Tag: benchmark

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Banks and Small Business: Finding the “Just Right” Fit Isn’t Easy

Banks and Small Business: Finding the “Just Right” Fit Isn’t Easy

Banks need business customers because business accounts provide more profitability than consumer accounts.  By volume, there are more small businesses in the US than mid-size or enterprise businesses, which you would think would be a good thing for the banks – more business customers, right?  It seems not so much.

For many banks, the problem is that they don’t appear to really know how to service – or even identify – these small business customers.  The majority of small businesses in the US don’t have employees, so direct deposit and payroll solutions aren’t something they are looking for.  Many of these small businesses operate from the business owner’s home rather than an office, and don’t generate the revenues (=deposits) that bigger businesses do.

To a bank, most small businesses look like consumers.  These small businesses are treated like consumers – are offered consumer-level services and are not educated on what business banking services might be able to do for them.  In reality, the banks really don’t have much to say to these small business owners, because the services offered by the banks are simply not a great fit.  There are studies which suggest that the small business market is fairly evenly divided, with approximately 50% using consumer banking services rather than those designed for business use.  Given the inability of the banks to even identify those consumer banking customers who are actually small businesses, I would suggest that the percentage is even higher.

There are three primary elements tied to banking which should be better-positioned to assist small business owners in leveraging their banking relationships to the benefit of the business and not just the bank.   If the financial institutions can find a way to meet these three essential needs for smaller businesses, they would likely find that more small businesses would embrace business banking services, resulting in greater profitability for the bank.

e-Payments

Use of electronic payments services represents a growing trend in small businesses and needs to be better-addressed by the financial institutions rather than purely retail providers.  Small businesses are increasingly using the Internet and online technologies to service their various business needs, and payments processing is among the top sellers.  Providing SOLO/SOHO and other small businesses with the ability to process payments at any time and from anywhere has become a big driver for this type of solution.  The popularity of Pay Pal, Intuit GoPayment and Square payment solutions is a testament to the need for such services in the small business market, yet the broadest use continues to be within retail providers rather than directly via the financial institutions.

Entitlements

Security and access controls to account and transaction information (frequently referred to as “entitlements” attached to business accounts) are hugely valuable for small businesses.  Most small business owners engage bookkeeping or accounting professionals at some point, and the process of accounting for the business activities is improved dramatically when those professionals are able to access the information directly from the financial institution.  Unfortunately, it is only with the more expensive business class accounts that most banks provide the means for account holders to grant access to account and/or transaction information for accountants and bookkeepers, financial advisors, etc.  Allowing small businesses to benefit from this type of security and control of their accounts is tremendous, yet the overall costs of the associated business banking solutions are often simply too great for the small business to bear.  The result is either a lack of privacy, security and control, where the business owner must grant unfettered access to account information to a 3rd party bookkeeper or accountant, or the business owner simply continues to pay for manual bookkeeping transaction entry.

Cash Management

Most small businesses operate on cash, and expense and cash management is essential to maintaining operations.  Consumer banking solutions may offer limited capabilities for expense and cash reporting, but the services offered through many business banking portals would be far more beneficial for the business, reflecting trends and providing more insight relating to business financial activities and business behavior.  Unfortunately, many of these services designed for business customers are oriented towards the larger organization, and are far too complicated or expensive to provide real value to the owner of a small business.

Small businesses fuel the economy, yet remain a largely untapped market in terms of business banking and other services.  Small businesses run “under the radar” of many service providers because they have not reached the point where the obviously available business services (e.g, the more profitable banking solutions) seem attractive to them.  Banks need to recognize that serving the small business customer well – providing the services which help small businesses grow into bigger businesses – is ultimately the key to acquiring new customers for whom the big banking solutions fit.

jmbunnyfeetMake Sense?

J

Read more about small business banking and credit

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The Small Business Borrower | Biz2Credit

In order for regulation and legislation to work in favor of small businesses, it becomes essential that accurate and complete information be available for analysis. Too often there are details not recognized in the information used by various agencies to help guide policy and action, and particularly in the world of privately held small business, the quality of data is often in question. This is where structured accounting software and the public accountant come in to play, and where a difference can be made not only with the individual client, but at a higher level by facilitating more accurate data production to support various research initiatives, such as those sponsored through the SBA and the Fed.

Overall, these research studies highlight two things: the important role that financial institutions play in lending to small business owners, and the value of quality data sets in ascertaining financing issues faced by small businesses and their owners.

Charles Ou, Ph.D. | Senior Economist | Office of Advocacy | July 2009

With the availability of highly useful tools for monitoring various key performance indicators and metrics in the business (with analysis of cash flow being an essential part), business owners and their accounting professionals alike are able to use real business data to reveal not simply the trends in business performance, but to identify areas where direct action could improve results in one aspect or another. By paying closer attention to managing business finances and analyzing key aspects of business performance, the “discouraged” or “denied” business borrower may become a successful or (even more valuable) a non-borrower.

via The Small Business Borrower at Biz2Credit.com.

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Philosophy of Process Improvement: Today’s CFO Focusing on Operations

Philosophy  of Process Improvement: Today’s CFO Focusing on Operations

There are a great many methodologies and approaches to “making businesses better” through process improvement.  From SixSigma to Continuous Process Improvement to Total Quality Management – all describe methods of measuring performance and outcomes to return intelligence oriented towards improvement.  Many of these approaches are generally applied in manufacturing businesses, because in manufacturing it’s easier to see where processes may be flawed because the process works with tangible elements.  Making corrections in a process can improve the performance of that process by reducing errors or increasing efficiency.  The truth of the matter is that every business is like a manufacturing business, and applying measurements to the various processes the business performs can reveal the secrets to improving not only process performance and product quality, but resultant profitability.

A recent article on CFO.com  titled Operations Take Center Stage, author David McCann discusses how some CFOs are improving business profitability and performance by delving deeper into operational areas of the business, and not remaining focused squarely on accounting and finance issues.

“Operations is the key to everything,” says Larry Litowitz, finance chief at SECNAP Network Security, a secure Internet-services provider. “That orientation is found most at manufacturers, but it should be at every company.”

Fiscal and financial matters are important to every business, but focusing on accounting for the end-result of business activities assumes that the work leading to the result is useful and effective.  As more attention is paid to conservation of cash, reduction of expenses, and overall profit improvement, CFOs are necessarily moving deeper into the operational aspects of the business to uncover potential not previously addressed.  In some cases, the move is more a function of self-defense and necessity than desire, as businesses increasingly compress spending on management, merging the functional roles of CIO, COO and CFO.

Increasingly, CFOs may find themselves taking on operational tasks whether they want to or not. At larger companies, the steady waning of the chief operating officer position has resulted in more operational responsibility for CFOs, recruiters say. In 2000, 47% of the 669 companies included in either the Fortune 500 or S&P 500 had COOs; in 2012, only 35% did, according to executive-recruiting firm Crist Kolder’s 2012 “Volatility Report of America’s Leading Companies.”

Some accounting professionals may believe that they don’t have the skills and experience to suggest changes in operational areas of their client businesses.  I would suggest that logic and reason are generally the prevailing factors supporting process improvement – reasoning that is often developed through simple observation.  Taking the time to understand what the business is doing at each level, and then actually observing those activities and accounting for their effectiveness and error rate, is how professionals can spend quality time in the business and uncover hidden profit potential.

Litowitz says CFOs can influence operations at a range of companies, including service-oriented businesses. “It’s really no different. The work is a set of activities,” he insists… “All these activities can be analyzed, controlled, and measured against a predetermined standard,” says Litowitz. And just as on a manufacturing floor, efficiency generates profit, justifying the CFO’s involvement.

Make Sense?

Joanie Mann Bunny FeetJ

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Accounting Professionals, You’re right – your clients don’t care about the numbers.

Accounting pros, what your clients care about is how they’re doing and if they’re on the right path.  Are you helping them understand that, or are you just the guy who works with the numbers to make sure they’re accurate?

Accounting professionals are having a hard time of it right now, with clients demanding more insight and assistance in helping to build value and profitability in their businesses, yet accounting professionals continue to be mired in the details of the numbers.  It’s like the old saying about not being able to see the forest for the trees.  You spend time in the trees, counting trees and making sure the trees are properly categorized, but are you seeing how this group of trees performs compared to others in the forest?  The analogy isn’t that far off.  You see, if there are other trees in the way, or if it doesn’t rain enough, the tree won’t grow and thrive.

This is what it’s like out in the world, where your business is just one of many.  It’s not like you can grow and thrive no matter what others are doing. If they’re bigger than you and take all the light, then you can’t grow.  If they take all the nutrients and resources, you can’t grow.  If it doesn’t rain, you can’t grow.  Somehow, some way, you have to find a way to stand above the others, get the light and the resources and the rain.  Someone in the business should be paying attention to this bigger picture, and it is often the business owner.  Their accounting professionals, on the other hand, tend to remain in the dark, below the sun, counting numbers because the owner isn’t interested in counting.  The owner is interested in growing.

Accounting is about numbers, but growing a successful business is about numbers and strategy.  Historically, the numbers tell you how the business has performed up to this point.  Adding in the elements which speak to strategy, you can then look at what your potential performance will be in the future, and then make the necessary adjustments to make sure that the potential is realized.  The accounting professional acting as a small business CFO must be prepared to help business clients look beyond the numbers to their meaning and what they say about the business today, factoring in elements relating to business strategy and market forces to reveal what they indicate about the future.

Accountants, it’s time to recognize that you are the only ones really worried about the numbers.  Business owners just want to understand what the numbers mean and what they can do about them.

Reducing costs and managing expenses and cashflow is critical, yes, but how many business owners actually know what they’ll be up against when looking for financing, or a buyer? Or do they even realize that they’re not on the path they wanted… building something valuable they can leave to the kids? Sure, the cashflow may be there, and they’re taking a healthy monthly salary… but does that really tell the entire picture or show them where they’re likely to end up? No, it doesn’t, and every accounting professional knows that truth.

While it’s true that bad accounting data turns into bad decisions really fast, it’s also true that too many accounting professionals THINK their client’s don’t care about what the numbers SAY just because they don’t care about the numbers. I would suggest that maybe small business owners care far more than their accounting professionals recognize… and they care about building value and not just accurate digits.  This is one of the reasons why KPI dashboards, dynamic reporting tools, and business valuation solutions are so popular among small business owners – they are able to have a conversation with their business data that their accountant isn’t having.

Can self-help reporting and valuation tools be useful to business owners? Well, that’s sort of like asking if trying to figure out what you’re worth (or not, as the case may be) will hurt your business.  Information is power, and every business owner wants to believe they have the power to succeed in their own hands.  Just because they’re not having this conversation with their accounting professional doesn’t mean they’re not thinking about it.  Maybe they’re just not asking and the accountant isn’t offering.

Accounting professionals, go ahead and continue to monitor KPIs and crunch the numbers and show cash flow (real cash flow, not just today’s bank balance). But if your client had 1 hour per month to actually spend working ON the business (on the forest), trying to make sure their business is heading where they originally planned to go with it, wouldn’t it be a good idea to show them where to spend that time?  Yes, it would, and adopting the use of realtime reporting and analysis tools for business clients can help do that.

Data dashboards and decision-support solutions are important tools which help business owners understand their businesses better.  Rather than viewing these tools as dangerous or competitive, accounting professionals should view financial analysis, business valuation and KPI reporting tools as something they can use to help build value in the information they develop, rather than trying to convince clients that the value IS the information and not the guidance it suggests.  The data won’t make the tree grow, it’s the guidance that feeds it.

Make Sense?

J

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Bookkeeping and Benchmarks – Getting the Numbers Right

I am a big fan of business analytical and reporting tools.  I very much believe in using industry benchmarks as a means to understand various aspects of business performance as it is compared to others.  I feel strongly that this type of information is essential at all stages of the business, and is useful for planning and forecasting as well as in daily business management.   There are a lot of tools available now which provide KPI (key performance indicator) reporting, dashboards, and industry comparisons.  The thing that none of these tools provides is an assurance that the underlying data is any good.

For data-driven reporting and analytical tools, the reliance upon customer- reported and accumulated benchmark data is both the benefit and the problem.  Drawing upon actual customer financial data is what makes the reporting solution useful – reflecting the realities of the business as they are revealed in the accounting data.  The problem is that the data will often be flawed in some manner due to the lack of accounting knowledge of the user.  Particularly when small business owners take it upon themselves to perform their own bookkeeping work, there is a large potential for the information to be incomplete or erroneous, or at least not truly reflective of the business finances.

It is essential that accounting professionals be involved in the accounting process to ensure the accuracy of the information presented to any analytical and reporting solution, thus improving the quality and value of the information.  Further, I would suggest that accounting and business professionals would look to these types of tools to assist in the identification of issues or conditions which exist in the business requiring attention.  Business owners would get far greater value from the services of their accounting professionals, and accountants would deliver a much higher level of tangible value to their clients.

If the accounting professional is not regularly discussing business issues and conditions with the small business client, the client can use their own tools to attempt to gain the insight.  HOWEVER (note the big letters), any small business owner who tries to do their own books and use their own decision-support tools is likely to run into problems. While it is true that some accounting professionals are not offering the level of guidance and insight (“value intelligence”) that some analytical and reporting solutions might try to offer a small business user, suggesting that the DIY reporting tool is useful when coupled with DIY accounting is questionable at best.  Why?  Because most small business owners and untrained bookkeepers do not know how to perform proper accounting.  And bad accounting data turns into bad business decisions really fast, even with the coolest-looking reporting tool.

badaccounting

What’s the bottom line?  The participation of a qualified accounting professional is necessary to make sure business bookkeeping information is properly accounted for, even and especially when great tools and solutions designed to help small businesses get their work done are being used.  The accounting professional is necessary to make sure information is classified correctly, connected and associated with the proper supporting information, and that the data is complete.  This is a lot of work if done on a regular basis (which it should be) yet many accounting firms don’t even offer the service, or offer it affordably.

Accounting professionals working with small businesses, look at it this way: it makes more sense for you to engage a contract bookkeeper and make a bit of money on the work they do to serve the client than it does for you to

a) lose the client to an accountant offering bookkeeping services, or
b) charge the client to re-write up the information, which isn’t really profitable for you and isn’t as valuable to the client

Serving larger businesses may provide firms with an ability to be more selective of the services they offer, but small business accountants need to take an entirely different approach.  Small business accounting professionals need to be full-service providers and help clients get the complete range of services they need, including daily bookkeeping.

Accounting professionals helping their small business clients get complete service – from basic bookkeeping to insightful planning and advice – that’s the benchmark for high value accounting in the world of small business.  It’s the only way to make sure the numbers are right, and that the business owner is looking at the right numbers.

jmbunnyfeetMake Sense?

J