Scott Springer

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Building a Resilient Supply Chain in Your Business

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Supply chain breakdowns continue to stymie small businesses, causing them to lose sales and profits. Whether your business has been affected or not by supply chain delays and shortages, it’s a good idea to take steps to make your supply chain as resilient as possible. 

Your supply chain starts with the acquisition of materials that go into what you sell. It includes the production of your products and services. And it doesn’t end until the customer receives the product or service you offer, as well as any help they need to consume your product. 

Here is a process to help you evaluate your supply chain and improve its resilience, to avoid future bumps in the road.     

Start with an Inventory of Your Suppliers

To evaluate your supply chain, a good place to start is to make a list of vendors. An easy way to get this vendor list is from your accounting system. Make lists from your list:

  • Primary vendors that are crucial to your business. This includes vendors from which you purchase goods for resale, and can also be vendors such as your online shopping cart because if it goes down, you lose sales. These are you, mission-critical vendors. 
  • Secondary vendors that provide support indirectly, such as maintenance to machines you use or vendors that provide human resource benefits. Your business won’t be terribly disrupted if something happened to these vendors.  

Once you’ve made your lists, let’s focus on your primary vendors first. If this list is large, you may want to further prioritize it by sorting the vendors you are most dependent on to the top of the list.  

Contingency Planning

For each vendor on your primary list, do some research to find alternatives. You want to develop a deep bench of suppliers who can support your business. If one supplier has trouble meeting your orders, you will be more prepared and can consider switching. You’ll need to develop relationships with these alternate vendors, and perhaps even use them a time or two to test the relationship.  

Many factors can go into selecting alternate vendors: price, quality, service, delivery time, shipping costs and methods, country of origin, location of warehouses, troubleshooting effectiveness, and much more. You know your industry best and what you need, so you can develop a table of criteria to evaluate potential new vendors. The ultimate goal is to have backup plans all along your supply chain. 

Once you’ve gone through your primary list, you can start on the secondary vendors.  

Purchasing Department

Large companies have entire purchasing departments to do this kind of work. If your business is small, you may be able to delegate portions of the list to trusted and well-trained employees. Know this type of work can take a long time. It will also be changing as new vendors spring up and older vendors retire or go out of business.  

Internal Operations Including Selling and Distribution  

Now that you’ve taken care of your suppliers, the next big step in supply chain efficiency is to standardize your operations. Take a look at your internal operational processes to ensure they are as efficient as possible. Create policies and procedures to ensure quality and customer satisfaction. 

This includes reviewing the production process as well as selling and distribution, all the way to customer service. You may have covered this while you assessed your vendor list, but if not, you can do it now.   

One example is how you get your product or service to your customers. Be sure there is an alternate method in case your primary distribution method breaks down. 

Again, this is a marathon, not a sprint. Take your time to do this project right, and it will benefit you for years to come. 

Risk versus Reward

In some cases, it may simply not be cost-effective to have a fully developed contingency solution. It may be more cost-effective to take the loss if it happens. You’ll want to evaluate the circumstances and come up with the right solution that works for your business.  

Take the time you need to improve your supply chain resilience, and your business will be more valuable and more profitable for it. 

The Hidden Costs of Employee Turnover and How to Reduce Them

Is high employee turnover an issue in your company? If so, you may already realize how costly it is. It affects your bottom line and cuts into your profits. Or maybe, it’s so bad that it’s turning your profits into losses. The question is, are you doing everything you can to reduce the costs associated with the turnover? 

The Costs

To control the costs, first, we must know what they are. Only then can we tackle them. Here’s a list of the most common costs associated with employee turnover.  

  1. Hiring costs
    • Advertising costs
    • Time spent screening resumes, scheduling interviews, and interviewing candidates
    • Background check costs
    • Signing bonus, if any
    • Time spent setting up the new employees in payroll, IT, HR, completing forms, setting up equipment, generating badges, and more.
  2.  Training costs
    • Time spent training the new employee
    • Costs of any required training courses on safety, sexual harassment, timesheet, and other required onboarding training, etc.
    • Costs of mistakes made by new employees
    • Productivity losses while new employee gets up to speed
    • Extra supervisory costs monitoring new employee
  3.  Vacancy losses
    • Costs of overtime while other employees cover vacant shifts
    • Productivity losses while the job is vacant
    • Disruption of peers, including fears of them being next if it was an involuntary termination

How to Reduce Turnover Costs

Here are some ideas for reducing or avoiding these costs before they occur.  

  1. Create a positive culture. If your workplace is a positive, nurturing place to be, people may be more likely to stay. Create a place where employees can become good friends. That way, they are less likely to leave.  
  2. Review your pay package. Pay slightly more than your competitors. Or provide above-average benefits for your employees. Include perks that are less expensive, yet valuable to employees.
  3. Consider overstaffing. This puts less pressure on all of your employees. 
  4. Automate and streamline your hiring process. This can keep hiring costs down when you do need to hire.  
  5. Create a healthy work environment. Listen to your employees and make sure their needs are being met so they can do the best job possible for your business. Provide them with the tools they need to do their job well.  
  6. Hire slow, fire fast. If you do have a worker who is dragging the entire team down, get rid of them fast.  
  7. Train your first-line supervisors and managers to be excellent bosses. People skills and supervisory skills do not normally come naturally but can be learned. Many voluntary terminations occur because people dislike their boss.
  8. Be consistent with raises and performance reviews. Employees expect annual raises in most industries, even if it’s just a cost-of-living adjustment. Let employees know how they are doing on a regular basis, and formalize the process at least annually.  
  9. Conduct exit interviews. Find out why people are leaving by conducting exit interviews. You may have to dig deep to find out the real reason, as most people don’t want to burn their references. Take action if it’s something in your control.  
  10. Delegate projects. Keep the job interesting for employees by delegating low-risk projects that are fun for them to do. 
  11. Communicate purpose. Help employees understand the importance of the job they do, and help them connect to the deeper meaning of their job and its place in the world.  

Many of these ideas have costs associated with them. Your accountant can help you do a cost-benefit analysis to determine the specific costs and if the benefits will outweigh the costs. Then you can create a plan to tackle and reduce the high, hidden costs of employee turnover in your business. 

Understanding Goodwill in Accounting

You might know the word “goodwill” as the name of a local charity where you can drop off household items you no longer need. It might also be something that’s talked about at church. But in accounting circles, goodwill is something completely different.

Goodwill is an account on the balance sheet of certain businesses. It falls into the category of assets, and specifically, it’s an intangible asset. An intangible asset is something that is not physical. Examples of other intangible assets are copyrights, patents, and trademarks.

Goodwill arises when one company purchases another. When a company pays more for the company that it is acquiring, the difference is booked as goodwill. Goodwill represents the extra value that the acquisition provides for the purchasing company.

When one company buys another, the assets and liabilities of the acquired company are taken over by the purchasing company. They are recorded on the purchasing company’s books at their fair value. The balancing entry between the fair value of the assets and liabilities purchased and the purchase price is booked to the goodwill account.

What could lead a company to pay more for another company? Things that are not on the balance sheet but are valued could include a solid customer base, great employees, brand reputation, the company name and what it means, technology owned by the company, and a great reputation for customer service.

Normally, an intangible asset like goodwill would be amortized, but it is not. Amortization is when a portion of the asset is expensed each year. A patent, for example, is amortized over its useful life, not to exceed 20 years. Amortization is comparable to depreciation. Some physical assets are depreciated, while some intangible assets are amortized.

Before 2001, goodwill was amortized for up to 40 years, but the accounting rules have changed to something less arbitrary. Goodwill must be checked each year for “impairment.”

Goodwill impairment happens when the value of the acquisition declines after it has been purchased. One of the most famous impairments write-downs occurred right after this new accounting rule was implemented. In 2002, $54.2 billion in impairment costs was reported for the AOL Time Warner, Inc. merger.

More recently, in 2020, a few of the largest impairment write-downs included companies, such as Baker Hughes, Berkshire Hathaway, and ATT, due to the latter’s acquisition of DirecTV in earlier years. In 2022, impairment write-downs included Teladoc Health and Comcast. Covid-19 was in part responsible for a large number of impairment write-downs in recent years.

If impairment is required to be booked, the journal entry will look like this:

Debit Impairment Expense (increases expenses and therefore reduces profits)

Credit Goodwill (reduces the asset amount)

If your company has acquired other companies and you have a goodwill account on your balance sheet, you can work with your accountant to determine how to check for impairment and if you are required to correct your books.

Five Summertime Strategies for 2023

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We’re six days away from the first day of summer, and a few weeks away from the midpoint of the year. It’s the perfect time for taking a strategy check in your business to see how you’re doing for the first half of 2023 as well as to plan something fun and productive for summertime.  

Here are five business strategies to help you regroup, reassess, and rejuvenate your business halfway through 2023.  

1. Celebrate Your Accomplishments

Take time to pat yourself on the back and congratulate the people around you for the goals you’ve reached and the efforts your team has made on your behalf. You might be shocked when you think about how far you’ve come. Maybe you’ve hired another team member and your team is the largest it’s ever been; perhaps you’ve reached record revenue goals; possibly you’ve solved a complex supply chain problem.

We all could use more praise and more celebrations in our lives.  Perhaps you can organize a party, or if you are not the partying type, a quiet word individually with your team can go a long way, maybe more than you know.

2. Take a Vacation

If you’re feeling quite burned out, the best thing you can do is stop and take a breather. There’s nothing better to rekindle your creative juices than to get away from the business for a while.  Summertime is when most people take a vacation, so if your business is not having its busy season, this might be a good time to go away, even if for a little while.

If you’re anxious about being away from your business, you’re not alone.  In your annual planning process, plan for and block out your vacation way ahead of time.  Book the reservations with no refunds several months in advance so that you won’t chicken out at the last minute.  There is life beyond your business, and you will be a better business owner when you take regular breaks away.  

3. Schedule a Mid-Year Review

How has your business fared for the first half of 2023 compared to the goals you set at the beginning of the year? Are you on track to reach your goals? Should you design a course correction or are you on track? Where do you need to go next? Maybe you’re even ahead of plan!

You can make this process as informal or formal as you want. Some businesses hold retreats; you may simply need some quiet time on a weekend when all your family is busy doing something else.   

4. Be Selective About the Projects You Start    

Is your plate too full?  Entrepreneurs that wear many hats would probably say “yes” to that question, so the next question is do you have to do it all at once? Ask yourself what you can afford to stop doing that doesn’t make sense. Is there a project or two that can wait? If so, decide to stop stressing about not getting it done and give yourself permission to put it on the back burner for now.

5. Play Big

Maybe you’re not playing big enough. You might be busy, but are you busy with the things that will take your business to the next level? Do the thing you’re afraid to say “yes” to; the thing that you know will transform your business and get you closer to your dreams.

If you’re putting off a project that you know will pay back handsomely, then shelve everything you’re working on and start on the one that will reap the most rewards. It could be a new product or service line, a new ad campaign, a new hire, a new joint venture, new financing, or even a new partner, which is very big indeed. You likely know what it is you need to do; your gut has been telling you for a while now. Just get it started, and it will then become easier.  

Summertime is a great time to regroup, re-energize, and refresh your business. Try one of these five tips to spice up your summer as well as your business success.    

Cool Tech Tools: ChatGPT

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The topic of artificial intelligence (AI) has been in the news quite a bit recently, and one of the reasons is the launch of an AI chatbot called ChatGPT. The GPT in ChatGPT stands for generative pre-trained transformer, which is a program that can realistically write like a human and interact in a conversational way. Basically, you can type in a complicated question, and ChatGPT will give you an amazingly lifelike, most-of-the-time accurate answer. 

ChatGPT was launched in November 2022 and developed by OpenAI, an AI research lab tasked with developing a friendly AI. OpenAI has both a non-profit and for-profit component in its organizational structure. 

As of this writing, ChatGPT is offered at no cost, but you must open an account and verify both your email address and phone number to access it. Once you do, the prompt is simple; just ask it a question. You can get access here: https://chat.openai.com/chat

 

Here is a sample of the answer to the question, “What are debits and credits?”

ChatGPT: “Debits and credits are terms used in accounting to describe the movement of money into or out of an account. In accounting, every transaction involves at least two accounts, and each account is either debited or credited.”

“A debit is an entry that increases assets or expenses or decreases liabilities or equity in an account. For example, if you buy office supplies for your business, you would debit the office supplies expense account and credit the cash account.”

“A credit is an entry that increases liabilities or equity or decreases assets or expenses in an account. For example, if you sell goods on credit to a customer, you would debit the accounts receivable account and credit the sales revenue account.” 

“Debits and credits are used to keep track of the financial transactions of a business or organization. They are important tools for recording and analyzing financial information, and are essential for preparing financial statements and tax returns.”

 

Yes, ChatGPT is a touch verbose at times.  

Here is a tax example:

Question: Qualified Business Income – earnings limitations if NOT a specified service business

ChatGPT: “Under the current tax law in the United States, if you are a qualified business owner who operates a non-specified service business, you may be eligible for a tax deduction of up to 20% on your qualified business income (QBI).”

“However, there are certain limitations on the deduction, including a cap on the amount you can deduct based on your total taxable income. For tax year 2022, the threshold for the taxable income limit is $329,800 for married filing jointly and $164,925 for other taxpayers.”

“Additionally, there may be further limitations on the deduction if your business has a significant amount of W-2 wages and/or depreciable property.”

“It’s important to consult with a qualified tax professional or accountant to determine how the QBI deduction rules apply to your specific business and tax situation.”

 

It can also answer these questions/requests, along with literally millions of others:

  • The best recipe for lemon bars
  • Write an engagement letter for tax preparation
  • Comment on the elevation of the El Camino de Santiago de Compostela from Sarria to the end.
  • Write an ad for marketing services.

There is a disclaimer in place, as ChatGPT will occasionally generate wrong answers. It did generate a misleading answer when it was asked a very complex tax question about the Employee Retention Credit and greater than 50 percent owner wage eligibility.  

How can you use ChatGPT in business?  It might be able to save you time with writing initial drafts of letters, ads, speeches, webpages, or other correspondence. It can also save time on research and data analysis, but be sure to verify its answers. It can help with coding if you’re into computer programming. You can also use it for fun or for a second opinion. 

Try ChatGPT to start seeing how it can benefit you and your business. 

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