Tips for Your Business - Fall 2008
Getting Your Inventory Right for the Holiday Season
Reward and Retain Good Employees With Innovative Programs
Get Your Business Started On the Right Foot in 2009
ComEd Provides Relief for Small Businesses with Big Energy Bills
Financial Statements Demystified
Getting Your Inventory Right for the Holiday Season
With the recent performance in the financial markets and the general economic slowdown, small businesses need to enter the holiday season more prepared than ever. For retailers, the holidays usually require extra planning, but this year it will be especially important. How you navigate the holiday season at the end of 2008 will surely inform how your business performs in the beginning of 2009.
While there are many considerations for holiday planning – appropriate staffing, product promotions, special hours – proper inventory planning is perhaps the most important. Failing to get your inventory right can result in higher costs and disappointed customers.
Usually prior year performance is a good place to start when planning out your holiday inventory. A business that has been open for a few years generally falls into a seasonal pattern. However, for new businesses past year performance can often be misleading if the business has grown significantly in a year (or vice versa). As you examine your holiday inventory here are a few considerations and questions to ask yourself:
What did you do last year? Before assuming sales will be exactly the same as the prior year consider what sort of efforts were in place which may have affected your business. Did you have unusually high sales due to a special promotional event? Were your sales unusually low due to an unforeseen external factor, such as construction outside the business? While historical data is very helpful in forecasting future inventory, it is important to understand the context of these numbers.
What are you doing differently this year? Similarly, you must consider whether this holiday season will look similar for your business as last year. If you did a promotional event last year, will you be repeating it again this year? Are you doing something new this year that will drive additional sales? Have you introduced new products throughout the year that has increased sales?
Carefully consider holiday merchandise. Have you ordered items specifically for the holiday season? Remember that inventory that is specific to the holiday season likely will be difficult to move once the season has passed and you may need to be prepared to sell this product at a discounted price. Accurate forecasting allows you to sell your product at maximum value!
Don’t forget about the economic state. How responsive to change is your product? Are you selling an item that is constantly in demand regardless of current economic trends or will your sales be greatly impacted by the slowdown? This is another instance where relying on historical sales may be misleading given the changes we’ve seen to the economy in the past year.
Retailers may be facing a tough holiday season this year, but with proper preparation and a forward-looking plan, businesses should be able to weather the storm. As always – feel free to reach out to CCV’s expert staff if you have questions on how best to prepare your business! Contact us at 773.822.0320 or info@chiventures.org.
Reward and Retain Good Employees With Innovative Programs
Finding and retaining good staff is key to success for businesses of all sizes. Among all the other factors that determine a business’ success, motivated staff should be at the top of the list. Engaged employees, who feel they have a stake in the company’s performance, are far more productive than employees who feel they are only a cog in the wheel.
So, how do you make sure your employees know they are part of your success, and how do you reward them for their performance? Many companies believe that offering good wages and a traditional benefits package (health, life and disability insurance) are enough to motivate employees, but a recent Gallup poll showed that people stay in their jobs for many different reasons, and ranked the importance of money near the bottom. More and more employees are pushing companies to find ways to balance their work and family life, and putting more importance on quality of life than getting a big paycheck (i.e. they aren’t content to work overtime, even for higher wages, if it means missing out on time spent with family and friends).
For small companies this can be a good thing when it comes to competing for staff with larger companies. Sure, you may not have the money to match the salary or 401k benefits that a larger company can offer, but as a smaller organization you have the advantage of being more in touch with your staff so you can better tailor employee perks/rewards to your workforce.
For CCV Client, Orion Industries, a 57-person shop that specializes in the application of functional coatings (e.g. Teflon), developing an employee reward system was crucial to its viability as a business. The company was losing out to China on a large number of jobs because they couldn’t compete on price, so five years ago, they decided to implement something called “gain-sharing”. Gain-sharing is a group, pay-for-performance plan that puts the ball in the employees’ court for productivity, quality and safety. Employees are compensated for improved performance leading to profitability, and the gains the company receives are divided between the company and employees. According to Woodruff Imberman, an expert in the mechanics of gain-sharing, for every dollar employees receive in bonuses, the company saves an equal amount in terms of higher productivity (lower labor costs), better quality (less waste) and improved safety (lower workman’s comp benefits). “What we found after implementing our gain-sharing program is that it’s not just the monetary benefits that motivate our employees,” said George Osterhout, Vice-President of Orion Industries. “This program has forced our management team to be more open about the company’s position, and the employees have responded. They like to feel they are an integral part of the company, and to see how their job fits into the whole.”
Since Orion implemented gain-sharing, the company has seen other benefits aside from an improved bottom-line. Employee turnover has decreased dramatically, attendance has improved, and overall productivity has increased by 34%. Also, the company started seeing employees stepping up to the plate and taking more responsibility for their workmanship. In the first year of the gain-sharing program, Orion saw a 92% improvement in the quality of the goods it produced. In an industry where the average rejection rate for items is 3-5%, Orion’s rate has been less than 1% over three years. “If someone had told me five years ago that I would see a marginal increase in sales, but a staggering increase in profitability, I probably wouldn’t have believed them,” said George Ostehout. “But that is exactly what happened – and it’s really due to the dedication of our personnel.”
Traci and Brian Knudson, founders and owners of NogginLabs and winners of CCV managed INNOVATE Illinois 2005, can also attest to the power of positive employee energy. The husband and wife team founded NogginLabs in 1997 to provide custom e-learning tools to Fortune 100 companies, academic institutions, and non-profit organizations. Today, the quality of their courses has garnered them preferred vendor relationships at companies such as Dell Inc., Northwestern University, Capital One, Abbott Laboratories, JetBlue, and McDonald’s.
“Our employees are what make our company successful. It’s their problem-solving skills, technical expertise, and breakthrough creativity that keep us on top of our game in the e-learning arena,” said Traci Knudson. To make sure their employees know they are part of the company’s success, NogginLabs has created a culture that revolves around their employees and their needs. Because many of their employees live in the area around the office and bike or walk to work, the company had a shower stall installed so they could freshen up before starting the day. When their first employee returned from maternity leave, they established a lactation room with a lock on the door so that she would have a comfortable place to return to. When other employees returned from maternity leave, and decided they couldn’t work a full schedule anymore, NogginLabs offered them 80% schedules so they could keep working and also have time with their newborns.
And it’s not just the perks that make NogginLabs employees feel appreciated. The company encourages open communication among all of its employees so that people get a sense of community and know that their voice matters. Every month there is a staff meeting that provides a forum for announcements and other company business, and also gives employees an opportunity to showcase their work. If a team completes a project prior to a meeting, they can present it and field questions so that it becomes a learning experience for the whole company. After the meetings, the company goes to a local restaurant for a few drinks to unwind and mingle.
Promotion from within and professional development are also hallmarks of NogginLabs culture. “We like to give employees challenges in their work, and encourage them to take on more responsibility so they can grow professionally. Occasionally, we have an employee request a promotion when we don’t think they are quite ready. In those cases, we sit down with the employee and create a development plan that will help them get the skills they need for promotion,” said Traci Knudson.
No matter what size a business is, big or small, making sure employees feel they have a stake in the game is the best motivational tool a company can use. Employees are one of the most valuable assets a company has, and making sure they know you care about their lives and their ideas will do more for long-term employee retention, and company profitability than just handing out pay raises and bonuses.
Below are a few ideas you can use to reward and retain good employees.
- Provide opportunities for your staff to learn from one another.
- Encourage growth within the company and provide feedback at scheduled intervals.
- Provide the opportunity for career and personal growth through training and education, challenging assignments and more.
- Listen to your employees. Everyone in your company is a source of ideas for the company from the receptionist up to the CEO.
- Enable employees to balance work and life.
- Communicate goals, roles and responsibilities so people know what is expected.
- Recognize employees when they have done a good job.
- Encourage friendships at work.
Does your company already have a program that makes it a great place to work? Winning Workplaces and the Wall Street Journal have teamed up to recognize exceptional small organizations – private, nonprofit or publicly held – in the third annual ranking of the Top Small Workplaces. They will be selecting small employers that foster teamwork, flexibility, high productivity and innovation while also helping their employees grow personally and professionally, and providing them benefits that improve their lives and communities. Nominations are due January 30, 2009. Winners will be featured in a Wall Street Journal report in September. For more details visit http://www.winningworkplaces.org/topsmallbiz/index.php.
Get Your Business Started On the Right Foot in 2009
It’s no secret that businesses that spend time planning are usually the most successful. Pro-active planning enables a business to prepare for the future and navigate the unexpected turns of its industry. As the New Year quickly approaches now is the time to think about what goals you would like to accomplish with your business in 2009. Just as importantly, now is the time to determine how you will accomplish these goals.
When beginning your planning process for 2009 here are a few critical steps to go through:
- List Your Goals: Think about where you would like to take your business and create goals that will help you get to this end state. It’s helpful to sub-categorize these goals into Marketing, Sales, Customer Service, Product Development, etc.
- Be Specific: Make sure to include details with your goals. For example, say one of your goals is to “Increase sales in 2009.” A more specific and actionable goal is “Increase sales of product x by 10%.” By including details you are laying out exactly where you need to focus your efforts.
- Create an Action Plan: Once you’ve determined your goals, begin to decide what steps are necessary to achieve the goal. For instance, if one of your goals is to develop a more robust marketing plan you will need to decide which tactical tools you’ll be using such as direct mail, website, signage, etc.
- Prioritize: It is likely you will have more goals than you can truly execute in a year’s time, so make sure to prioritize. It is better to do fewer goals well than to poorly or partially execute all of your goals.
Read on to see how CCV can help you in setting and reaching your goals.
- Market and Customer Development
CCV offers a four month intensive training program to help small business owners and executives create sales and marketing plans to more effectively reach new and existing customers. This program is especially useful for companies that are about to or are considering entering a new market, are getting ready to launch a new product, or just need more clarity about how to reach their existing customers. - Term Loans and Contract Financing
CCV makes loans between $25,000 and $250,000 to small businesses that do not qualify for bank loans. CCV works with each of our applicants to accurately assess their financial position and potential and find a loan that can work for them. Our loans offer competitive interest rates and low origination fees. Additionally, our contract financing option makes loans possible for businesses that don't have collateral assets by allowing them to use a signed contract for goods or services to secure fixed term financing. - Loan Packaging
Looking for a loan can be a long process. Before you get started, CCV can help you get organized and get your financial statements up to date. When you're ready to look for a loan, our counselors can make introductions to bankers and help you find the best loan with the best rates for your situtation. - Matching Challenge Grants
If you've been putting off a project that you know will grow your business, but you're worried about the cost, CCV's matching Challenge Grant program can be the incentive to get you started. In partnership with the Illinois Department of Commerce and Economic Opportunity, CCV provides companies with matching funds, up to $5,000, to complete projects that will help them reach a milestone. - Contract Procurement Assistance
Looking to do business with the local, state or federal goverment? Even with large private corporations? CCV can assist you throughout the entire bid process from identifying procurement opportunities to bid/proposal preparation.
For more information about how CCV can help you meet your goals in 2009 please contact us at 773.822.0320 or info@chiventures.org.
ComEd Provides Relief for Small Businesses with Big Energy Bills
One-time grants available from ComEd’s Small Business and Non-Profit Energy Assistance program
Amidst rising unemployment, a slumping economy, and an unsteady stock market, ComEd today announced the extension of its Small Business and Non-Profit Energy Assistance program, which provides a one-time variable grant up to $2,500 for non-residential customers whose peak electrical usage was less than 400 kW in 2007 and can demonstrate a special circumstance or hardship. With $150,000 in funds remaining, ComEd aims to assist its small business and non-profit customers who are in need of support.
ComEd recognizes that small businesses are a driving force behind Chicago’s economic growth and prosperity, with more than 450,000 Chicago area businesses employing fewer than 100 people. ComEd is committed to helping small businesses succeed by providing assistance to those struggling with high energy bills. Customers eligible for the Small Business and Non-Profit Energy Assistance program must meet the following requirements:
- A ComEd non-residential customer with electrical peak demands of less than 400 kW in 2007
- Either a not-for-profit corporation or a small business, defined as an independently owned and operated business with its principal office in Illinois and 50 or fewer full-time employees
- The ability to demonstrate a significant financial hardship for the organization or business
Examples of hardship include property damage caused by a natural disaster, damage or theft from criminal activity, or an unexpected loss in funding or financial aid. To be considered for the program, eligible customers must complete the online application form and provide all required information. Approved grants will be distributed until funds are depleted. For enrollment information and eligibility guidelines, visit our Web site or call 773.269.4037.
The Small Business and Non-Profit Energy Assistance program is part of ComEd CARE, an energy education and assistance initiative which provides financial assistance programs to help those most in need, including low- income households, working families, and seniors. Thus far in 2008, ComEd has distributed nearly $15 million in CARE assistance.
Financial Statements Demystified:
Learn to Better Understand Your Company's Income Statement and Balance Sheet
Written by Steven Weiss, Attorney, Berger, Newmark & Fenchel, P.C and CCV Client Advisory Committee Member
It goes without saying that entrepreneurs are faced with many challenges in running a business. Besides product differentiation, market entry, strategic positioning, and marketing, to name a few, entrepreneurs must also be able to evaluate their firms’ growth. Financial statements provide the information necessary to accomplish this task. This article will provide a brief overview of two important Financial Statements; the Income Statement and the Balance Sheet.
The Income Statement is divided into two sections: "Revenues," which is a measure of the resources generated from the sales of products or services, and "Expenses," which is a measure of the costs associated with the selling of those products or services. The accounting equation to remember is: Net Income = Revenue - Expenses
A firm’s “cash-flow”, commonly known as “EBITDA“, is determined from the Income Statement. Cash Flow is the cash generated after having paid all expenses directly related to operations, and is therefore available to pay for non-operational expenses such as taxes, and principal and interest payments on debt. EBITDA stands for Earnings (the Net Income before taxes), Before Interest (the cost of debt), Taxes (paid to the government based on a company's profit), Depreciation (a non-cash expenditure for the valuation decline of a tangible asset), and Amortization (a non-cash expenditure for intangible assets such as patents or goodwill). Since it is derived from the Income Statement, one can visualize it best using a sample Income Statement such as the one below.
Based upon the information provided in the Income Statement, ABC, Co’s cash flow is $360,000. How did we arrive at that number? Starting with Net Income, we added back interest and taxes as well as “noncash” item expenses where no cash is actually disbursed, such as depreciation and amortization. This shows the true cash position of the company.
Values used in calculating Financial Ratios are generally derived from both the Income Statement and Balance Sheet. A Balance Sheet is a snapshot of the company’s assets and liabilities at a given moment in time. A sample Balance Sheet for ABC Co. is shown below. It is divided into Assets and Liabilities. Assets are further broken down into Current Assets, Property Plant and Equipment and Other Assets. Liabilities are divided into Current Liabilities, Long Term Liabilities and Shareholders’ Equity.
Financial Ratios are expressed as a decimal value, such as 0.10, or the equivalent percent value, such as 10%. They are a critical part of financial statement analysis. The ratios of firms in different industries, which face different risks, capital requirements, and competition are not generally comparable. However, one should measure their firm’s growth against key ratios published for their industry. The following are some of the commonly used Financial Ratios.
Profitability Ratios measure the firm's ability to use its assets and control its expenses to generate an acceptable rate of return.
1. Gross margin = (Revenue - COGS) ÷ Revenues [Measures gross profit margin achieved on revenues. Benchmark: The minimum GM without looking at information about the company should be at least 35% to 38%.]
2. Net Operating Income = Sales - Expenses (Cost of Goods Sold plus Operating Expenses) ÷ Sales [Measures income generated from operations.]
3. Net profit margin = Net profit ÷ Sales [Measures net profit margin achieved on sales]
4. Return on equity = Net income ÷ shareholders’ equity [The return on invested capital]
Operating Ratios measure how quickly a firm converts non-cash assets to cash assets.
1. Days Payable = Accounts Payable ÷ (COGS ÷ 365) [How fast the firm pays its bills. It is generally better to take longer to pay bills so long as it does not adversely affect business relationships with providers]
2. Collection ratio (days receivable) = Accounts Receivable ÷ (revenues ÷ 365) [How quickly the company’s bills are paid. The quicker the better]
3. Days inventory carried = Inventory ÷ (COGS ÷ 365) [The average daily inventory carried]
Liquidity Ratios measure the availability of cash to pay short term debt.
1. Current ratio = current assets ÷ current liabilities [Indicates whether current bills can be paid. Generally, this ratio should be a minimum of 2 to 1]
2. Quick ratio = Current assets - inventory and other non-liquid current assets ÷ current liabilities [Measures liquidity by indicating whether current bills can be paid without selling inventory or non-liquid assets. This ratio should generally be a minimum of 1 to 1]
Now it is time for a “pop quiz”. Determine the following Financial Ratios for ABC Co. and give your opinion as to how well the company is doing.
Note that it is not sufficient to look at only one year of data. It is important to perform annual or semi-annual comparisons to determine growth trends and measure growth rate. For instance, it is a sign of trouble if revenues continue to increase yet gross margins decrease over the same time period. Also, if Net Income declines from 25% to 24% and then 19%, the trend is negative even though the individual percentages by themselves may look good. And consider that a goal might be to legitimately minimize Net Operating Income in order to minimize taxes. Thus Net Income does not carry the same weight as the company’s cash flow (EBITDA). Future projections of three to five years of the ratios are also important to see where the company is potentially headed and to highlight areas to work on. Beyond that, the entrepreneur should examine other factors to determine how the company might perform over time. For example,
- What are the opportunities for the company’s products or services?
- What effect does the general economy have?
- Does the firm have a compelling business plan?
- What is the strength and experience of each of individual the management team members?
- Are their skill sets complimentary?
- How committed is the team to the company’s success?
Armed with the firm’s financial information and answers to these and other questions, one can better chart a course for growth, which is the entrepreneur’s goal.
Answers to Financial Ratios: a) 71.4% of every dollar goes to gross profit b) 40% goes to operating exp. and COGS c) 27.85% goes to the bottom line d) 33% return on capital invested in the firm e) 91 days to pay bills f) 52 days to collect receivables g) 912 days in inventory – very high h) 3.1 ABC can meet short term financing i) ($1,380M - $500K) ÷ $440K = 2.0 ABC can pay its debt.
Published for clients and friends as a source of information and current developments in the law. The material contained herein is not to be construed as legal or financial advice or opinion. More information may be obtained by contacting Mr. Weiss at 312.782.5050.
© 2008 Berger, Newmark & Fenchel, P.C. All rights reserved.
CCV Board of Directors & Staff | Board President |
Co-Presidents | |
| Derrick Collins Kellogg School of Management | Susan Alnaqib & Anita Hollins | |
| Board Treasurer | Staff | |
| Torrence Moore Bank of America | Gail Bell | |
| Hussain Bhanpuri | ||
| Board Secretary |
Hans Bonner | |
| Kimberly Richardson Westside Business Improvement Assoc. | Manjima Bose | |
| Doug Cannon | ||
| Board Members | Tom Cassell | |
| Vachon Harper-Young Harris Bank | Lauren Foukes | |
| Leon Jackson Bill's Shade & Blind Service | Christyn Freemon | |
| Joseph Kennedy Harris Bank | Joshua Gutstein | |
| Nissa Kochmer NLK Consulting | Mwikali Munyao | |
| Kenneth McGhee City of Chicago, Dept of Children & Youth Services | Diane Rodak-Salinas | |
| Jeffery Roberts JB Roberts Insurance/Allstate | Bryan Stubbs | |
| Duane Wadlington |
Funding Partners
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Minority Business Development Agency, U.S. Department of Commerce |  |
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CDFI Fund, US Treasury Department |  |
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| Drinker Biddle Gardner Carton |  |
Mander Foundation |  |
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