Audit Firms in Canada

Top 3 Things to Look at in Financial Statements for Judging a Business’ Health

Judging how well (or poorly) a business is doing requires a robust understanding of the business’s financials. In a previous post we looked at the three different types of financial statements. In this post we’re going to show you what to look for in your financial statements to know if your business is successful or at risk.

Learn more about how to read and understand financial statements in How to Read Financial Statements: A Guide for Business Owners.

1. Balance Sheet

A balance sheet is essentially a snapshot of a business’s financial situation at a specific point in time. It shows assets, liabilities, and owner equity as they currently stand.

From these figures, you can determine whether a business owns or owes more. Although a single balance sheet provides an accounting at only one moment in time, the financial direction of a business becomes evident if you compare balance sheets across months, quarters, or years.

To see how solvent a business currently is, check its most recent balance sheets’ listed assets and liabilities. The business has positive equity if the assets are greater than the liabilities and has a negative balance if the liabilities are greater. (Owner equity should also be checked but is less commonly an issue.)

You can also see whether current assets (e.g., cash) are sufficient to cover current liabilities (usually due within one year). If they aren’t, the business could have cash flow issues in the coming months.

To see how a business is trending, compare its balance sheet to a previous one (e.g., a quarter or year ago). Asset growth shows that a business is either growing or investing in growth. You likewise can see whether liabilities are declining or increasing.

2. Profit & Loss Statement

An income statement (or profit and loss statement (P&L)) summarizes revenues and expenses over a period of time, usually a month, quarter, or year. Revenues are tabulated and expenses deducted, and the resulting balance reveals whether a business made or lost money during the period.

In the reporting, revenues and expenses are typically broken down into categories. Listing separate categories makes it easier to assess where a business has growth opportunities and/or is spending most of its money. Categories could include online sales, brick and mortar sales, types of products/services, facility costs, wages, inventory costs, and anything else that’s also relevant.

First, look at the overall P&L to assess a business’s general performance. For decision-making, however, check the revenues and expenses of specific categories. You can see whether they’re declining, stable or growing, and you can also see correlations between certain ones. For example, a growth in sales might necessitate higher employee compensation to meet the increased volume.

3. Cash Flow Statement

A cash flow statement converts the profit shown on the P&L to the actual cash generated (or used) from operations. It also shows the cash provided for or used from investing and financing activities.

For example, your P&L may include $100,000 in invoices not collected yet, including in accounts receivable.  On the Cash Flow Statement, this will be adjusted as a reduction of $100,000 from the profit shown on the P&L to reflect the actual cash earned.

Cross-reference the cash flow statement with the P&L. The trends of the P&L should continue on a cash flow statement, or there should be a good reason for a difference.

Assess a Business’s Financials

With these three reports, you can accurately assess a business’s financial situation. Compile the reports to check how your own business is doing, or request them as you evaluate one that you’re considering investing in.

It’s also important to be aware that these reports are only useful if all accounts are reconciled and they have been properly prepared considering accruals like revenue and A/P, and non-cash adjustments like amortization and tax expenses.

If you want help examining your financial statements, book a free consultation and we’d be happy to show you what your financial statements are telling you about your business.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

the three types of financial statements

What are the Three Types of Financial Statements?

The three core financial statements are the balance sheet, the income statement, and the cash flow statement. Each offers unique details about a business’ activities and together provide a comprehensive view of a company’s financial health and operating activities. We’re going to explain each and show you how these three types of financial statements all fit together.

The Balance Sheet

The first of the three types of financial statements is the balance sheet. The balance sheet provides a snapshot of a company’s financial position at a given point in time. It shows the company’s assets (what the company owns), liabilities (what it has borrowed), and shareholders’ equity (investment and retained earnings).

These numbers should balance each other out: Assets = Liabilities + Equity.

A balance sheet can be prepared daily, weekly, monthly, quarterly, or annually. Many small businesses prepare their balance sheets monthly, perhaps quarterly for smaller businesses.

Analysts can use a balance sheet to identify the health of a company using metrics such as the Current Ratio and Debt/Equity Ratio.

Ultimate guide to reading financial statements

The Income Statement

The income statement is sometimes called the Profit and Loss statement (or P&L). The income statement shows the revenue a company earns and the expenses involved in its operating activities.

The difference between revenue and expenses represents the company’s net profit for a given period of time.

It does this by showing the sales revenue at the top and then deducting direct and indirect expenses.

Direct expenses are your cost of goods sold (COGS). This provides us with gross profit. Indirect expenses include operating expenses (salaries, administrative expenses, research and development, etc.) and secondary activity expenses such as interest paid on loans taxes.

The result is a company’s net income.

Net income at the end of a period becomes part of the shareholders’ equity feeding the balance sheet. Net income is also carried over to the cash flow statement

When analyzing the income statement, you should be looking at the company’s profitability using key ratios like gross margin, operating margin, and net margin as well as tax ratio efficiency and interest coverage.

The Cash Flow Statement

A cash flow statement shows how much cash enters and leaves your business over a set period of time. It begins with the net income from the income statement and subtracts any non-cash expenses.

The cash flow statement shows cash coming and going out of the business in three categories:

  • Operating: Including revenue, expenses, gains, losses, and other costs.
  • Investing: Debt and equity purchases and sales; purchases of property, plant, and equipment; and collection of principal on debt, etc.
  • Financing: Including paying or securing long-term loans, sale of company shares, and payment of dividends.

The cash flow statement shows the change in cash per period, as well as the beginning balance and ending balance of cash.

Now that you have an overview of the three types of financial statements, let’s look at how they fit together to give you a really clear picture of the state of your business. This diagram from the Corporate Finance Institute does a good job of illustrating the similarities and differences between the three types of financial statements, and showing you where they intersect:

 Income StatementBalance SheetCash Flow
TimePeriod of timeA point of timePeriod of time
PurposeProfitabilityFinancial PositionCash Movements
MeasuresRevenue, expenses, profitabilityAssets, liabilities, shareholders’ equityIncreases and decreases in cash
Starting PointRevenueCash balanceNet income
Ending pointNet incomeRetained earningsCash balance
Source: The Corporate Finance Institute

Learn more about how to read and understand the three types of financial statements in How to Read Financial Statements: A Guide for Business Owners.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Federal Budget 2022: Previously Announced Measures

Budget 2022 confirms the government’s intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release:

  • Legislative proposals relating to the Select Luxury Items Tax Act (a tax on certain automobiles, boats and aircrafts) released on March 11, 2022.
  • Legislative proposals released on February 4, 2022 in respect of the following measures:
  • electronic filing and certification of tax and information returns;
  • immediate expensing;
  • the Disability Tax Credit;
  • a technical fix related to the GST Credit top-up;
  • the rate reduction for zero-emission technology manufacturers;
  • film or video production tax credits;
  • postdoctoral fellowship income;
  • fixing contribution errors in registered pension plans;
  • a technical fix related to the revocation tax applicable to charities;
  • capital cost allowance for clean energy equipment;
  • enhanced reporting requirements for certain trusts;
  • allocation to redeemers methodology for mutual fund trusts;
  • mandatory disclosure rules;
  • avoidance of tax debts;
  • taxes applicable to registered investments;
  • audit authorities;
  • interest deductibility limits; and
  • crypto asset mining.
  • Legislative proposals tabled in a Notice of Ways and Means Motion on December 14, 2021 to introduce the Digital Services Tax Act.
  • Legislative proposals released on December 3, 2021 with respect to Climate Action Incentive payments.
  • The income tax measure announced in Budget 2021 with respect to Hybrid Mismatch Arrangements.
  • The transfer pricing consultation announced in Budget 2021.
  • The anti-avoidance rules consultation announced on November 30, 2020 in the Fall Economic Statement, with an expected paper for consultation over the summer of 2022, and legislative proposals tabled by the end of 2022.
  • The income tax measure announced on December 20, 2019 to extend the maturation period of amateur athletes trusts maturing in 2019 by one year, from eight years to nine years.
  • Measures confirmed in Budget 2016 relating to the GST/HST joint venture election.

Budget 2022 reiterates the government’s intention to return a portion of the proceeds from the price on pollution to small and medium-sized businesses through new federal programming in backstop jurisdictions (Alberta, Saskatchewan, Manitoba and Ontario). Budget 2022 proposes to provide funds, starting in 2022-23, to Environment and Climate Change Canada to administer direct payments to support emission-intensive, trade-exposed small and medium-sized enterprises in those jurisdictions.

Budget 2022 also reaffirms the government’s intention to revise the Employment Insurance (EI) system, including its support for experienced workers transitioning to a new career and coverage for seasonal, self-employed and gig workers. A long-term plan for the future of EI will be released after consultations conclude. As an interim measure, Budget 2022 proposes to extend previous expansions to EI coverage for seasonal workers.

hiring virtually

Ask the Right Questions When Hiring Virtually, Pros Say

With remote interviews, many of the cues you would normally use to read a person are lacking. But there are still tactics you can use to help make the right choice when hiring virtually.

Even in normal times, selecting the right candidate for a position can be challenging. But, for many organizations, COVID-19 has made the process even more difficult by requiring employers and candidates to adjust to remote interviews that lack the kind of human connection – including direct eye contact and collegial handshakes – that in-person exchanges can bring.

The shift comes with consequences, experts say. According to new research from Robert Half Canada, more than half (56 per cent) of employers say the cost of making a bad recruiting choice is higher than it was pre-pandemic.

Still, given that remote work is likely here to stay for many and that virtual hiring offers access to larger talent pools, we are likely to see more, rather than less, remote recruiting going forward.

Here are four tactics that can help you make the right decision when hiring virtually.

Prepare your questions

With remote interviews, you have to be slightly more pointed in the way you ask questions, says David Dial, founder of Calgary-based Dial Solutions Group.

“Some people are professional interviewers. They do a great interview. Then they show up and within the first week you’re saying, ‘This isn’t the person we interviewed.’ ”

One solution, Dial suggests, is to ask questions that put the candidate into unique or challenging job-related scenarios. Listen for evasive responses, he adds.

“Take the person away from a script and observe how they behave,” he says. “If they’re feeling uncomfortable answering, dig in a little bit with follow-up questions.”

Connect creatively

When interviewing in person, you can often get a feeling about a candidate by reading their body language, Dial says.

“Remotely, you miss that … so you need to listen very carefully,” he says.

To help compensate for a lack of in-person cues, Michael French, regional vice-president of Robert Half Canada, suggests spending a few minutes getting to know the candidate. Choose questions that showcase their personality and why they are interested in the role and organization, he says, and pay attention to facial expressions and tone.

“Get a good understanding of how and why they came to meet you,” he says. “Make sure their tone comes across as comfortable.”

Connections can also be made with prospective teammates, adds French. Once candidates are shortlisted, arrange video conferences with future colleagues and consider their feedback during the final selection process.

Stay alert to cues

The pandemic has brought added stress for many employees, and it’s important to show flexibility and understanding, says French.

There are limits to employer flexibility, though. If a candidate reschedules an interview more than once, it may indicate someone who is unreliable. If they have persistent technical issues during the interview process, this could be a knowledge gap.

Beyond having the right skills, it often comes down to a candidate’s attitude and the overall impression they make, French says.

“Look out for someone who responds negatively,” he cautions.

This could be a sign they’re not the right fit for the role, adds Dial.

Probe for solutions

Finally, if you find yourself with a bad hire on your hands, try to avoid the knee-jerk reaction of firing on the spot, says French.

Instead, exhaust all options to keep the new employee rather than waste time and resources used to replace them, he advises. For example:

  • Consider whether talking about any issues – such as punctuality, meeting deadlines – could put things on track.
  • Assess whether retraining could be easily executed.
  • Find out if the employee has personal issues because of the pandemic.
  • Determine whether your virtual onboarding process is effective.

If you must let an employee go, Dial adds, do it fast and within the probationary period. “Mistakes are made when people hire because they’re desperate to fill the role,” he says.

“Take your time hiring the person. But, if it’s wrong, change it quickly.”

Disclaimer:
Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

A group of people in a meeting

Return to work raises crucial legal questions for organizations

Reviewing and updating workplace policies are a key priority for employers.

As employees return to the workplace, there are many questions around the legal ground rules for employers. Adding to the challenge is the fact that there are few, if any, legal precedents to guide organizations in these unprecedented times. “There’s not a lot of clarity at this point,” says Emily Siu, a lawyer at the SpringLaw employment law firm in Toronto. Here are three key issues keeping employers up at night.

The shift comes with consequences, experts say. According to new research from Robert Half Canada, more than half (56 per cent) of employers say the cost of making a bad recruiting choice is higher than it was pre-pandemic.

Still, given that remote work is likely here to stay for many and that virtual hiring offers access to larger talent pools, we are likely to see more, rather than less, remote recruiting going forward.

Here are four tactics that can help you make the right hire.

Workplace safety

Health Canada’s ongoing guidance on COVID-19 prevention includes a layered approach of common practices – keeping interactions to a minimum, avoiding crowds, masking, hand hygiene and respiratory etiquette – along with vaccination. The common practices can easily be adopted into workplace safety policies, but actually mandating vaccination is something each employer will need to weigh out carefully. The nature of their industry and the working conditions will influence this discussion. Whether to implement a workplace vaccination policy is definitely front and centre of employers’ conversations, says Howard Levitt, of Levitt Sheikh Chaudhri & Swann (LSCS Law). Many of the legal decisions moving forward will depend on whether the courts will consider safety more important than individual privacy, he says.

“Employees that don’t get vaccinated have a mistaken sense that privacy and human rights are valid legal arguments. Although privacy rights apply, they are trivial compared to the overriding safety considerations, so have no legal impact. As a result, vaccination policies are legally permissible, particularly if employees are working closely together or in situations in which working from home is not an option.”

Accommodating exceptions

As with any employment situation, there will be exceptions that need to be addressed. 

“Employers should not discriminate against employees who have legitimate human rights reasons for not getting vaccinated,” says Siu. “These workers should be accommodated up to the point of undue hardship for the employer.”

This specifically pertains to people with medical conditions or religious reasons for not getting vaccinated. “However, they must be substantive reasons, not simply a matter of minor medical issues or a personal opinion, particularly one recently adopted rather than genuine adherence to an organized religion, which bans vaccinations as a significant tenet,” says Levitt. 

If an organization decides to implement a vaccine policy, protocols will need to be established around employees who are not vaccinated, adds James Fu, partner with Borden Ladner Gervais (BLG) in Toronto. “Will there be different rules for distancing and masking? Should employers have badges or stickers to designate who is vaccinated? Each organization will have its own culture and approach.”

Employment terms

The impact of COVID-19 has also opened the doors to potential constructive and wrongful dismissal actions, particularly for remote workers not wishing to return to the workplace. As such, employers need to be mindful of the terms of employment on record. In many cases, these may need to be updated and signed to accommodate the current climate and requirements.

“Employers can provide a time frame for the employee to return to work,” says Levitt. “If they refuse to return, then the employer has the right to terminate their employment.”

Siu confirms she is seeing a strong interest on the part of employers around return-to-work requirements. “It’s really dependent on circumstances, such as the safety of the work conditions, the employer’s capacity for risk and the industry,” she says.

How employers can minimize their risk

There are both legal and practical measures employers can take to mitigate potential risks. For example, they can:

  • Review workplace policies, taking into account all the current factors and circumstances, as well as local law requirements, and then adjust their policies accordingly.
  • Be transparent about opening plans with employees. Providing clear direction reduces the chances of potential legal challenges.
  • Ease the employees return to the workplace and be supportive during the transition. “Returning requires time for adjustment,” says Siu. “Considering the employees’ needs can go a very long way to avoiding resignations or tricky legal proceedings down the road.” 
  • Take all reasonable measures to create a safe work environment. Prepare a safety plan and ensure it is up to date with current health guidelines. Employers are legally required to have a safety plan that can be provided to visiting health and safety inspectors.

Given the lack of legal precedents, employment issues will be determined on a case-by-case basis. In the meantime, Levitt notes, “What employers should be doing is decide what they want to do and build a legal strategy around that.”

Disclaimer:
Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

measuring customer profitability

Measuring Customer Profitability: 3 Tips Businesses Should Know

If you’re a business owner, you know how valuable a good customer can be—as well as how draining a bad one can be. How can small businesses measure and identify their most profitable customers to attract more of them? Below, we’ll discuss some tips and tricks for measuring customer profitability and how you can use these metrics to grow your business.

What Is Customer Profitability?

You may assume that your most profitable customers are simply those who spend the most money with you. However, this isn’t all that goes into profit—you’ll also need to consider the costs associated with the customer relationship. When measuring customer profitability, consider customers who are high-maintenance and use a disproportionate amount of your employees’ time or who tend to return items more often than other customers. They may be less profitable than lower-maintenance customers who spend a bit less. Some particularly difficult customers may even be costing you money. 

There are a variety of software programs designed to help assess profitability based on your business’s unique metrics. A Chartered Professional Accountant (CPA) can help you evaluate the data these programs generate giving you insights on the allocation of resources and productivity; however, there are some slightly lower-tech ways to measure customer profitability, which we’ll discuss below.

Measuring Customer Profitability: Three Tips

Identify Your Customer Contact Channels

Before you can see what’s working and what isn’t, you’ll need to identify each of the potential ways in which a customer can interact with your company. Do you have a website? Social media pages? A public email address? Storefronts? A call centre? Unless you’re tracking the levels of engagement through all of these potential customer interaction channels, you could be missing key pieces of data that may inform your customer profitability analysis.

Once you’ve identified these channels, you can then evaluate the costs associated with each. These can include: 

  • Advertising and marketing costs
  • Infrastructure expenses (rent, utilities, real estate taxes)
  • Shipping costs
  • Return, refund, and restocking costs

Define Your Customer Categories

Many businesses tend to have customer segments that are clearly defined. For example, there are few daycare customers who aren’t parents of young children—but assessing customer categories for retail and department stores can be trickier, as these tend to attract a much broader range of demographics. 

However, business owners are uniquely positioned to define their customer categories, as you have first-hand knowledge of your business, your products, and your general impressions of who’s spending money (and who isn’t) at your business. Some questions to ask yourself include:

  • What types of customers do you see? 
  • Is your “typical customer” different at different times of the day? (For example, some businesses tend to see more students in the afternoon and early evening, while retirees may make up the bulk of customers from 9 to 5 on weekdays.) 
  • What motivates your customers to purchase from you?
  • Who is your competition? Do your customers tend to be loyal to one business or simply patronize whoever is most convenient at the time?
  • Which categories of customers tend to interact with your staff the most?

With this information in hand, you can begin to do some calculations for measuring customer profitability. 

Begin Tracking and Logging Key Performance Indicators (KPIs) 

Some profitability KPIs you’ll want to measure and track when measuring customer profitability can include: 

  • Average revenue per user (ARPU), calculated by dividing the total revenue by the total number of customers or subscribers.
  • Customer lifetime value (CLV), which projects the entire net profit that will be generated from a customer over the course of their relationship with your business. You can calculate CLV by multiplying the annual profit per customer by the average number of years they’ll stay a customer, then subtracting the initial cost of acquiring this customer. 
  • Customer acquisition cost. Your customer acquisition cost (CAC) is quite simply how much money it costs you to acquire a new customer. It typically includes the cost of your sales and marketing activities. If you want to be accurate when measuring customer profitability, you need to know this number. The formula to calculate CAC is: (Cost of Sales + Cost of Marketing & Advertising) / New Customers Acquired

Some of this data may not be readily accessible. But by thinking about these calculations, you can brainstorm ways to collect and track this information, whether this means investing in some marketing tools or creating an employee loyalty program that can track spending patterns.

Partnering with a CPA can give you access to an even broader range of potential KPI tools for measuring customer profitability approach. For more tips on measuring profitability download The Ultimate Small Business Profitability Checklist, our free guide to help you measure and manage the profitability of your business.

Disclaimer:
Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

create a marketing strategy for a small business

How to Create a Marketing Strategy for a Small Business

According to a study of US small businesses, 50% of them are operating with no marketing plan. There are no comparable Canadian stats that I could find, but I suspect it’s similar. That means that one out of every two small businesses has no plan for how they will grow their business, which could explain why 60% of small businesses fail within their first three years and many more never realize their potential.

Consistent growth rarely happens by accident and in this blog we’re going to show how to create a marketing strategy for a small business so you can avoid becoming a statistic.

Always Start with Strategy

This probably sounds a little strange to say always start with strategy when creating a marketing strategy for a small business, but here me out.

Too often, when companies think about creating a marketing strategy, they tend to start to cobble together a bunch of tactics.

  • I need to run Facebook ads
  • I need to find a way to get more leads from social media
  • I have to redesign my website
  • I should be on LinkedIn

Maybe. But none of those, or even all of those together is a strategy. And throwing money at a series of tactics that you read about, or someone recommended, is a sure-fire way to waste money.

Know Your Target

When you set out to create a marketing strategy for a small business, the first thing you need to know is where you are and where you are going. This means having targets you measure your progress against.

Your targets may be revenue based. Or you may be trying to grow into a new market. Or increase profitability. Whatever it is, be sure you quantify it, have a target, and know how you will measure progress.

If profitability is your goal, or how you’ll measure progress towards your goal, the Ultimate Small Business Profitability Checklist provides details on how to calculate five key indicators of profitability to help. You can download it here.

Find Your Ideal Customer

Most small businesses are built to perfectly serve a fairly narrow type of customer. Trying to attract and serve too broad of a market can actually hurt a business sometimes. That’s why it’s so important to define your ideal client as you create a marketing strategy for a small business.

  • Identify your most profitable customers (see the Ultimate Small Business Profitability Checklist for some tips on analyzing that)
  • From that group, identify the ones who refer you the most business
  • Take that group and try to identify some common characteristics (demographic and psychographic)
  • Use that list of common characteristics to create what’s called in marketing a “customer persona”; a profile of your ideal customer

Find Your Unique Value Proposition

Once you have a list of your current ideal customers it’s time to talk to them and find out why they chose you. Get on the phone and call them up. Ask them what they like about doing business with you. Why they chose you over all the other options they had.

If you collect testimonials and online reviews, also review those. What you’re looking for in all of this are common themes that show what your customers think makes you stand out. Be aware, this is often different from what you think it is.

Use what you find to develop some bullet point key messages that represent why they chose you/why someone like them should choose you.

Map the buyer’s journey

The next step to create a marketing strategy for a small business is to map out all the ways you might come into contact with your ideal customer as they progress through their buyer’s journey.

Everyone who has ever purchased from you has gone through a journey. They went from knowing nothing about you, to knowing you exist, acknowledging you might be able to solve their problem, to trusting you, to making a purchase. Hopefully, they then went on to re-purchase and refer you to others as well.

Take those stages and do a little brainstorming about how you might show up to people at those various stages. Here are some examples:

  • Getting to know you – search engines, ads, referrals
  • Trusting you – testimonials, reviews, blogs, discovery calls
  • Purchasing – sales people, website, physical store
  • Repeat purchase – email reminders, mailers, subscriptions
  • Referrals – referral cards, email, champion programs

You can even work some questions about this into your customer interviews you may be doing to help define your ideal customer profile.

Putting It All Together

The final step to create a marketing strategy for a small business is to put all these pieces together. By now you have:

  • A profile of your ideal customer
  • Your core message or unique value proposition that speaks to this person
  • The channels and platforms where you need to show up to reach your ideal customer

Now your task is to put it together.

If your ideal customer is most likely to get to know about you through a Google search, make sure you have optimized your website to show up for what they are searching for and that your page clearly communicates your value proposition in their language.

If reviews are important for them to trust you, put a plan in place to get more reviews and publish them where your prospects will see them.

If referrals are how people find you, focus on a referral program for both customers and strategic partners.

The tactics almost find themselves once you have the core strategic elements sorted out.

If you’d like someone to bounce some ideas off while you create a marketing strategy for a small business, book a consultation (or if you’re a customer, give us a call). We’ve worked with dozens of businesses and not-for-profits to better define their growth strategy and we’d love to help you.

Disclaimer:
Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

small business growth

The 5 Stages of Small Business Growth

While small businesses come in all shapes and sizes, almost every business goes through the same five stages from inception to late-stage growth, according to researchers Neil Churchill and Virginia Lewis. In analyzing the lifecycle of businesses, the two researchers uncovered a pattern showing small businesses go through five stages as they mature and grow.

While the length of time a small business stays in any one phase changes business-to-business, within each stage, organizations show remarkable similarities and characteristics that allow them to move to the next stage. Understanding the stages can help you identify where your business is and what to do to move up the ladder. Let’s explore.

SMALL BUSINESS GROWTH STAGE I: EXISTENCE

The small business growth journey begins at its inception. As small businesses come into existence, their focus is primarily on attracting customers and delivering the goods or services to fulfill transactions.

Organizations at this stage are fairly loose and simple. The owner or founders typically do a bit of everything and supervise subordinates directly. While there may be a formal business plan, the strategy aims to generate enough revenue to be viable.

Quality, production, and processes may be unstable until those in the business start to gain experience. With most small businesses, the owner is the company and drives both strategy and execution.

20% of small businesses never get past this stage and fail within the first year of existence. Another 30% close their doors by the end of the second year. Those that survive evolve into the second stage: survival.

SMALL BUSINESS GROWTH STAGE II: SURVIVAL

As small businesses enter the second stage, they have demonstrated viability. It is attracting and retaining enough customers and generating enough cash flow to survive in the short term.

The organization remains small, although there may now be a few managers focusing on sales or operations at the direction of the owner or founder. The owner still makes nearly every key decision, and the goal remains survival.

Many companies stall at this point. They may earn marginal returns based on their capital and time investment. Many Mom-and-Pop businesses stay in existence but never thrive beyond the survival stage — eventually closing or selling, often at a loss. Conversely, businesses that grow in profitability and develop a strong cash flow to finance growth move onto the third stage: success.

To ensure your business moves onto the next stage, it’s important to work with an advisor to have a strategic plan in place.

SMALL BUSINESS GROWTH STAGE III: SUCCESS

If your business has reached the third stage, congratulations on your small business growth. There’s a lot to celebrate. There are also important questions to ask. Do you want to:

  • keep the company fairly small with stable and predictable profitability?
  • expand and grow your business for greater profitability (but also at greater risk)?
  • step back and pursue other interests or investments while the business continues?

These are questions you should ask yourself and your accountant or business advisor to ensure you have the right plan in place to achieve your goal.

Companies can remain at the success stage for long periods and earn average or above-average returns. In this stage, businesses are more likely to survive economic downturns or shifting consumer demands.

In this stage, companies typically start to add additional executives or oversight, such as a controller. Middle managers may be necessary to drive operations. Financial, sales, marketing, and production systems run more smoothly and are better defined.

Companies willing to take on additional risk, and additional debt, strive to enter the fourth stage: take off.

SMALL BUSINESS GROWTH STAGE IV: TAKE-OFF

If the business is the fire, financing is the accelerant. To turn a business from success to take-off, owners and founders focus on raising capital and fueling growth. Owners and founders begin to delegate more and allow managers and other executives to begin to take a more active role in strategy and higher-level decision-making.

Organizations often begin to decentralize. Formal organizational charts are developed with clear lines of report and hierarchies.

This is a pivotal stage in the business lifecycle. If leaders rise to the challenge, significant growth can occur. If not, the business can stall at this stage, too. Many companies sell before achieving their take-off goals, although at this stage they usually sell for a profit.

If you’re entering this stage of small business growth, you may want to explore your options to restructure your business or sell your business with a strategic partner.

If take-off happens, it’s time to enter the final stage: resource maturity.

SMALL BUSINESS GROWTH STAGE V: RESOURCE MATURITY

As companies enter the fifth stage of growing a small business, they need to be concerned about control and consolidation of rapid growth. The business may need to expand rapidly to accommodate the growth and meet consumer needs.  The organization may struggle to retain the entrepreneurial spirit that drove growth in the first place.

In this stage, the company has the financial resources to fund detailed strategic and operational planning. Management runs fairly independently and key positions are staffed by experienced workers. Systems are refined and smooth. Owners and founders are often detached from the business both financially and operationally.

As businesses reach resource maturity, profitability may flatten but be sustainable and more predictable. Yet, many businesses will lose sight of their original mission, stray too far outside their product offerings, or take unnecessary risks to chase even larger growth.

A DELICATE BALANCING ACT

Throughout every stage, it’s a delicate balancing act. For those that can move through the stages, the rewards can be great. However, it takes a careful and strategic growth plan at each stage and the ability to evolve and adapt as the business grows.

Ready to talk about where you are on the small business growth chart and how to best position your business for success? Book a free consultation and speak with one of our experts.

We work with businesses across all of these stages, helping them grow to the next stage or stay put, making the most of the stage they are in. It all depends on your priorities. We work hard to understand your business needs and help you manage risk, meet reporting obligations and plan strategically for growth.

Disclaimer:
Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

BC Employer Training Grant Program

Training and educating employees can quickly become an expensive process which may make it difficult for them to access the skills training programs needed to keep up with labour market demands. To help increase access to these programs and help ease the financial burden that training may have on employers, the government of British Columbia offers the British Columbia Employer Training Grant program.

Employers may receive a reimbursement of 60-100% of eligible training costs up to $300,000 per fiscal year (April 1 – March 31). To qualify, the employer must pay all the training and training-related expenses, in full, and submit a reimbursement application with itemized receipts before the training program has begun. Training and educational programs must improve employee job-related skills that lead to a job for an unemployed person or a better job for a current employee. Further information regarding the program and access to the online application portal can be found by clicking here.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

in house financial statements

IN HOUSE FINANCIAL STATEMENTS: EVERYTHING YOU NEED TO KNOW

Consider your external Chartered Professional Accountant when preparing in house financial statements.

To run an owner-managed business successfully, it is not enough just to track the movement of funds in and out. In-house financial statements provide the type of information needed by your external accountant are also essential because the external accountant is the intermediary between your business and the Canada Revenue Agency, creditors, a potential buyer and others who need the special financial statements only your external accountant can produce.

In House Financial Statements

Internal accounting systems process daily sales, purchases, and payroll transactions; effective owner-managers review the general ledger bank balance, accounts receivable, accounts payable, and the payroll summary and analyze the basic financial statements on a regular basis. Management needs these in house financial statements to meet some if not all of the following requirements:

  • All provincial corporations’ acts require financial data to support financial statement filing requirements.
  • Shareholders have a right to yearly financial statements based on recorded transactions in your in house financial statements.
  • Creditors may require regular financial statements to evaluate the quality and sufficiency of collateral covering a loan and to ensure the loan conditions are being met.
  • Potential investors may want to review monthly financial statements to evaluate throughout-the-year performance.
  • Comparable monthly historical in house financial statements give valuable information to a potential purchaser if the owner-manager retires or sells all or part of the business.
  • Financial decisions based on monthly facts and figures provide insight for planning and budgeting.
  • Comparative financial statements can reveal whether changes in sales or expenditures are creating variations in the bottom line. Such comparisons allow management to take corrective action and ward off potential working capital problems.
  • In house financial statements establish how management is guiding the company.
  • Financial statements provide information about the availability of sufficient assets to meet liabilities.
  • Operating results provided by financial statements inform management whether action is needed to increase sales, cut production costs, or reduce wage costs.
  • Properly structured income statements provide insight into the cost of production compared to sales. As a result, management can more rapidly decide whether sales prices need to be increased or job costs better controlled.
  • Monthly in house financial statements show errors in environmental, tax, payroll, pension, workers’ compensation, GST/HST or employee health tax remittances.

The external CPA usually makes some adjustments.

External Accountant

Before company accounts are ready for a third-party user, the external accountant usually has to make some adjustments to in house financial statements to provide the information in the form needed by the third party. Consider the following:

  • Data provided by an in-house system designed to give information about the day-to-day operations must be distilled into a summary format that provides information in accordance with Canadian financial statement disclosure requirements.
  • Statements prepared by an independent accountant lend credibility to the corporate entity because the preparation is independent of internal bias.
  • Reporting requirements change regularly and must be reflected in the financial statements.
  • Independent preparation of financial statements may identify anomalies within the corporate records, which need review to ensure they are correct. For instance, capital assets purchased may have been expensed.
  • Preparation of financial statements by your external accountant usually identifies items that are income tax sensitive such as shareholder draws, penalties and interest or personal use of corporate vehicles that may have to be adjusted.
  • An external review may determine whether the valuation of assets is accurate or whether capital assets should be written down or accounts receivable amounts should be written off.
  • The external accountant ensures that comparative figures are truly comparative, not only to ensure a better analysis of progress throughout the years, but also to provide insight as to the reasons for material variations in the event lenders or regulatory authorities question the differences.

Periodic In House Financial Statements

In order to prepare year-end financial statements, your accountant needs quality information produced by your accounting system. The regular preparation of financial statements allows your CPA to fully understand the financial performance and position of your business. Because CPAs have significant experience in a multiplicity of businesses, they are able to determine the benchmarks your particular business should meet and maintain.

Your Business Is Their Business

In the final analysis, most external accountants would agree that you know your business better than they do, but they know business better than you. Working with your accountant and helping them understand your business will ensure the financial statements provided to management, third parties and regulatory and tax authorities adequately explain the corporation’s financial position and operational results for the year.

Get a free review of your financial statements here.

Avisar is leading accounting firm located in Langley, Vancouver, Abbotsford, Surrey, and the entire Lower Mainland.

Disclaimer:
Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.