Friday, August 12, 2022

Everyone is Talking About Inflation, But Does that Really Impact Me? By Jeff Newkirk, Blanton Advisors Associate CFO & Executive Coach

 


We all dislike inflation, but we have to deal with it. If you’re like me, you think inflation sucks. The current inflation rate is about 7.9%. Now you might say that’s huge. We haven’t had that inflation in years. Well, yeah, 40 years, but it’s not that we have never had that level of inflation. In fact, just after World War II, back in the mid-1940s, we had inflation rates of around 15%. This is pretty high, almost double what we have now. And again, it impacts all of us. It’s real, we need to adjust and plan for it.

There are two levels, first business and then personal. On a business level, if you’re a business owner or a decision-maker, is inflation impacting your business?

If the average inflation rate is 8%, how will you maintain the same level of profitability when your expenses are increasing at least 8%? You have three options. 

1. Increase Price 

If you increase the price, you must know that the market can bear that price increase. So you could increase the price, and your sales volume could go down. If you’re going to increase the price, you have to know that your sales volume will stay the same. 

2. Increase Volume 

If you can sell more at the same price, you’ll have more revenue, and you’ll be able to compensate for some of those increased expenses. But for that to happen, you probably have to take on, at least implement, a good marketing sales and marketing plan or some kind of new promotion. If you grow your expenses to some extent, that’ll help you increase volume At least with that you can maintain sustainable profitability.

3. Decrease Expenses 

If you can’t increase the price and you can’t plan for an increased sales volume, then you can begin decreasing expenses in other areas. If your costs increase 8%, there is no change in anything you’ve purchased, but prices rise 8%. You can decrease expenses in an area to compensate. For example, if you bought $1,000 of supplies, now that $1,000 of supplies will cost more like $1,100, rounding off to a 10% increase. You’ve got to find that a $100 somewhere to save. It might be in another supply, or it might be in some other administrative expense. Whatever it is, you’ve got to be able to reduce expenses in another area.

Unfortunately, many times businesses will hit labor. That means that people will get laid off and lose their jobs because companies can’t afford the same amount of labor costs because costs in other areas are going up. They can’t compensate for that from the revenue side, increase in price, or increase in sales volume.

Does inflation impact business?

Yes, it does, and you need to create a plan. It’s crucial now to plan ahead. Inflation is likely to rise even more. That means that we have to plan for either increasing price, knowing that our goods or services that we’re selling can bear that increased price.

We have to increase volume and sell more or decrease expenses. And the problem with decreasing expenses is you have to find the area where you can find the expense to decrease. In other words, if there are supplies in one place, they will cost more. You might have to reduce supply costs in another area. 

I encourage looking at price, increasing sales volume, and decreasing expenses in every area, except for labor. Keep those people employed. Your employees are the lifeline of your business. They are what make your business thrive. They’re what make your business successful. Don’t touch labor. Richard Branson said it best employees are the most essential component of your business. It all starts with employees. Be sure to care for those employees and address inflation in other areas. 

Your customers come next, then your shareholders or stakeholders. But if your employees aren’t happy, your customers aren’t satisfied. If your customers aren’t happy, you’re not growing your business. 

How does inflation impact you personally and your family?

With an 8% inflation rate, this will impact your household expenses. Your household expenses will go up an average of $300-500 a month. So let’s be conservative and say 300, that’s $3,600 a year. If you have the average or median income that we experience in the United States (which is around 70,000 a year), you make $70,000 a year, and inflation is going up to $3,600 a year; that’s over 5% of your total revenue or your total pay.

If you can save regularly 5-10% of your income, you’re making $70,000. That’s 7,000 that you’re put into savings. Now $3,600 of that will increase costs towards filling your gas tank, groceries, clothing, whatever it may be, it will go up by 8- 10% by the end of this year. 

If you had a vacation plan that would have cost you about $3,600. Now that $3,600 is not going to be put towards keeping your household consistent, meaning you’re not taking on any new expenses. You’re not increasing any expenses into your home. You’re just staying. Everything you purchased before is the same as last year. And this year, it’s just going to cost you $3,600 more. So you won’t be able to take that vacation, or you’ll have to be able to compensate for it.

You have to save even more. If it costs you $50,000 to run your household, like mortgage insurance, groceries, clothing, and education, it’s all now $3,600 more. 

Does inflation impact you?

Yes, it does. And you need to plan for it. Start doing everything you can to decrease your expenses in your household. Try reducing costs by doing the following:

  • Look for more favorable insurance rates 
  • Switch grocery stores to find lower-priced items 
  • Limit your spending habits on clothes and accessories 

Overall, be a bit more prudent and try to impact your household as minimal as possible. Maybe you will have to wait to get that new car or wait a little longer to take that vacation. Whatever it may be, know that inflation is real and won’t be going away any time soon. 

Remember, it won’t last forever, and things will get better, but in the meantime, let’s plan accordingly so we can make it through the next year or two.  


Wednesday, July 27, 2022

What Are the Most Important Financial Measures - By Jeff Newkirk, Blanton Advisors Associate CFO & Executive Coach

 


As a business consultant, I’m often asked, “what are the most important financial metrics that, as a business owner or decision-maker in a business, you can pay attention to?” 

There are several key financial measures that provide insight to the financial health of your business. I believe reviewing any financial measures is helpful. However, there are three that truly give you a good indication of current performance.

#1: Gross Revenues

Gross revenues measure the total amount of dollars recognized during a financial period from providing services or selling goods. It is important to note that revenues are only recognized when they are earned. A business can’t include any revenues recognized from a good or service that have not yet been earned. 

For example, ABC Manufacturing sells 10 wingdings for $150 each. While there are 15 wingdings available for purchase, only 10 were actually sold during the period. Revenues for this financial period are (10 wingdings x $150) $1500. 

#2: Gross Profit

Referencing the example above, each wingding requires materials and labor to produce. For ABC Manufacturing, each wingding costs them a total of $105. These costs are typically referred to as Cost of Goods Sold. In this example, Cost of Goods Sold is comprised of $75 worth of materials and $30 of labor to put the wingding together. 

Why is this important? Remember that each wingding sells at $150. With a total cost per wingding of $105 that allows for a gross profit of $45 (Gross Revenues less Cost of Goods Sold). Put simply, for each $1 of wingdings sold, ABC Manufacturing realizes a Gross Profit of $.30 ($150 less $105 = $45, $45/$150 = 30%).

Keep in mind that ABC Manufacturing incurs expenses for running the business in addition to the direct costs associated with producing wingdings. Expenses such as rent, utilities, office supplies, administrative labor, advertising, and insurance are all examples of Selling, General and Administrative Expenses. There must be enough Gross Profit remaining to cover all Selling, General and Administrative Expenses. 

In this example, Gross Profit for each wingding is $45. In this period, ABC Manufacturing sold 10 wingdings, which realized sales of $1500, with associated Gross Profit of $450. Therefore, Selling, General and Administrative Expenses must be less than $450 for ABC Manufacturing to realize a positive Net Income for this period. Business owners need to know Gross Profit, so they know the primary efforts of their business will result in a positive financial outcome.

#3: Cash Balance 

Cash is critical. Without cash, a business owner is unable to pay invoices. Without cash, a business owner is unable to pay employees. In summary, without cash, a business cannot survive.

To increase cash balance, a business owner can increase sales. Increasing sales alone is not necessarily the answer though. If 100% of sales are on credit, then cash does not change, but accounts receivables increase. To combat this, invoice faster and reduce the payment terms. In other words, make it financially attractive for customers to pay you in cash and to pay off their outstanding balance.

Decreasing expenses is another obvious solution. Spend less, keep more. Evaluate your expenses and determine those that are business critical (cannot provide business without the expense), business necessary (at some point will be needed to sustain business operations), and business optional (a luxury items that can be eliminated).

Thirdly, how much cash do you really need? Prior to 2020, we would typically advise clients to maintain three months cash to cover expenses. However, that changed with the pandemic. Post-pandemic we suggest six to nine months.

Finally, remember that profitability does not equal cash. A business can be profitable, but with a terrible cash balance. 

~ Jeff Newkirk

Friday, July 8, 2022

Is Emotional Intelligence Really Important?

 


What is emotional intelligence? The term was first used in 1990 by Peter Salovey and John Mayer, American psychology professors. Emotional intelligence (“EI”) refers to the ability to identify and manage one’s own emotions, as well as the emotions of others. Have there ever been times in the workplace when you simply wanted to lash out or scream ? Of course there have, many times if you’re like me. However, it is how we channel that energy that makes the difference.

According to Psychology Today, EI is said to have three skills: (1) emotional awareness; (2) the ability to use your emotions in a productive manner – such as problem solving; and (3) the ability to manage emotions – such as regulating your emotions and helping others to do the same.

Back in the late 1990’s I watched an interview with Bill Romanowski, former NFL linebacker. I heard him say something that has stuck with me since. He said “emotion high, logic low.” If you are extremely emotional about something, are you able to logically process information associated with that particular situation? No, you are not. Conversely, if your emotions are low, your ability to process information and make productive decisions increase significantly. I think Mr. Romanowski was on to something very profound.

Is EI important? Yes. Why? Because when we have high emotional intelligence we are able to communicate more productively and make better decisions. That leads to a more productive workplace, better relationships, and a happier life!

As always, thanks for reading!

- Jeff Newkirk - Blanton Advisors Associate CFO, Executive Coach


Monday, July 4, 2022

Happy 4th of July!


 

Happy Birthday USA!  Have a great 4th of July holiday and may God bless America!

Friday, June 10, 2022

Did you know that Cash Flow is the reason over 80% of all small businesses fail?

 





U.S. Bank conducted a study in 2019 that concluded that 82% of all small businesses fail because of poor cash flow management or a lack of cash flow understanding. Do you know how much cash you need to operate should all your sales evaporate? Do you know how to determine that amount of needed cash?

Important questions that need to be addressed. You need to know your liquidity position, or your current cash balance AND you need to know how much you need if you didn’t sell one product or service for at least 3 months.

Cash is more important today than ever. Build your cash reserves – the message for today!

Jeff Newkirk – Blanton Advisors Associate CFO, Executive Coach

Friday, May 13, 2022

EVERYTHING BEGINS WITH YOU!


Zig Ziglar said, “You cannot consistently perform in a manner which is inconsistent with the way you see yourself.” Makes perfect sense, doesn’t it? If we want to change the outcome, then we need to change the process of achieving that outcome. Simple? Maybe. The important point to remember is that the process begins with us. We all need to accept the fact that any movement forward will require a mindset shift. Whatever that mindset may be. We initiate the change because we want to move the situation (any situation) forward. Think about it for a second. Are you aware of any progress made, personal growth achieved, or business success realized without someone initiating a mindset shift? So, if you want something to change, then change the way you are thinking. Have your thoughts align with the outcome you seek to achieve. Go forth and seek change!

Written By: Jeff Newkirk, Blanton Advisors Associate CFO & Business Coach

Friday, April 29, 2022

Financial Literacy Month - By Jeff Newkirk


April is National Financial Literacy Month. This is a great time to evaluate your financial situation and what you can improve on. If you are not good at maintaining a budget, you’re not alone. It’s time to reflect on your earnings and plan your long and short-term financial goals. 

To establish a budget and financial plan or even take a more active role in managing your investment, seek expert advice. When it does come time to review, it may be overwhelming

Here are 8 tips to help you with financial planning this month. 

  1. Commit to Changing Your Ways Financially 

It’s crucial to develop the right financial plan for you and examine what needs to change with your finances. Are you ready to start changing your financial situation? Do you think you can change the way you make financial decisions? Identify how you can benefit from changing the way you manage your money and begin the process of better handling your money. 

2.      Review Your Finances 

Review what you have on your plate financially right now. Look at where your strengths are and where you can make improvements. This is an opportunity to be honest about your finances and your relationship with money. Write down and collect your feelings and findings. Organize your financial records while collecting data. You can organize your financial information accordingly on an updated spreadsheet or document. 

3.       Make your money Count 

To develop the amount of money you wish to gain and maintain in the future, you need to look back. Evaluate your income and sources, and then set how much you want to earn in the future. That’s why identifying ways to reduce spending now is so essential. Create a balanced budget that corresponds with your income and expenses. That way, you find ways to spend less. If spending less is a challenge in your current situation, try starting in small ways. 

Try saving money by cooking meals at home, limiting your shopping habits, or even making your own coffee at home instead of going to your local cafe. These are all small things toward limiting your expenses each month. Only splurge when you really need to. This way, you can build the habit of spending within your means and start putting more money away in your savings.

4.       Identify a Starting Point 

A starting point means calculating your net worth and comparing what you owe (liabilities) and what you own in assets. Knowing where your money goes each day, week, and month is the foundation of financial planning. 

5.       Review your debt

When it comes to finances, debt weighs heavy on most Americans. Whether it’s school debt, medical, or personal debt, it’s important to take control of these debts. Take an honest look at all your debts and calculate how much you owe. This will help you evaluate your overall financial state. 

6.       Establish Your Priorities 

Create a list of your wants and needs. When you have a complex financial situation, building a plan that accounts for everything can be challenging. Dig into the details first, documenting income, expenses, and assets before making the plan.

7.       Set Financial Goals 

Set a specific goal, and determine what you want to change. Make sure whatever this goal is that it’s attainable and trackable. That way, you can check on milestones as you go. Commit to a goal that will remind you of your financial goals. This way, you are securing your financial future and becoming more prepared. 

8.       Seek Financial Consulting

Sometimes you can’t do it all on your own. There are professionals who can help you develop a foundation for your financial plan based on whatever specific goal you may have. Advisors can map out the overall financial status, including assets, income, and expenses, develop methods and work on those expectations and goals.