Cash Flow Management: Now More Important Than Ever

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From “Mom&Pop” companies to major corporations, businesses today are looking at every penny flowing in and out.  No one relishes turning up the heat on clients to pay invoices faster. That’s why you should implement proactive cash flow management practices—before your bills start to pile up and your lines of credit are tapped out.

Conduct a Cash Flow Analysis

Cash flow controls the extent to which a business builds or consumes available cash and credit capacity.  Cash flow analysis is not simply an interesting management tool. It is necessary for the good health and future of every enterprise.

“At the end of the day, well-run businesses will use cash flow analysis as a tool to manage their destiny by preparing for future needs,” says Joe Dresnok, President of Management Horizons in Roswell, GA.  “For those companies that have the wisdom to keep either cash or credit resources available beyond the resources that they currently anticipate, those firms will likely have the ‘staying power’ to withstand the machinations of this turbulent economy.”

Your business software may already have built-in features that allow you to run regular cash flow analyses.  These analyses give a larger and more accurate picture than net profit or bank statements.

Use Cash Flow Forecasting

Run several different cash flows forecasts for your business: a best-case scenario, a worst-case scenario, and a middle case scenario.

“When thinking about cash flow management, a thirteen week rolling forecast is a very useful tool,” says Mike Iverson, CEO of Trillium Financial. “Today is the first week of the 13-week cycle. Use this tool to think about where you will be in three months.”

While economic turbulence does make it more difficult to predict exactly what your business will look like in three months, running these forecasts tells you if you will be able to pay bills, and help you create plans to be proactive in managing your cash flow requirements.

If you feel overwhelmed by a thirteen week period, then Iverson suggests “running a shorter one, for example an eight week cash flow forecast.”

“Cash flow projections is a valuable tool,” explains Dresnok. “It can mean the difference between success and failure – even for a growing business.  In short, cash flow projection can guide the business owner to controlled, profitable growth.”

Extend Credit Carefully and Invoice ASAP

“In light of the recent slow-down in the economy, many companies are experiencing declining revenues, slower collections of outstanding accounts receivable – or even write-offs– and less access to bank financing,” says Kent Bridges, CPA, Managing Partner of Bridges & Dunn-Rankin, LLP, headquarters in Atlanta, GA.  “Accordingly, businesses are having to be more proactive in their billing and collection practices including doing more to determine the credit worthiness of customers before extending them credit.”

Two of the best cash flow management techniques are (1) having policies in place on extending credit to customers and (2) having good billing practices.

Iverson suggests one tool to consider as part of your credit evaluation process is the Z-Score.  It is one of several tools that you can use to assist with the dilemma of who you should or should not extend credit. The Z–Score is a mathematical calculation used to rate companies’ creditworthiness.  You can find additional information about this methodology at the following resources:
•    The Accounts Receivable Network (www.tarn.com)
•    Credit Guru.com (www.creditguru.com)

In a cash-tight economy, fast and accurate invoicing is especially important as a good billing practice. Send your invoices as soon as possible. Don’t wait to send them out at the end of the month.

Make sure all the info on the invoice is accurate so that you don’t need to reissue a bill. One of the biggest issues for small and medium sized businesses for positive cash flow management is closing on the cash conversion cycle.  The conversion is the time between when a service or product is delivered until payment is received.

Cash in Hand

Other cash flow management tools include appropriate use of debt financing and maintaining sufficient cash reserves.

“While it varies according to the business, we generally recommend having cash in operating accounts equal to at least one to two months of operating expenses, having another one to two months of operating expenses covered by accounts receivable or recurring revenue, and another one to two months of operating expenses covered by available lines of credit” suggest Bridges.  “This provides the company with a minimum of three to six months of cash flow cushion in the event of a slow-down in revenue or collections. “

Remember: even fast-growing companies can have cash flow issues as they add new employees and equipment, making cash flow management important for all businesses in both good and tough economic environments.

The Numbers Coach Positions Nutrition Company to Evaluate Prospective Acquisitions

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SITUATION

Acquisition is one of many growth strategies a company may adopt, but it can also be a risky proposition.  BodyBlocks Nutrition Systems, Inc. began looking for companies that they could purchase to accelerate their growth plans.  In order to take advantage of these opportunities BodyBlocks needed to retain an experienced financial professional to evaluate the prospective purchase.

SOLUTION: The Numbers Coach M&A Support Services

BodyBlocks engaged the Numbers Coach (“NC”) to evaluate the financial structure and investment return of acquisition opportunities, including:

  • Developing financial models to understand the potential return on investment and operational characteristics;
  • Creating discounted cash flow models to understand the basic financial value of the prospective acquisition;
  • Financial due diligence support and analysis.

RESULTS

NC provided BodyBlocks with comprehensive financial reports and analysis to assess acquisition targets.  The BodyBlocks’ investor group was able to understand the risks and potential rewards of the acquisition, and the financial drivers of each opportunity.

Numbers Coach Advises & Establishes Financial Infrastructure for Pain Management Company Spun-Off from Parent Company

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SITUATION

Pain Consultants of Atlanta, LLC (“PCA”) is one of the leading pain management medical services firms in Georgia. In 2004 a decision was made by the owners to spin off PCA from its parent company.  PCA’s management team recognized the need for financial leadership during this time to help them navigate through the spin off and become a successful stand-alone company.

SOLUTION: Numbers Coach Financial Leadership Services

PCA engaged the Numbers Coach (“NC”) to provide recurring financial leadership services that would assist in the transition to an independent company.  NC developed a detailed plan with specific deliverables to meet the transition deadlines.

RESULTS

PCA has successfully established several key self-sustaining business components:

  • Established a billing department and acquired financing for the billing system and computer hardware necessary for successful in-house financial operations.  An internal billing and collections department allows for greater control and is designed for increased reimbursements.
  • Outsourced accounting functions to a bookkeeping firm, allowing the company to remain focused on their core business, instead of adding fixed operational overhead.  Outsourcing also provided a scalable accounting system that PCA can use during its growth phases.
  • Created and implemented a detailed transition plan to migrate PCA’s employee benefit plans from the parent company in a manner that protected the employee’s current level of benefits.

Knowing and Focusing on Your Market

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by Anne Moore Odell

In economic boom times, companies often put their marketing efforts on autopilot. In the current recession, business owners can’t afford to spend money on ad space reflexively. For savvy companies, the downturn is an opportunity to re-examine their marketing strategies, think through what works and why, and make more meaningful connections with new and loyal customers while supporting sales efforts.

“Focus on customers and markets that absolutely need your product and service to survive and your marketing message should be in that context, “says Chris Lambrecht, Lead Consultant, Intelligent Marketing Solutions, based in Atlanta. “One should be focused on building long-term relationships and the objective should not necessarily be to sell.”

Retaining your current clients is important—they may be buying less or even taking a break from buying, but that doesn’t mean they are no longer loyal. Keep them in the loop so that when the economy turns up again, you are still the first business they call. Statistics show that it still costs five to ten times less to retain a customer than to acquire a new one.

“Just like in many markets, it’s easier and less expensive to gain market share today that it will be after the economy turns,” concludes Lambrecht.

“Look at different ways to expand the relationship with your existing customers,” says Mike Iverson, CEO of Trillium Financial. “That’s true in all economies. Today I hear people saying their customers are looking at ways to cut their cuts, but they can’t really cut costs. What extra value can they add such as bundling products or offerring two for one?”

You also need to study what is happening across markets so you can keep your existing clients and acquire new ones.

Bernadette Peters, CEO, Natural Marketing Services in Atlanta, GA says “Re-evaluate your target market. Many Nordstrom customers are shopping at Target. Target shoppers are going to Wal-Mart. Wal-Mart’s customers may be buying less. This downgrading makes all businesses have a new target market with different demographics, buying behaviors and characteristics.”

Marketing needs to reflect that the economy and spending habits have changed. Peters says that many successful marketing strategies tap into the “return to core values” that a recessions tend to cause. These include family, peace of mind, more leisure time, connecting with friends, philanthropy, and life’s little pleasures and rewards.

Your marketing message should reflect this change, telling clients about their short-term or long-term cost savings.

Another strategic plan that Peters suggests is to provide a taste or smaller portion of your products or services in order to build trust on a low-risk level with new customers.

“Don’t throw the baby out with the bathwater, but hold your marketing staff accountable to do their due diligence on their new target market, and leverage existing relationships first,” says Peters.

In this economic environment, Iverson recommends making sure “that you include everyone in the thought process regarding what can help improve the bottom line of a business.”

Suggestion boxes, monthly contests, and rewards can get everyone in the business involved with finding for the best marketing or cost saving ideas, and at the same time, help build company morale. Ideas flow up from the bottom as well down from the top.

“Make sure that everyone in the organization has a clear understanding of what your business does and then they can each be a walking billboard among their circle of influence,” suggests Iverson.

Peters adds, “Don’t hold back on investing in marketing and advertising just to save money. Media costs are lower than ever. There are fewer competitors out there marketing for the same reason. Again, hold your team accountable to evaluate the marketing channel, include the right messaging for this new economy, and test on a small scale to reduce risk and track results.”

Phased Approach Makes Marketing Planning Easy AND Effective

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by Bernadette Peters, Natural Marketing Services, LLC

It’s the new year again.  We’ve all been working on budgets, evaluating our financial strength and setting goals for the new year.  One of the biggest challenges for any business owner or manager is creating a marketing plan.  There’s a misnomer out there that the plan requires several months of work and the final result is a large tabbed notebook of strategies and initiatives.  But that’s not necessary to create a plan that you can implement in 2010.

As a marketing services provider and consulting firm, we have worked with a lot of small businesses.  They all need a marketing plan, but didn’t necessarily have the budget or time to go through the full marketing planning process.  So we developed a phased approach that any business can use to produce positive results in the short-term and over the long term.

It looks like this:

  1. Evaluation/Discovery
  2. Strategy Document
  3. Implementation Plan

Evaluation/Discovery:  When a business is small, the owner or manager has a pretty good sense of where his or her customers are coming from, which marketing strategies are working or not working and the general areas that the business needs to focus on to grow.  But as a business expands, owners and managers “wear fewer hats” and are more disconnected from the reality of their marketing effectiveness.  The evaluation and discovery process provides real data to get the owner or manager back in the driver’s seat.  Actionable data is the result of this process.  During our client marketing strategy session, we go through a discovery process which looks like this . . .

  1. Financial – this discussion centers around revenues, profit margins (per product/service or customer group), average number of transactions, average transaction amount, growth goals for the following year.
  2. Target Market – we look at existing customer demographics, psychographics, buying behaviors, then combin the financial data with this information to determine adjustments to the desired target market, and products/services that go with that market.
  3. Database – since data is everything, we look at the types of data that the business maintains on their current customers, inactives, prospects and strategic/referral partners.  We evaluate trends through reporting that will help shape our strategy phase of the plan.  We also look at the marketing tracking – activites that lead to new sales, retention, or cross-sales to existing customers.
  4. Marketing activities and infrastructure – this is probably the most time-consuming part.  We look at all marketing, communication and sales initiatives for the year, evaluate their effectiveness and prepare for the decisions we will make in the strategy phase of our plan.

And guess what?  If you never get past the first phase, you’ll still have created something valuable to make a difference in your marketing.  But if you want to go from “good” to “better,” move to the Strategy phase.

Strategy: This is where we take all the data from Discover/Evaluation and create ideas to improve on what’s working, make decisions to remove what is not working, and then reallocate funds or effort toward new marketing initiatives that we will test and track in the coming year.  The result of this process can be a one-page marketing plan listing specific goals and high-level initiatives or a multi-page document with enough detail to get the process started.

At this point if you don’t have the time or resources to move into the implementation phase, you can use this document to move forward.  We suggest going back through it to rank the initiatives in order of potential effectiveness (A, B, C), then list target dates for each initiative.

Implementation Plan: If you have a team to help you implement the marketing strategies, we highly suggest moving to this phase which will take your plan from “better” to “best.”  This is where you put specific information to your plan.  Each initiative will have associated tasks, resources needed to implement them, and time required for each step.

Although Microsoft Project may be more software than you need for this process, you may want to consider using it or something similar.  One of the key features we use is the “predecessor” fields so if one step gets delayed or an initiative re-prioritized, you can easily change the target dates of all associated tasks for that particular project.  You may want to use something as simple as an excel spreadsheet.  Remember, for each marketing initiative, you will want to test and track its effectiveness, and possibly adjust the marketing channel or message in order to find the most effective approach.

Here are some metrics we recommend tracking.  This works for direct response initiatives (promotional programs, events, mailing, advertising), but is not as effective for branding strategies.

Response rate – you will need to define what a response is for you.  It could be a sale, an inquiry, the prospect giving you an email address, etc.  Response Rate = # of responses/number of impressions (mailings sent out, number of ad copies, etc.).  The goal is to increase responses.

Cost per Acquisition – what it costs the business to acquire a new customer.  This can be tracked on a business level, customer group level or even a campaign level.  The goal is to reduce it over time. On a business level, you can divide what you spent on marketing or sales and marketing by the number of new customers acquired for that year.  That will be your baseline.  We’ve had clients track it on their business customers separate from their consumer customers, or even by affinity group.  On the campaign level, you can track what you spend on the campaign and divide by the number of new customers you acquire directly from that campaign.

Just remember that in everything, even marketing, there’s a good, better and best approach.  Going through the evaluation and discovery process will provide you with a good sense of what needs to be done in the new year.  The strategy phase will provide a better approach with identified initiatives, and the implementation phase offers the best approach toward achieving your growth goals in the new year.

Which Business Structure is Right for you?

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by Glenn Lyon, MacGregor Lyon, LLC

General Partnership

One of the simplest and most common ways for small businesses to bring in additional capital or someone with sought-after complementary skills is in the form of general partnerships. In these types of partnerships, stakes are evenly divided among each partner unless otherwise specified in a partnership agreement. All gains and losses general partnership are routed directly through to the individual partners’ personal tax returns and the business is typically not taxed as a separate entity, although it must still file a return detailing the revenues and expense of its partners (Form 1065). And because payroll isn’t required for general partners, if a company consists entirely of partners and has no employees, the paperwork requirements can be much simpler than that of a corporation.

However, general partnerships have some distinct disadvantages. The most important of these involves the risk exposure to the partners, who are jointly and severally (individually) liable for any debts or judgments against the company, which means the partners’ personal assets (home, car, investments, etc.) could be vulnerable to creditors. Also, many state laws mandate that if any one of the partners leaves or dies, the partnership is immediately dissolved, which can make succession planning more and legally tenuous.

Limited Liability Company (LLC)

Started nearly 30 years ago as a hybrid between corporations and traditional partnerships, LLC’s have proven to be an increasingly popular strategy for small business owners. LLC’s allow multiple owners of a company to directly share in profits as they would in a sole proprietorship or general partnership while shielding their various personal assets from liabilities or debts incurred by the business, protections normally found only in fully incorporated companies. A simple Operating Agreement establishes the LLC and sets up the rules for governing the company as well as the rights and responsibilities of each partner, or member.” As part of an LLC, members have the flexibility to chose whether to pass-through company profits to their personal tax returns or to have the business taxed as a separate entity.

Subchapter S Corporation (S-Corp)

Similar to traditional C-Corporations in every way except for a different tax structure, S- Corps have become quite popular among many small business owners. This is because S-Corporations offer the same tax advantages of sole proprietorships or partnerships—where all income is passed through to the shareholders’ individual tax returns—as well as offering the liability protections inherent to a corporation. The downside of S-Corporations includes increased administrative costs, a much more extensive set of rules and by-laws to follow regarding corporate governance, and closer scrutiny by the IRS. Also, federal regulations require that all S-Corporation shareholder- employees are paid prevailing wages (subject to Medicare, FICA, and any applicable state income taxes), before any profit distributions can be made.

Business Planning: Having a Business Plan Helps Ensure Sweet Success

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by Tim Fulton

Quick. Name a product or service that you or your business will gain more satisfaction from while it’s being developed or produced than when it’s finished.

Your answer?

“My tax return?” (Wrong answer)

“Chocolate chip cookies?”  (You’re getting much closer)

‘OK, I give up.”

Your strategic business plan!  (“I never would have said that.”)

Well, don’t feel embarrassed. Most business owners and managers do not consider developing a Strategic Business Plan for their organization. In fact, less than 20% of all small businesses have any type of plan in place including operating plans, marketing plans, succession plans, etc.

They deny themselves such pleasure for a number of reasons:

  • “It’s far too difficult to do.”
  • It’s far too costly to do.”
  • “I don’t have the time.”

Imagine that you have hired a builder to construct your dream home. You have this rather vague picture of this house in your mind and you communicate this image to the builder.

Now imagine that your builder plunges into the construction of your home without any architectural plans. No drawings.

In a panic, you stop construction and ask the builder why he isn’t using any plans or drawings?

He responds, “It’s far too difficult to do.” Or “It’s far too costly to have done”.  Or “I don’t have the time.”

It would be crazy to build a home without plans. How long would that “dream house” of yours last if it was not built to any type of specifications? How long do you think your business will last without any direction or strategy?

Now back to my original question.

What is fascinating about developing a business plan is that the greatest satisfaction is derived from the development of the plan itself. Just like baking chocolate chip cookies. I get more enjoyment from eating the delicious cookie dough while I’m baking than I do from the baked goods upon completion. Sometimes I get halfway done baking and stop completely. On rare occasion, the dough never makes it to the oven.

The business plan development process includes the following three steps:

  • Analyze the business as it exists at this moment in time
  • Determine your 3-5 year vision for the business
  • Decide what you need to do to move towards that vision

As you go through this process you will be forced to examine your business, as you have probably never done before. You will uncover your strengths and weaknesses. You will identify market opportunities and threats. You will set goals and objectives and then establish an action plan geared to achieving them.

You will take that image of your “dream house” out of your head and onto paper where it belongs.

When you finish, you will feel exhilarated and motivated like never before. You will find new confidence in your business. If this is not the case, it’s time to bail out. Sell the farm.

Once your business plan is completed, it than becomes your road map for leading your business. You will use it to make sure that the “construction” of your business is just as you have planned for. You may even want to share it with others such as your employees, your banker, or even your family.

Just like chocolate chip cookies.

One Crazy Idea Can Revolutionize Your Business

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by David Shavzin

“We are too busy mopping the floor to turn off the faucet.”
Anonymous

Trying new things is always a good idea. We get stuck in ruts as individuals and as companies. “We have always done it this way, so why change?”   It can be hard to get out from under the day-to-day fires and step back to THINK.

Even in the best of times, we need to keep reinventing how we do things. But certainly during these challenging times! Even if the years since 2009 have been an economic anomaly, they have clearly changed the business environment, including every industry and every aspect of the economy.

You’ve likely heard the definition of insanity (attributed to various people, including Albert Einstein): “Insanity is doing the same thing over and over, expecting different results.” If you have not been hitting the sales targets you had set, are you going to keep doing what you have been doing? What are you going to do to ensure a successful year? What are your customers doing differently? How can that impact you? How can you adjust to take their new habits into account?

You cannot – and do not want to – change everything. But, how about one thing? Just one “crazy” idea.

Here is an example: Sales at The Home Depot were down due to housing market problems and lower consumer spending. Sound familiar? So, they decided to sell off parcels of their parking lots. They are taking pieces of those giant parking lots and selling them to retail outlets such as fast-food, pet stores and auto parts. Imagine being in the boardroom when that idea was suggested!!

Here is my advice: Get together with your partners, your management team, your employees or a couple of friends or colleagues. Brainstorm and come up with your “parking lot” idea.

Get in a room with a white board, a flipchart or paper and pen. Ask everyone to help you brainstorm new ideas…laughing is allowed, criticizing is not, everything gets Written Down, as reasonable or wacky as they sound. If you can, have someone facilitate to keep you on track – they should not participate but keep you focused. Alignment and agreement among the owners or the management team is critical.

The ideas may be slight twists on something you are doing today, or they may be the most ridiculous-sounding ideas you have ever heard – at first! They may have something to do with operations, finance, human resources, production, marketing, sales, customer service or any other part of your business. New markets, new products, new staff member, an improvement to your production or sales process.

How can you make at least one of these ideas fit your business this year? It may or may not work. If not, go back to that list and try something else!

David Shavzin is President of Shavzin & Associates, Inc., a Certified Management Consultant, and a master of crazy ideas. He can be reached at (678) 795-1750 or dshavzin@shavzinassociates.com 

Does Your Business Have a Succession Plan in Place?

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by Michael Iverson

Have you met a business owner who is close to retirement age and wants to sell the business? His or her life’s work is tied up in it, and the owner is unsure whether a buyer can be found. Unfortunately, he or she never developed a plan to transfer ownership of the business.

According to a recent survey conducted by PNC Bank, only about one-third of small businesses in the U.S. have a succession plan in place. Without one, a business owner probably won’t attract what he or she considers to be a fair selling price. In all likelihood, the owner will sell the business at terms stacked in favor of the buyer. Should the business owner die without a succession plan in place, it might have disastrous consequences for his or her family, such as a forced sale of the business to pay estate taxes.

The business case for a succession plan is to make sure the owner can gradually withdraw from the business on his or her terms – at a fair price and on a preferred timetable. In this article we are going to focus on three key areas that need to be considered in your succession planning process: 

  1. Identifying a suitable buyer for the business.
  2. Allowing a long enough training period that assures a smooth transfer of ownership to the new owner.
  3. Preparing a financial plan for “cashing out” the owner without draining all of the business’s operating capital.

How to Identify the New Owner

Finding the right person to purchase your business need not be difficult, but it does require time and forethought. Trying to identify a buyer under time constraints is difficult, especially during an economic downturn. As part of your planning, write down periodically a list of possible buyers – even if you are not considering a sale just yet. The exercise is a good way to understand your options.

People familiar with your business are often the most likely buyers. Many business owners ultimately transfer ownership to existing business partners, a family member or a long-time employee. In any of these circumstances, there are benefits to the seller and the buyer(s), including:

  • The seller is likely to achieve a better price by selling to a party that knows the business.
  • The buyer(s) can negotiate a timetable that assures the seller will pass along valuable knowledge about running the business.
  • The resulting continuity of business will benefit employees and customers.

Do you know potential buyers of your business?  Go ahead and start making a list.

How to Plan a Smooth Transition

No matter who the prospective buyer may be, there are significant benefits to allowing a period of several years for a successful transfer of ownership, including:

  • The current owner can provide training to the prospective buyer.
  • The owner can also assess the strengths and weaknesses of the buyer, and spend the time necessary to address areas of weakness.
  • The prospective buyer can be introduced to customers and interact with them for an extended period – to minimize the risk of customer attrition.
  • A long transition period usually improves the financial stability of the business. And, the business’s tax accountants have a chance to plan for future tax liabilities.

A long time frame might not be warranted if the business is being sold to another company. In that case, a shorter period would be better to integrate. However, planning for the transition is still very important because the real work begins after the close of the sale.

How to Cash Out

As an owner transfers ownership of the business, he or she needs a plan for both a) funding retirement and b) leaving the business with the cash resources necessary to continue operations. In other words, writing him or herself a large check from the business’s bank account is not a solution.

Many partnerships put buy-sell agreements in place, which provide for the orderly exit of one partner. Deferred compensation plans can be established, which allow the owner to begin the transition to retirement while still collecting a salary. And, life insurance policies can be used to provide liquidity in case an owner dies before a transition is completed.

These are just a few of the considerations for any succession plan. The important thing to understand is this: not having a succession plan is a huge risk – not only to the business owner, but to his family and to the employees.

If your business doesn’t have a succession plan in place, get started today.  Let us know if we can help you by calling (404) 370-6147 or sending us an email.

Next time we will talk about what can create Transferrable Value. Without it, you don’t have a business to sell.

Are You Insuring Your Life and the Life of Your Business?

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by Duffy G. Elliott, CPA, CFP

As a business owner, you may not consider life insurance an integral part of your financial planning. However, life insurance is critical to an owner’s family, as well as the business, in the event of an unexpected death. In order to make sure both your family and your business are adequately protected, it’s important to purchase the
proper amount of life insurance coverage.

The amount of life insurance you need depends on your current net worth, the lifestyle you want to provide for your family, and ultimately, your personal desires. (see more detailed guidelines below).

For business owners, life insurance for the business is often referred to as “key man” or “key person” insurance. In this case the beneficiary of the policy is the business and not the owner’s family. The insurance is used to provide funds to help the business navigate through the change as a result of the loss of the owner. The funds may be used to buy out the owner’s family interest, find a replacement to lead the business, provide working capital to cushion any financial impact from the loss, or a combination of these options.

Key man life insurance is an important part of a business’ planning. Without it, all of the hard work by the owner and the sacrifices of the owner’s family could vanish.

A common rule of thumb is that you should purchase 5-7 times your annual income. Unfortunately, like most rules of thumb, this does not take into account individual circumstances and may leave you with an inadequate amount of insurance.

  1. First, you should consider how much your family will need every year, being sure to take into account the effects of inflation.
  2. Next, total your assets and other sources of family income. Be sure to include any benefits your family may be entitled to under any pension plans. If your spouse doesn’t work now, you need to consider if he/she would work if you died and how much he/she could earn. Don’t overlook social security survivors’ benefits available to your children under age 18 and to your spouse if he/she does not earn significant wages.
  3. Finally, determine how much life insurance you require. This will depend on how long your family will need this income, what rate of return can be earned on the insurance proceeds, and other factors.

Unfortunately, this is not a calculation that can be made only once. Since your needs will change over time, you should assess your insurance coverage periodically, especially if a major life event occurs.

To learn more about how life insurance plays an integral part of your business and personal financial planning, contact Duffy G. Elliott at Elliott & Associates Wealth Advisors at (770) 451-2446 or visit http://www.elliottandassoc.net/.

Could Your Business Benefit from an Advisory Board?

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by Michael Iverson

Self-reliance is a characteristic of most successful small business owners. When an important business objective needs to be accomplished, an owner often takes a hands-on approach. In my experience, the owner’s personal involvement usually assures that the objective is met.

There is a possible downside to self-reliance, however; an excess of self-reliance can stunt business growth. It’s possible for an owner to give too much weight to his own ideas, when listening to the ideas of others would yield better results. To guard against this possibility, many business owners establish advisory boards.

What Is an Advisory Board?

An advisory board is a group of peers that a business owner consults periodically and informally. Members of the advisory board provide perspectives and experience that help fill gaps in the business owner’s knowledge base. In other words, a humble business owner realizes that he doesn’t have all of the answers. Advisors usually make their most significant contributions by helping to shape strategic direction for the business, although some are capable of suggesting operational improvements.

Members of the advisory board are invited to serve because they are respected and trusted by the business owner. The business owner has a personal relationship with each member of the advisory board, so everyone has an interest in seeing the business succeed. Advisory board members serve on a voluntary basis; they have no fiduciary responsibilities to the business. They must not be afraid to offer honest opinions, because opinions and ideas are their principal contributions to the organization’s success.

Getting Started

Many business owners see how useful it would be to have an advisory board, but there’s an obstacle to putting such a board in place. The owners are so involved in the details of day-to-day business that they haven’t cultivated many professional relationships. Don’t let that become your excuse for not establishing an advisory board.

Good candidates can be found through a local business organization (Rotary Club, for example). Or, an owner can identify and approach retired executives with knowledge of the industry. Current business contacts are another source of excellent candidates. A supplier or vendor certainly has knowledge of your operations and an interest in your business success.

Recruit advisors whose skills and knowledge bases complement your own. Think about the biggest challenges you face in building your business and add advisors whose strengths speak to these challenges. No matter what business challenges you face, others have successfully addressed many of the same issues. Your task is to find them.

An advisory board should be a small, manageable group. Typically, the right size is three to six advisors. Knowledge of your industry is helpful, but it shouldn’t be a pre-requisite. At least one or two advisors should be from other industries. They will lend fresh perspectives. A good mix of advisors includes people from varied disciplines: sales, marketing, engineering, finance, human resources and legal, for example.

Compensating advisory board members is discretionary, but most business owners feel strongly that advisors should be compensated to reflect their contributions to an organization’s success. There are many ways to show your appreciation for a person’s valuable input. Gifts, dinners and cash bonuses are a few ways to express that appreciation.

If you would like to discuss how your business can establish an advisory board,contact us.  We’re glad to share our ideas!