business – whether via disaster or marketplace factors or you’re just ready to move on. So if you’re considering closing your business (for whatever reason), you have to have an exit strategy, especially when it comes to your tax obligations. Because even if you’ve closed out your inventory or notified your employees and sent out those painful final paychecks, there are still things you have to take care of with the IRS. This all seems gloomy – sometimes the exit is a windfall. Let’s plan for THAT and take a look at where you see your business going in the next 5-10 years, and how we can prepare your finances for either eventuality. Use this for that:(408) 775-7790 But regardless, it’s important to know what happens when a business is shutting its doors. Here are some things to keep in mind… When a Local San Francisco Bay Area Business Is Shutting Its Doors“Only those who will risk going too far can possibly find out how far one can go.” – T.S. Eliot  You gave your small business your whole life. But there comes the day when, for whatever reason, your business is shutting its doors. In that emotional moment, taxes and paperwork may be the last thing you want to think about.  We understand. But you’ll do yourself – and those who worked with and for you – a favor if you take the pains to tie all those loose ends.  Let’s look together at what’s involved (from a tax perspective).  Last returns (and payments) Uncle Sam waits for no one; you must file a final tax return for the year in which you close.  What IRS form you need will depend on your former business. For instance, if you ran a limited liability company (LLC), the IRS might have viewed your company as a partnership, a corporation, or some other kind of entity. Partnerships file IRS Form 1065, corporations file Form 1120, sole proprietors file a final Schedule C in their personal return, and so on. You may need additional forms if you sold the business or its property.  If you created your company by state law (a corporation or an LLC, perhaps), you follow state rules to terminate, including filing state returns and paying fees. If you had a C or S corp that resolved or have plans to dissolve the corporation or liquidate any stock, you must file IRS Form 966, “Corporate Dissolution or Liquidation.” If you sell assets that make up the entire trade or business, you report the transaction on Form 8594, “Asset Acquisition Statement.”  Double-check with us about form, schedules, other documents, and the filing deadline. You also must pay taxes due the state or the feds – and remember that even if you close your business right now, much of the payment and other obligations will come next filing season.   Take care of your people You have to pay final wages and compensation to your employees – and that means you also must make final federal tax deposits and report employment taxes. (There’s a penalty if you don’t.) Your quarterly 941 tax return or your annual Form 944 return can cover reporting for your final wage payments. Check the box to tell the IRS your business has closed and enter the date when you paid the final wages. You should also attach a statement to the return showing the name of the person keeping the payroll records and the address where those records will be kept. Also:  If you had a pension or benefit plan for employees, you’ll have to terminate it (and eventually distribute the money). You’ll need to file Form 5500, “Annual Return/Report of Employee Benefit Plan,” and you may want to file Form 5310 for confirmation of the status of your plan – it can save trouble down the road. Closing your EIN The employer identification number (“EIN”) of your business has to be closed out, along with your IRS business account. You close both by sending a letter to the IRS that includes the complete legal name of the business, your EIN, the business address, and the reason you want to close the account.  If you still have it, also send a copy of the notice the IRS sent when you got your EIN. We can get you the right address.  Keep Your Records There’s always a lot of debate about how long to keep tax records. For businesses, it depends on what’s on each document. For instance, keep records of employment taxes for four years. You generally keep property records until the statute of limitations runs out for the year you got rid of the property. We know it’s a lot to think about at what’s probably an emotional time – know that we’re here to help. We’re primed to help you sort through what needs to be done if your business ever ends up shutting its doors. On your team, Patti ONeill and Gale Bergado(408) 241-4100ONeill & Bergado

Business Growth, Business Valuation

How a Continuous Audit Helps Your San Francisco Bay Area Business

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My quick take on SVB: Don’t let it rob you of your focus for building the business under YOUR control. In other words, let noise be noise … and focus on what’s most important: your immediate world. But I will say that this crisis is a perfect example of why you should keep regular tabs on your San Francisco Bay Area business’s financial state. Thank goodness the feds were able to jump in on that mess and help avert an “extinction-level event,” but it could have been (and maybe still could be) worse if things don’t change.  Let me frame it this way: Think about your very first car purchase. It was a huge deal, right? One — because of the freedom it afforded, and two — because of the sense of pride over getting to own something that was a big purchase.  But, unless you were well prepared for what car ownership looked like, you probably overlooked the ways to keep that car operating at optimal conditions. And sometimes that ended with the real “pain of ownership” — in the form of big-time auto repair fees as you didn’t know what needed to be regularly checked (or failed to have someone in place to help you figure it out). Now, I want to apply that same principle to business ownership. If you have a “set it and forget it” mindset about this thing you take so much pride in, you’re most certainly going to experience big pains in your ownership… with much bigger stakes involved.  To keep your business operating optimally, you have to prioritize regularly checking in on the state of affairs — especially the financial side of things. One way to do that: the continuous audit. More on that today. But first, remember, we’re one more week closer to the April 18th personal tax return filing deadline.  If you haven’t reached out for an appointment to get things in order on that side, I’m gonna suggest you get on that ASAP. There are things we’ll need to double and triple-check before we cross all the t’s on your forms. Get on our calendar here:(408) 775-7790 Now, let’s get into the continuous audit and why you need to do it in your business (even with “the price tag” seemingly attached to it)… How a Continuous Audit Helps Your San Francisco Bay Area Business“To pay attention, this is our endless and proper work.” – Mary Oliver As a business owner, you’ve likely tried several different strategies to maximize your business’s success — technological strategies among them. And these can help your small business in a lot of ways, of course. But one of the last things tech can do, if ever, is change the ownership’s mindset about a business process like auditing. Sure, audits have their place in setting a company back on course. But why do businesses run audits only sporadically or annually? Why’s that company off course when the capacity exists now to catch a problem early?  Continuous auditing (CA) can solve this problem by potentially spotting an issue far quicker than a yearly financial statement audit would. It sounds pricey and high-tech, only for big multinationals — but it’s actually not.  So… what is CA, and how can you start?  More is more: A Reason for Continuous Audit A comprehensive, bird’s-eye view is almost always better when you’re looking at your company’s processes to analyze what you can do better or to find mistakes to fix. But “comprehensive” doesn’t mean just “how much” — it also means when?  Here’s what I mean: Why examine just a snapshot of samples against your ideal numbers (controls) when you could constantly be looking? In these days of unending cyberattacks and rampant past dues, why wait months or more (and lose money) before you can find a trend or trouble that needs fixing? When done correctly, a continuous audit assesses controls and risks automatically and more frequently. Your auditors have a schedule, right? Under CA, that’s intensified: Your auditors’ teams check your books throughout the year or drop by your office every week or so. The point here is frequent eyeballs on your operation.  Just to clarify: A continuous audit is never intended to replace traditional auditing. It’s just one more tool in your box. And it’s not to be confused with:  How to start — and keep going Even the most tech-heavy business ideas started from the most basic point: trouble spots. You probably already have at least an inkling of what yours are in your company. Start with those.  Then list the data you might have from those areas: HR, A/R and A/P, CRM, payroll, expenses, and so on. Look at the data for risks and trends. With your experience as an owner, something could leap right out. Let’s say you see spiking expenses in office supplies — could looking at that area more often pay off for the effort? If so, how often to look?  Your data collection is constant, but your examination of that data is as frequent as you want. Are you trying to influence profits on a set schedule, for instance, or trying to meet a regulatory deadline? If you must balance the frequency of your scrutiny with your needs, try to err slightly on the side of scrutiny.  Other points: How much is all this going to cost? Make no mistake: You can spend a lot on this. But even though a continuous audit sounds fancy it actually uses a methodology similar to traditional approaches.  Even better, you can use tools like Excel for presenting data in easy-to-read spreadsheets. You can make playbooks in Word or Google Docs. You already know about financial statements, so I won’t belabor that one. The analysis and decisions can come from your or your advisors’ knowledge, experience, and smarts.  In summary, what I’m trying to say is: Just start thinking about data in a new way. And more frequently.  I’m sure you hear ideas come down the pike constantly about how to supposedly improve your San Francisco Bay Area company. We’re

Business Valuation

Navigating Bank Failures in Your San Francisco Bay Area Business Right Now

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Memorial Day was this week. The unofficial start of summer. I like to remember that when things are unpredictable and even a bit hairy (like a shifty economy, bank failures, debt ceiling crisis), normal life still goes on.  People will still prep their grills. They’ll whip up their mom’s potato salad recipe. Celebrations with friends and family in the backyard will still happen across the 50 states. It’s always good to keep that in perspective.  As a business owner, you’ve probably gotten good at managing crazy for a while now. Running a business in our post-pandemic economy takes a special kind of chutzpah.  That’s why I want to jump into part 2 of my banking crisis articles. I’ll get back to the second half of our talk about the new FinCEN reporting requirements soon.  But today, my goal is to help ease your mind about the topsy-turvy economy and equip you to navigate it. Naturally, I won’t cover everything about navigating bank failures in this article. There’s a lot more to be said. If you want to talk about your business goals for this year or how to take this whole bank failure impact in stride, let’s get something on the calendar:Patti (408) 775-7790  Gale 408-775-7800 Until, then, I’ve got some thoughts on how you can carry your San Francisco Bay Area business forward in this present moment… Navigating Bank Failures in Your San Francisco Bay Area Business Right Now“Banking is very good business if you don’t do anything dumb.” – Warren Buffett It takes a lot of moving parts to keep a business running, no matter how small or gargantuan it may be. Some of those things your business relies on involve outside institutions. (As much as we like to think we operate in our own bubble… that is rarely the reality.) Aside from your utility companies, your bank is probably the outside institution that’s most vital to your small business. Which is why, in the midst of a banking crisis, you might ask, “Is my bank in trouble?”  Accusations keep flying on Capitol Hill as lawmakers grill bank execs. Warren Buffett himself has warned that the banking crisis isn’t over (though he adds that depositors generally shouldn’t worry).  A recent survey showed small-business owners divided between those who have confidence in America’s banking system and those who don’t. Almost a third said they weren’t going to open a new bank account anytime soon. A slight majority think their business capital is secure — but fewer are finding it easy to actually access the capital they need. Throw in nagging inflation and frequent hikes in interest rates (though both might be slowing this summer)… and the banking crisis can feel like a worry that’ll break the camel’s back.  Allow me to comfort you, if I may: It isn’t.  Navigating bank failures is possible for you and your company… with perspective, caution, and a sharp eye for options. Navigating bank failures means new kinds of risks When bad asset allocation, sketchy investment, and lax risk management rattle banking — and Congressional inquirers think all of those apply to the current crisis — it’s only natural that other businesses like yours start thinking about new kinds of lenders. For instance:  Approaching one of these institutions means you have to weigh a fresh source of capital against new and unknown risks, a common problem when a mainstream industry as vital and big as banking hits troubled times. How much help is the FDIC? But even when navigating bank failures, common sense still prevails. If you are looking for a new bank, you don’t want to jump too quickly only to find yourself at a new institution with hidden higher fees and other problems you didn’t have time to spot.  You should also know that your money also has a backup (within certain conditions). The Federal Deposit Insurance Corporation, created 90 years ago as thousands of banks failed in the Great Depression, insures bank deposits up to 250,000 dollars. The insurance amount is per depositor, per insured bank, for each account category. Seems simple, and maybe it is for individuals. But is it still giving enough coverage to businesses these days? The FDIC itself has suggested “Targeted Coverage” for different levels of deposit insurance across different types of accounts, with a focus on higher coverage for business payment accounts. The FDIC also noted how individuals can often do what businesses can’t: Diffuse their accounts and their money across multiple banks to make sure every account is under the threshold of FDIC coverage. For now, until some sort of Targeted Coverage becomes a reality, it could be a smart move to try doing this as much as possible with your business accounts.  Does size matter? In one of those surveys we mentioned, small-business owners are fairly split in preferring to work with large, regional, and community banks, but they did report that right now the regionals and community banks were harder to access capital from. That’s also the order in which respondents expressed confidence in their bank now — “bigger” does seem more secure. But is it? Unrealized losses are on the books of many regional, mid-sized banks — yet some benefited from the business transferred from the likes of Silicon Valley. Small businesses also still get more loans approved by small banks than by big ones. Navigating bank failures involves getting creative If you don’t want to go through a bank at all for capital, think about the U.S. Small Business Administration, online lenders (where terms are usually easier but the interest rates and fees are higher), or a credit union.  Credit unions also offer traditional banking services and come in sizes ranging from small and local cooperatives to large institutions with a nationwide presence and thousands of participants. Compare credit unions using the same factors you’d use when shopping for a bank: fees, customer service, branch locations, online access, and so on. They’re also not-for-profits, so your fees might be lower, which is a nice little cherry on top. Finally, there’s the more

Business Valuation

Business Valuation: Knowing Your San Francisco Bay Area SMB’s Worth

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Although it’s a relatively new federal holiday, Juneteenth carries with it a weighty significance. In the official declaration via the Emancipation Proclamation, Abraham Lincoln wrote: “I do order and declare that all persons held as slaves within said designated States, and parts of States, are, and henceforward shall be free…” This holiday which we celebrated nationwide this week marks the crucial moment when our nation took a big step toward valuing ALL people as equal and free.  Imbuing value where value hasn’t previously been given is something that often means making a stand and fighting until it’s recognized. It’s why 340,000 UPS workers are threatening a strike. They feel undervalued, so they’re fighting for their company to officially rethink their value.  It’s not enough to simply know your own value. Others need to see it too.  And that’s why I want to talk about the value of your San Francisco Bay Area business. Knowing what your business is worth — while not about intrinsic human worth or worker’s rights — is essential to how you will operate and how others will see you as well. Because there are moments in your business’s lifespan that will require you to stand on that valuation including the day that you think of selling it or passing it on.  That’s something we can and should discuss:(408) 775-7790 Let’s start here… Business Valuation: Knowing Your San Francisco Bay Area SMB’s Worth“Try not to become a man of success, but rather try to become a man of value.” – Einstein Determining the economic value of your small business is a key part not only of your ongoing operations but also of many milestones in the company’s life, including its eventual sale. What is a “business valuation”? There are two general kinds with different purposes: Let’s look at what details of your business you should be prepared to show for a valuation.  What’s looked at Basically, a business valuation stacks up your company’s assets versus its liabilities, the value of everything your business owns minus its debts or liabilities. Areas to be examined include:  Capital structure: Your company’s balance of owner/staff equity, debt, and reserves. (A company with a higher debt-equity ratio is highly leveraged.)  Earnings current and potential: What are your levels of sales, especially compared with other similarly sized companies in your industry?  Two common methods of calculating earnings are EBIT (earnings before interest and taxes) and EBITDA (Earnings before interest, taxes, depreciation, and amortization). Another method is discounted cash-flow analysis, which looks at the business’s projected annual cash flow discounted to today’s value. (We’ll talk more about this in the next article.)  Management: Their length of tenure, work ethic, and time spent on business operations day to day, as well as their investment such as stock options and your managers’ goals as spelled out by the mission statement. Another key factor: compensation by industry benchmark.  Market value of assets: This could include equipment/furniture, property, intellectual capital (the biggest problem here can be outdated equipment). Non-operating assets can include commercial real estate, stocks and bonds, related entities, and surplus cash, so be prepared with documentation on these as well.  You should also be prepared to discuss less-tangible aspects of your company’s worth, such as location, community presence, marketplace reputation, and so on.  Documents you’ll need The more paperwork you can provide for your business the better, but the basics include three years’ income tax returns; a current P&L statement and balance sheet; three years’ P&Ls and/or balance sheets; a YTD income statement with a comparison to last year; an estimate of your company’s current inventory at cost; a list of intellectual capital; and an asset listing of furniture, fixtures, equipment and sellable inventory at approximate current market value.  A new notes:  Your advisor may also need details of major contracts; equipment leases and depreciation schedules; business plans and forecasts; property deeds and leases; property appraisals; loan agreements; and details of pending litigation.  Who and when Your company’s valuation is critical and unless you really know what you’re doing, a DIY approach is not best. You’ll need a professional. More than one, usually. Getting input from multiple professionals will ensure you get an accurate valuation, better negotiating power for the valuation, and all the information you need to make the right business decisions (like selling your business, raising capital, expansion, etc).  Next time, we’ll get more into what to ask when finding the right people for you, but generally, you’ll be looking among attorneys, CPAs (we’re happy to help), business brokers, M&A advisors, even appraisers. Keep in mind: Your valuation might take up to six weeks.  We’ll also look at when and under what circumstances you might need a business valuation in the next article. Be on the lookout for that.  And, as always, my team and I here at ONeill & Bergado are here to help provide whatever you need to run your San Francisco Bay Area business. Looking out for you, Patti ONeill and Gale Bergado

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