Monthly Archives: July 2010
Marcia Bagnall, SBDC Director
Business owners frequently receive financial statements from their accountants and bookkeepers but don’t quite know what to do with them. There are two very important statements, and if you master the basics of these two you’ll have a good handle on the financial workings of your business.
1) The Income Statement tells you if you made a profit or a loss for a specific accounting period, a month, a year, a quarter, etc. Your best bet is to look at this statement at least monthly. That will help you stay current and able to make better decisions. As a small business, you don’t have the “wiggle” room a larger business might and identifying any problem is better done sooner than later.
The Income Statement is designed to give you information about the accounts that fall in the categories of income, cost of goods, operating expenses and other income/expenses. The Income Statement shows what you made (income), what it cost you to make it (cost of goods sold) and what it cost you to just stay in business (operating expenses).
Keep in mind that the Income Statement is not a cash flow statement and is not designed to keep you informed about the movement of money through your business. There are non-cash items (depreciation) on the statement and it does not reflect money you paid out for assets/liabilities (equipment or principal loan payments).
The very best use of an Income Statement is to compare actual income and expenses against a budget (sometimes called projections) you prepared at the beginning of the year and against last year’s performance. This will let you know if you are on target with both sales and expenses, if not – why not. This is where trends will reveal themselves and let you know if you need to make any changes in the operation of your business.
2) The Balance Sheet will tell you how you have managed the assets and liabilities of your business. It gives you a snapshot of your business at a specific point in time (e.g. July 1, 2010).
The Balance Sheet is one you may seldom examine if you don’t understand what it is telling you. The purpose of the Balance Sheet is to show you what the business owns, what it owes and what is the difference – its capital. It is designed to give you information about the accounts in your system that fall in the categories of assets (own), liabilities (owe) and capital (owner’s equity).
The very best use of the Balance Sheet is to watch the movement of the Capital/Equity account. This account tracks the amount of money/assets you initially put into the business (Owner Investment), the profit or loss from the Income Statement (Retained Earnings) and, in the case of a sole proprietor, the owner’s draws. Other critical aspects of the Balance Sheet are to track inventory trends, check debt to equity ratios and examine the liquidity of the business. (All skills you should start to learn about!)
Don’t just file away these critical management tools. Learn to read them!
Marcia Bagnall, SBDC Director
It’s a long-standing tradition for business owning families to employ their children, especially in the summer months. There are plenty of excellent reasons to employ your children. It keeps them busy, teaches them important life skills about work and money, and provides you with an inexpensive labor source. Additionally it may confer tax benefits to you (check with your tax professional about your individual situation).
It’s legal to employ your children in Oregon, but you’ll need to pay attention to both state and federal laws that apply to hiring children, even your own. There are numerous federal laws, but many of them don’t apply when you are hiring your own child. State laws, however can be a different matter. In Oregon these are stricter than federal law.
When federal and state laws conflict, the law that is the most restrictive or protective is the one that must be complied with. In other words, you must apply the tougher of the two standards. How do you find out about those laws? Your first move is to go to the Bureau of Labor and Industries (BOLI) website (www.boli.state.or.us) and click on the links that pertain to child labor laws. There’s a Frequently Asked Questions section and also a phone number you can call to ask further questions.
Protecting children is the purpose of child labor laws. Generally speaking the laws pertain to two basic areas: the number of hours children can work, and the types of work they are allowed to do. Even though a young person is a member of your family, you don’t have unlimited decision making power as to what they can do in your company, so be sure to understand the laws prior to engaging your children as employees.
The laws also specify that the work you pay your children to do must be actual business tasks and they must be qualified to perform them. This means that you would be hiring someone else to perform these tasks if you didn’t hire your child. In other words, the job must be real.
Use the same tools with your children that you would use for other employees, have them fill out time sheets and pay them with checks attached to a pay stub. Create a written job description to substantiate your need for their services.
Marcia Bagnall, SBDC Director
Summer is the season when vacation dreams are top of mind for everyone in your organization. As an employer, you aren’t required by law to provide vacation leave and you may be avoiding the topic in order to avoid the attending hassles. But consider the benefits that time off to your staff may bring to your business.
There have been many studies showing how time off is highly valued by employees, sometimes to the point of being more valued than pay. This means you have a perk at your disposal which you can use to both benefit employees (they come back energized and refreshed) and your business (time off is a benefit you can use as a carrot to recruit and retain employees).
Because vacation time is not required by law, you have flexibility on this issue and can offer what suits your business. Vacation leave can be paid or unpaid.
The best way to dive into this issue is with written policies. This is not an area you want to just wing it, responding to requests as they come in and deciding on a case by case basis. That’s neither fair to your employees nor strategic. Additionally, a clear plan makes it clear you are not making decisions for reasons that could be construed as discriminatory. You’ll need to generate a plan that has rules but allows you to be flexible for special cases.
Here are the bare minimum pieces that need to be in your plan:
- A clear procedure by which employees request and are granted time off. This could be a form, it could be an email with specific points, but get this in writing and return it in writing. Stay away from verbal requests and approvals.
- A system for deciding who gets priority when too many people want the same time off. Will you make that decision based on seniority? On a first come first served basis?
- A policy about minimum and maximum increments of time. Can an employee take less than a full day? More than 3 weeks? Clarify what is disruptive to your business and what isn’t, and be up front about it. Consider too your need for covering the absent employee and what’s possible.
- A policy on how far in advance the request must be made in order to be considered. Stress the difficulty of last minute requests.
If having employees gone one at a time is too disruptive to your business operations, consider closing your business down for short periods at certain times of the year (between Christmas and New Year’s Day, or the week of July 4th, etc.). Give everyone a break at the same time and you’ll all come back feeling energized. Remember that you too need downtime away from your business.