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What is your Triple Bottom Line?
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Deborah HeltonManager |
Sustainability has become the newest buzz word in business, but what is a sustainable business? A truly sustainable business considers its triple bottom line or impact on economic, social and environmental resources. What is the value of making your business sustainable? The overall goal is to reduce the negative impact and improve the positive impact to all three areas.
As a member of the Pikes Peak Sustainable Business Network (PPSBN), BiggsKofford recently formed a green team within our office. The green team met with the PPSBN’s assistant director, Jackie Rockwell to assess our triple bottom line. Being CPAs and entrepreneurs, we were fully aware of our financial status and what we previously believed to be the double bottom line that mattered most.
Our social impact was fairly strong as well. BiggsKofford has always been involved in the community and we are extremely involved in the non-profit arena. Employees are able use work time to volunteer, sit on numerous non-profit boards, and both the company and employees contribute monetarily within the community. Not to mention the heavily discounted services we offer to non-profits.
However, the environmental line of our triple bottom line had not been as seriously addressed. Although our audit department was already paperless, surely there was more that could be done to lessen our environmental impact. During this process we found was that making changes to reduce our negative impact did not require not mind bending concepts or even invasive changes. There were a number of small changes that were easily made without much cost or inconvenience to clients and employees. Some of those small improvements include serving clients water from a filtered water system as opposed to buying bottled water, stocking the break room with dishes and utensils purchased from Goodwill as opposed to buying disposable, turning off computer screens at the end of the day, and of course recycling aluminum, paper, plastic and cardboard.
Larger initiatives do require some employee time to implement and adjustments to policies and procedures, but overall the changes made have actually improved efficiency and either didn’t incur additional cost or actually saved money. We started by evaluating our larger cost areas, paper and printing transitioning many internal processes paperless. We continue to working toward more paperless processes such as paperless billing, increasing the number of tax returns filed electronic ally, and electronic delivery of tax returns where applicable and accepted by clients.
One of the unexpected side effects of these changes is the strong buy in from employees and their enthusiasm to participate and share ideas. Taking steps toward sustainability are beneficial for all involved. A sustainable business can create value for clients, employees, owners and the community using the triple bottom line concept.
Need help with your business loan?
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Chris BleesPresident & CEO |
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Austin BuckettManager |
Recently the Colorado Springs Business Journal published an article entitled “Delinquent loans hurting local banks”, giving a good perspective of what businesses and banks are facing alike when it comes to financing in this economy.
If your business is facing any of these issues:
- You can’t renew your line of credit.
- Your loan has a balloon payment, but the bank won’t extend.
- You have an opportunity to expand your business, but you can’t get the financing.
- What are you to do to keep your business afloat?
BiggsKofford has developed solutions:
- We can help you develop, plan and present your financial story for lenders and capital sources.
- We have successfully placed clients with new lenders, when others have turned them down.
- We have identified alternative capital sources – when traditional lenders won’t do the deal.
For more information on how BiggsKofford can help, contact Chris Blees or Austin Buckett. You can also find more information on capital sources here.
Auditing the Auditors
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Kurt KoffordDirector |
- Not sure how your clients will react to changes you are thinking about?
- Would you like to know how you could increase your market share while times are tough?
- Would you like to be able to get more business from your current clients?
- Do you wonder how your product or client service stacks up against the competition?
- Are you looking for some specific, valuable guidance for your business problems?
- help you identify what things you’re doing well—so you can keep doing them
- give you ideas on what you can improve, and get suggestions on how
- help you determine your priorities based on what your clients would like
- give your team a real sense of reward and focus, so they are more motivated than ever before.
- Determine exactly what you want to achieve from your Client Advisory Board.
- Decide who of your clients will be best suited to invite to your Client Advisory Board. You typically want to invite your better clients, the kind you would like to take care of.
- Inviting them to your Client Advisory Board with a letter and a phone call that lets them know their input will be important and valued.
- Design a list of appropriate questions to ask at your Client Advisory Board. We asked questions such as “What suggestions do you have for how BiggsKofford could improve its service?”, “What could we do to obtain more referrals from our clients?” and “If you were CEO of BiggsKofford, what is the first thing you would do to make change?”
- Find an outside party to facilitate your Client Advisory Board for you. This allows your clients to give input without pressure. We had a CEO of an accounting firm from Denver facilitate ours.
- Once the meeting is over, meet with your facilitator to review what was said and to help you decide what to do about it.
- Audio record the entire meeting and the follow-up consultation so you can review and get a real understanding of the essence of the meeting.
- After you have reviewed the recordings, prepare a report to send to your clients outlining the issues that were raised and what actions you’ll be taking on each one.
- The last step is to implement the strategies and ideas your Clients spoke about.
Consider these scenarios:
1. You just received a regulatory notice in the mail from the government agency that regulates your company or organization, informing you that the audit of your company didn’t meet the required standards. The notice uses threatening language to spell out the negative consequences of not complying. What went wrong?
2. You just received your company’s audit report in the mail and you realize that you have had very little interaction with your auditors. Instead of reaping the side benefits of insights and recommendations from the auditors outside perspective developed while auditing your organization, all you got were the pieces of paper you are required to give to the bank. What went wrong? Could this situation have been changed by taking different steps when choosing a CPA firm?
Aren’t all financial statements audits created equally?
The answer is a definite no! Audits are not a commodity in which one gallon of gas is just like the next. Yes, there is a large body of professional standards to guide all auditors in the performance of an audit and reporting on financial statements, but there is a wide variance in actual practice as to how those standards are followed.
The professional auditing and reporting standards are broad enough and flexible enough to allow for the uniqueness of different companies and organizations and the different approaches of CPA firms performing the audits. This is as it should be, because no two organizations are alike and professional judgment is still the most important element of an audit.
When an audit is not an audit
Unfortunately, in my 26 years as a CPA and an auditor, and my experience over the last four years on the Colorado State Board of Accountancy, I have learned that some audits are better than others, and a few are downright bad. There are many factors that go into creating a superior audit, including the approach, skills, knowledge and time allocated to the audit. Most of these are factors in arriving at the cost of an audit, yet many organizations and companies select their auditors on the basis of cost alone as if the audit by one CPA firm is the same as the next.
How big is the problem?
No one knows for sure how many sub-standard audits there are, but recent studies in certain sectors have revealed concerning deficiencies. Substandard audits have become enough of a concern for the department of Housing and Urban Development (HUD) that they are considering a proposal to require any auditor performing an audit to be submitted to them to be from an approved list, which would allow them to exclude auditors who have not been performing audits up to the required standards.
What to Do? Our Recommendations
The first thing to consider is the competence and longevity of the firm or accountant that you are engaging to audit your company. How long have they been in business? What is the firm’s professional standing and experience in your industry? Do they list references in their proposal for similar work and similar industries that they have done work for in the past? Check the Web site for the Colorado State Board of Accountancy to see if they have had any complaints filed against them. Not only should you find out if the CPA firm is a member of American Institute of Certified Public Accountants (AICPA), but you should inquire how they have used their membership to improve their audit quality. For example, the AICPA has Audit Quality Centers for specialized areas such as employee benefit plan audits, where members can join to access resources to improve the quality of their audits. Also, check to see if they are in good standing with the Colorado Society of Certified Public Accountants (CSCPA). Both organizations require audit firms to conduct tri-annual peer reviews (an audit of the auditors).
Ask them for their most recent peer review report and discuss the finding of their peer review with them to determine what suggestions for improvement were made.
And of course, it’s important to take a detailed look at the proposal. Are they proposing in writing that your company’s needs will be met and to the proper regulations? When looking at proposals to decide on a CPA firm, many companies put together an audit committee to come to a decision as a group.
In my position with the State Board of Accountancy, I’ve seen situations where businesses or organizations have made bad decisions in choosing CPAs when it came to their audit. These situations haven’t made headlines, but bad situations happen more than what I would like to see.
The Bottom Line
Selecting an auditor based only on cost is not a good idea. Often the old axiom applies “You get what you pay for”, so make sure you are reaping the benefits that an audit should bring to an organization.
Using Financial Statements to Grow Your Business
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Braden HammondSr. Manager |
I have had people tell me that, while they understand why financial statements are necessary, they believe using them to run their business is like driving a car by looking into the rearview mirror. It’s true that historical financial statements have limited usefulness for decision-making. However, forward-looking or forecasted financial statements can be a powerful tool to help you grow your business.
To get the most out of your forecasted financial statements you should (1) start with your long-term goals, (2) go beyond the income statement, (3) identify milestones and incentivize employees to achieve them, and (4) monitor your progress.
Start with your long-term goals
Hopefully it’s apparent that the financial statements I’m referring to are not the stereotypical budget you hastily prepare, by adding x% to last year’s revenues and expenses, and then stick in a drawer until next year. Instead, these financial statements should be based on your long-term goals.
For example, assume your goal is to sell your business in five years for $10 million. You know that businesses in your industry typically sell for five times net income, so you need net income of $2.5 million five years from now to achieve your goal. You can work your way up the income statement to determine the revenues that you need to generate that specific net income and then fill in the rest of the details. Finally, you can forecast income statements for years one through four to get from where you are today to where you want to be in five years.
Go beyond the income statement
No one ever bought a vacation home with net income. To do that, you need cash flows. So, while forecasting the income statement is a great first step, you also need to forecast the balance sheet.
Growing a company generally requires upfront cash investments in advertising, inventory, equipment, personnel, etc. To be successful, you need to be able to predict when you will need that cash and where it will come from. How much extra cash do you need? Can it be generated internally? Will you need additional debt or equity financing? The only way to answer these questions is to forecast the balance sheet.
As an ancillary benefit, simply going through this process can help keep you focused on managing the balance sheet. For example, an active focus on reducing the time it takes to collect accounts receivable can accelerate your cash flows and reduce bad debts. Both will reduce the amount of external financing needed to fund your growth.
Identify milestones and incentivize employees to achieve them
One of the primary benefits of creating forecasted financial statements is to create expectations for employees in carrying out their job functions that lead towards your long-term goals. By soliciting feedback from key managers and employees in the forecasting process you can create buy-in for the overall objective.
An important element of any growth initiative is incentivizing your key managers and employees to align their goals with your goals for the company. Ideally, the milestones on which you base incentives should be a challenge to achieve, but also attainable, objectively measurable and based on things which your employees can affect.
The costs of these incentives should be included in your forecasted financial statements.
Monitor your progress
I recommend rolling financial statements for each of the next 12 months and then yearly financial statements from that point as far into the future as is practical. Each month you should compare your actual results with the forecasted financial statements to ensure the long-term goal is realistic and that you’re on target. If you’re not on target, or if circumstances have changed, you should update the financial statements to reflect your revised expectations.
Reviewing your progress monthly you will renew your focus on your long-term goals and improve your chances of success.
If you follow these recommendations you will find that your financial statements become less like a rearview mirror and more like a roadmap for growing your business. Clearly identifying your goals and monitoring your progress will give you peace of mind and the process will provide you with deeper insights into your business.
When Times Get Tough – Ask Your Clients
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Kurt KoffordDirector |
Who wouldn’t love to get answers to these important questions? But where can you go to find a group of people who know about your business and would take the time to give you their advice?
The answer is much closer than you think. Your own clients are one of the most valuable groups your business has, and if asked, it is likely that they will be more than willing to provide meaningful, relevant and supportive input to your business.
With a structured, fully facilitated Client Advisory Board, you can get a real ‘outside-looking-in’ perspective of your business.
Holding a Client Advisory Board will:
The information you’ll gain from holding a Client Advisory Board is specific to your business and represents a giant step on a path towards helping you deliver the extraordinary service that will keep your customers coming back for more.
Our firm has received that kind of valuable input and feedback. We held a Client Advisory Board with 14 of our good clients to find answers to some of the questions that were most important to us to help us formulate our strategy to react to the challenging times we are in. It turned out to be a very positive and helpful experience for us. I think it can be a big source of help for you as well.
How Does It Work?
This process turned out to be a very positive one for our firm. Our clients were very gracious and willing to provide feedback on both positive aspects of our firm and things we could be doing better. It is amazing what you can learn when you just ask your clients. For example, we were wondering what we should do to obtain more referrals from our clients and had considered elaborate methods to try. It turned out that our clients told us to forget about any fancy methods for referrals and to just ask them. They also came up with some great ideas for better communicating how we could help them and had specific suggestions on how to make the process of preparing corporate tax returns easier.
See – if you really want to know how to improve – just ask your clients. They can be your best source of help. And it never hurts to let your best clients know that you want to improve and serve them better. Try a Client Advisory Board for your business!
An Overview of the New Healthcare Law | BiggsKofford’s Entrepreneurial Series
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Chris BleesDirector |
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Michael McDevittDirector |
BiggsKofford’s Entrepreneurial Corner on April 22, 2010, covered the topic of Healthcare Reform and how the current law could potentially affect your business.
Moderated by:
Chris Blees, CPA, CM&AA, CEO of BiggsKofford
Panelists:
Michael E. McDevitt, CPA, CFF, CFE, Director, BiggsKofford
Jeff Ahrendsen, Benefit Resources
Bill Lueck, Executive Director, Parkside Cardiology
A copy of the presentation handouts can be found here:
BiggsKofford, P.C. Entrepreneurial Series, April 22, 2010
If you are interested in attending or sponsoring a future Entrepreneurial Corner, please contact Stephanie Johnson at (719) 579-9090.
Four Ways to Grow Your Business
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Etienne HardreSenior Associate |
It wasn’t long ago when it seemed that the answer to every business challenge was to “get out and sell more”. Now, business owners are scrutinizing their operations for ways to squeeze out every last drop of profitability. This is a healthy exercise for any economy to undergo and the surviving businesses tend to emerge from difficult times as leaner, more disciplined enterprises poised to take advantage of every opportunity as the general market conditions improve. Let’s look at four ways to increase your profitability and grow your business.
Increase Average Price
The classic example of increasing prices was when Starbucks turned the 25 cent cup of coffee into a $3.50 specialty drink. Part of their success was with branding and perception, which can both be powerful tools for increasing your prices as well. Do your customers treat you as a low-cost provider in your industry? How can you change that mindset? One of the best ways to overcome the customers’ arguments to paying a higher price is with value-added services. While “value-add” is tossed around an awful lot these days as a buzzword for consultants and marketing spinsters, savvy entrepreneurs develop ancillary services around their core products to differentiate themselves from their competition and justify higher average prices. Whether your barista takes an extra few seconds to smile and ask about your day or your key supplier includes your marketing on their website, these services set their businesses apart and keep you happy paying a higher average price because you actually receive more value. Do the same for your customers to increase your profitability.
Increase Average Transaction Quantity
Assuming your products and services generate more revenue than they cost to produce, increasing the quantity each customer purchases also increases the average sale and is another way to improve profitability. Offering discounts at certain volumes is a great way to convince your customers to buy in bulk. A small discount at 5,000 units and a larger discount at 10,000 trains them to think in bigger numbers and to find ways to use more of your products. Choosing your discount carefully will ensure you improve your profitability at the higher volumes.
Increase Number of Transactions
Once your average transaction value is where you want it to be, increasing the number of transactions is your next challenge. Marketing is the key here, both to your existing customers and to potential new customers. Highlight your value-added services, find your target market and get in front of them consistently, sell, sell, sell. Customer loyalty cards are often a great tool to increase the number of times your existing customers purchase. If they only need three more purchases to “get one free”, the motivation is strong to keep buying.
Reduce Costs
Cost reduction tends to be the default for business owners when pressed to increase profitability and most businesses are ripe with opportunities to streamline operations. Costs generally fall into three categories:
Reduce Average Cost of Goods Sold
Cost of Goods Sold consists of those expenses that vary directly with the volume of revenue generated. Gross Profit equals Sales minus Cost of Goods Sold and is the revenue left over to cover selling and administrative functions and to pay yourself. Reduce variable expenses with improved engineering, outsourced manufacturing, less expensive materials and streamlined delivery.
Identify and Reduce Direct Costs
Direct Costs are those overheads that can be easily traced to a revenue generating activity but not always to a specific unit of product. Examples are advertising, sales salaries, and location-specific overhead in a business with multiple locations. The important thing to remember when reducing direct costs is that these costs generate revenue. Cutting advertising to save a dollar today can come back to haunt your business in the form of reduced sales tomorrow.
Reduce Overhead
Overhead is that administrative function that is necessary for running a business but not tied to revenue in any way. These are expenses such as rent on corporate headquarters, administrative salaries, insurance, attorney fees, etc. Reducing your overhead is only limited by your imagination, frugality, ability to maintain compliant and risk tolerance. Perhaps you don’t really need a full-time CFO and can outsource that function to your CPA; you find your IT administration can be handled more efficiently by a third-party; or your insurance agent can restructure your policy to provide coverage targeted to your specific risks at a lower cost. Savings in overhead generally roll directly to your bottom line to improve profitability.
There are many other ways to grow your business during tough times, so keep working on your business and thinking forward. When the economy booms again, your business will be well structured to maximize all of the opportunities to grow and profit.
So…The Bank Is Calling Your Loan
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Chris BleesCEO |
The story is becoming all too common. The bank calls and tells you they are not going to extend your loan. The message comes in many forms: They won’t renew your line of credit. The loan has a balloon payment, but they won’t extend. They are willing to extend, but with draconian terms. They are now enforcing some deep-dark covenant that you’ve never complied with, but now causing a default. Whatever the reason, the effect is the same – they tell you to come up with $X million dollars, which of course you don’t have.
Why are banks doing this?
If you were the borrower who got 95 percent loan-to-value, non-recourse, 3-year balloon on your speculative land purchase, then you know why they’re calling your loan. But, many banks are calling the good loans too. Why? Especially when we hear the political Talking Heads tell us how the Federal Government is encouraging lending, it is difficult to understand why the banks are calling even good performing loans.
The problem boils down to banking regulations. Bank regulations are more heavily risk-weighting loan assets held by Banks. This causes asset/equity ratios to go out of balance. Banks have two options to correct their ratios, either raising capital or convert loans to cash – as cash assets don’t have a risk weighting discount. Of course the banks would like to start with the riskiest loans, but bad loans can’t be collected, so they are forced to call-in good loans. And there you are, minding your own business with a perfectly performing loan. But the bank needs your cash – not your good loan.
What’s a borrower to do?
Real estate loans are the most commonly called. But, the loan collection push isn’t limited to real estate. If your business line of credit is the target, you might be in slightly better shape (assuming your business is still performing well). Many Commercial and Industrial (C&I) borrowers that find themselves in this situation are able to move their lending relationship to a bank with less capital constraints. Refinancing is generally an option.
On the other hand, if your real estate loan is called and your first reaction is to seek a new banking relationship to refinance the loan, you’ll likely find every bank is in the same situation. They’re all calling loans, and trying to reduce their real estate exposure. The local & regional banks, who have always been the leaders in local real estate lending, tend to be the hardest hit by this regulatory correction. But, the national banks don’t necessarily offer a solution, as they are either equally over-weighted in real estate, or they aren’t in the market for local real estate lending.
So, where do you go with your real estate loan? You might choose to do nothing, thus forcing your bank to “call their bluff” and foreclose on your property. If you have come to grips with walking away from any equity you invested, and either your loan is nonrecourse or you can negotiate your personal recourse with the bank, then perhaps handing them the keys is an acceptable solution.
But, they may not want your keys. The fact is that banks are in the business of lending money – not owning real estate. And, in many cases, they have already taken the financial hit to reserve much of your real estate loan balance. So, this might provide for an opportunity to buy-back your loan at a significant discount. This still leaves a big problem – where do you get the money?
Leave it to capitalism to find a solution. The vacuum in the commercial lending world has created a number of changes and opportunities in the capital markets. Specifically, many Private Equity Groups (PEGs), who have recently struggled locating quality traditional investments, are taking advantage of these lending voids. Other non-traditional capital sources are becoming more prevalent as well. (Asset Base Lenders, Sale-Leaseback Funds, Mezzanine Lenders, Real Estate Equity Funds, Hard Money Lenders, etc.). Business and property owners are finding these alternative capital partners to provide the needed capital to re-work or payoff their loans. Clearly the cost of capital from these sources will eclipse that of traditional lenders. But property owners may find partnering with an alternative capital partner is the only way to locate the funds demanded by their lender and still hold-on to some of their equity.
Until the banking system returns to a normal state, we will continue to see loans being called by banks. If you’re the next victim of this new lending epidemic, at least you’ll know others have been there before you. And, hopefully you’ll find a marketplace that is adapting and providing alternatives as well.
PTAC Comes to Colorado Springs
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Michael McDevittDirector |
Original article published January 22, 2010 at Colorado Springs Business Journal
In case you haven’t heard, Colorado was recently awarded a Procurement Technical Assistance Center (“Center”) in September 2009. The Center’s office is located right in Colorado Springs, at 6 South Tejon. Getting a Center in Colorado was a long, difficult two year process led by several key members of the local business community. I have the honor of serving as the Chairman of the Board of the Colorado Center, and I wanted to tell the community more about who we are and what we do.
What is a PTAC?
You’re thinking, ‘Okay, great. Colorado now has a Center, but what is it and what does it do?’ Procurement Technical Assistance Centers (PTACs) are offices (over 300 nationwide offices) that form a nationwide network of procurement professionals working to support small businesses seeking federal contracts from the Department of Defense and other government agencies.
During the 1980s, Congress became concerned that small businesses were not able to compete effectively against larger businesses for federal contracts. The Procurement Technical Assistance Program (PTAP) was authorized by Congress in 1985 in an effort to expand the number of businesses capable of participating in the Government Marketplace.
PTACs are the bridge between buyer and supplier, bringing to bear their knowledge of both government contracting and the capabilities of contractors to maximize fast, reliable service to our government with better quality and at lower costs. PTAC counselors have backgrounds in government acquisitions, and virtually all receive ongoing training to keep pace with continually evolving acquisitions procedures and policies.
Colorado PTAC
Our Colorado PTAC is a non-profit entity, and operates under an agreement between the federal agency that administers them nationwide, the DLA, and Colorado’s Office of Economic Development & International Trade (OEDIT). Both the DLA and the OEDIT allocated funds for the operation of the Colorado PTAC. Additionally, several El Paso County local businesses funded the remaining required amounts to operate the PTAC for its initial year.
The Colorado PTAC’s mission is to provide Colorado small businesses with training, support, and counseling, on government contracting, with the ultimate goal of assisting these small businesses in being awarded federal contracts. In addition, the Colorado PTAC will also help small businesses do the same for Colorado state government contracts and local government contracts. The Colorado PTAC is organized to provide this support to small businesses throughout the state.
Why is the Colorado PTAC important and how will it impact the local community?
The small business community here in Colorado that sought to do business with the federal government have been at a distinct disadvantage for many years. Small businesses in other parts of the country that have PTACs have been receiving support from their local PTAC and were better prepared to win federal contracts. Our Colorado small businesses were left without this critical support, trying to compete with small businesses outside our state that had PTAC support.
One of the reasons the Colorado PTAC was located here in Colorado Springs was the understanding of how important government contracts are to the local community. The business community in El Paso County relies heavily on federal contracts. The critical assistance provided to local small businesses by the Colorado PTAC will help increase the number of federal contracts awarded to them, by making them better able to compete with small businesses outside the state and win these contracts.
The Colorado PTAC also helps large government contracting businesses. These businesses often need to partner with small businesses as part of the contract requirements they are awarded by the federal government. So, they need small business partners who understand government contracts, have experience with government contracts and can help them meet their contract requirements. The Colorado PTAC helps these large businesses by training and supporting their small business partners.
The director and counselors at the Colorado PTAC are experienced government contracting experts. They are providing invaluable government contracting support to our local small businesses. They have been in operation for only a few months, but their results so far have far exceeded targeted expectations. We fully expect their results to continue to exceed targets, meaning local small businesses will be better at getting government contracts.
If you think the Colorado PTAC can help your business, call (719) 434-3470 or stop by their office. They are ready and waiting to help you meet your government contracting goals.
Need Capital? | BiggsKofford’s Entrepreneurial Series
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Chris BleesDirector |
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Austin BuckettManager |
BiggsKofford’s Entrepreneurial Corner for March 18, 2010 covered the topic of raising capital and how to handle your bank calling your loan or line of credit.
Presented by:
Chris Blees, CPA, CM&AA, CEO of BiggsKofford
Austin Buckett, ACA, CM&AA, Manager at BiggsKofford
A copy of the presentation can be found here:
BiggsKofford, P.C. Entrepreneurial Series March 18, 2010
If you are interested in attending or sponsoring a future Entrepreneurial Corner, please contact Stephanie Johnson at 719-579-9090.
