Does My Business Need Workers Compensation Coverage?

This is a common question that many entrepreneurs ask when establishing policies related to their business.  It comes as no surprise that, with everything you’ve invested in your business, you want to be able to protect yourself, your assets, your finances and your employees as much as possible.  But is workers compensation coverage something that you should worry about?

What Kind of Industry is Your Business In?

Workers compensation entitles an employee who is injured on the job medical coverage as well as monetary compensation in exchange for that employee waiving their right to sue the employer in a court of law.

When it comes to whether or not such insurance is required, many people believe that worker’s compensation is something that is more relevant to some industries than other.

It makes sense, too.

People who work in jobs where they are constantly lifting, moving, and operating heavy equipment are more prone to injury than those who spend their entire working day sitting behind a desk.

Nevertheless, workers compensation is something that every business should have, even if the nature of your company’s work isn’t inherently dangerous.

It doesn’t matter if the people in your office never lift anything heavier than an ink pen, accidents in the workplace don’t necessarily have to be related to the work that you do.

When asking yourself the question of “Does my business need workers compensation coverage,” there are several different factors that you have to keep in mind to ensure that the level or coverage provided by your worker’s compensation coverage is adequate enough to protect your company and your employees.

Let’s take a look at what you need to consider:

  • What you can afford – The kind of insurance that covers your business in case of an employee’s injury works much in the same way that your personal health insurance does.If you think that you can’t afford insurance, consider a basic policy that covers things like property and injury at a reasonable cost.  It should be noted that, like personal insurance, a higher deductible means lower monthly premiums and vice versa. Keep that in mind when you shop for a policy.
  • Take a look at your business and the risk associated with it – Anyone who asks “Does my business need workers compensation coverage,” should know that looking at the level of risk their company faces will help determine what kind of coverage would be ideal for their situation.From determining just what around your work environment can pose a threat to the safety of your employees to determining how you can treat and perhaps reduce that risk, it’s adamant that you keep such factors under constant review.

This is so that you never pay for more coverage then you need, and at the same time, you have enough to cover any possible mishaps.

  • What are the local laws? – Many states require companies to be covered some way, so the question of “Does my business need workers compensation coverage” then becomes a matter of how much you need.The law is different in each state, so you’ll have to contact your local insurance commissioner’s office to find out just what you need and how you can go about getting covered so that you, your company, and your employees are all covered in case something happens

It’s important to be covered for incidents that you couldn’t possibly foresee.

Without workers compensation coverage, you open yourself up for lawsuits if someone happens to get injured on your company’s property.

Best case scenario: The ruling is in your favor, but you’ll still have lost money to attorney’s fees, and will have spent a large amount of time dealing with the issue.

Worst case scenario: a lawsuit from an injured worker brings about a number of costs that your company never fully recovers from.

When asking yourself “Does my business need workers compensation coverage,” take the time to think about what could happen without it and you’ll have your answer.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website  Follow us on Twitter @portalcfo

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How to Reduce Operational Risk

how to reduce operational risk in your business

The question of how to reduce operational risk is one that should be on the mind of every last business owner. It doesn’t matter if you run a hot dog cart or a multinational conglomerate. It doesn’t matter if you’re the only employee or you employ a workforce that could populate a small city.

Whoever you are, whatever you do, you need to know about the many different ways your company is constantly exposed to operational risk. You also need to know what you can do to reduce risks so that they aren’t as much of a hazard to your company’s success.

Doing so is necessary to maintaining a competitive advantage. It also ensures that your company is able to keep a strong presence in its sector. Because no businesses are alike, the risks that they face will differ, so this post will take a broad look at how to reduce operational risk. By the end, you’ll be able to take the principles of what’s discussed here and apply them to your own business practices. This should allow you to reduce the impact of the losses that your business could incur as a direct result of risk.

4 Steps – How To Reduce Operational Risk:

Step 1:  Managing Equipment Failures

For all of the good that technology has done for the world of business, the equipment that you use to conduct your operations can still break down. Depending on the severity of the failure, you could face crippling losses in revenue.

It’s because of the fact that technology has become so intertwined with businesses that extra steps have to be taken to:

  • safeguard information
  • make sure all equipment works properly
  • ensure alternate plans are in place in the event of a failure

If your company relies heavily on information technology (IT) infrastructure like a computer network, then make sure that programs and hardware are up to date and protected by the best security that you can afford.

If you operate in manufacturing, transportation, or any other industry that relies heavily on machines with a lot of moving parts, then the question of how to reduce operational risk can be answered by adhering to regular maintenance and making sure that small issues are addressed quickly enough that they don’t become large issues.

Step 2:  Keep Strong Business to Business Relationships

Your business wouldn’t be able to survive without the work of other businesses. Whether you rely on another company for supplies, shipping, or anything else that you need to count on in order to run your own enterprise, it pays to keep strong relationships with other companies.

In thinking of how to reduce operational risk in this respect, you have to look at common risks like miscommunications, accounting errors, delivery failures, incomplete or missing legal documents and vendor disputes as ways that business to business relationships can expose your company to risk.

With this type of operational risk, you want to make sure that you and your vendors and suppliers are always on the same page when it comes to your transactions. It never hurts to double check figures and make sure that invoices, quantities, and other aspects of the business to business supply chain are correct.

Doing these things can keep your relationships strong and reduce the likelihood that errors common in these sorts of interactions will have negative effects on either side of the transaction.

Step 3:  Having Adequate Insurance

You want to make sure that, in the event that something does happen, your business has the proper insurance it needs to cover the event.

It could be anything from property damage to a personal injury, but having an insurance policy that covers something that could negatively impact your business could mean the difference between a minor and major disruption in your business operations.

When thinking about how to reduce operational risk as far as your insurance coverage is concerned, go over your existing insurance policies and make sure that all possibilities are covered. It pays to consult with a representative of your company’s insurance broker to guarantee that you have all of the coverage you need.

From property insurance to liability, there are a number of different types of insurance that you can get to cover your business. Make sure you have them all and risk won’t catch you off guard.

Step 4: Know the Regulations

If you stay up to date on state and federal regulations as they relate to your business, then you take a huge step towards knowing how to reduce operational risk.

Whatever it is that you do, you want to make sure that all of your business practices are well within the confines of the law of the land in which you operate.

Things like health and safety standards, employee wages, licensing and certification, taxes, and permits all have an influence on how you’ll run your business. Don’t let ignorance of the law lead to trouble later down the road.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website

How to Perform a Break-Even Analysis: Step-by-Step Guide Provided By PORTAL CFO

break-even analysis

As a business owner, it goes without saying that your ultimate goal is to make a profit but, before you do that, you have to reach a break-even point (BEP). This is the point at which revenue earned will match your expenses.

If you can figure out how to perform a break-even analysis, you can determine whether or not your company has reached its BEP. Even if you haven’t reached that point yet, performing a break-even analysis can help you determine when you will reach that point so that you have something tangible to work toward.

Let’s take a look at the various methods that many companies have used to see how close they were to their own BEPs and you will see for yourself how to perform a break-even analysis.

Your Company’s Costs

When it comes to trying to determine what your company’s BEP will be, there are several factors that you need to consider. Among them are:

  • Your Fixed Costs – These are the costs associated with your company that stay the same every month. Things like the rent on your office space, your insurance, utilities and the like.
  • Your Variable Costs – These are expenses that can change from month to month. Things like shipping payments can be considered variable costs that your company has to undertake. If you perform a service, the quantity of how many items you need to buy in order to perform that service can also change from month to month.
  • Your Prices – How much are you going to charge a single customer for a unit of what your provide? Having a concrete answer for this is essential to determining your company’s BEP.
  • Your Revenue After Each Sale – After performing the service, you have to look at how much money is left (from the customer’s payment) once you’ve recovered the costs directly related to performing the service. This amount is your average gross profit.

Each of these costs goes in to figuring out how to perform a break-even analysis. Once you have these costs sorted out, you’ll know exactly how much you need to sell in order to cover all of the costs associated with your business.

In order to figure out exactly what your BEP is, you need to divide your company’s fixed costs by the contribution margin of your of your product.

The contribution margin is what you get when you subtract the variable costs related to a unit of whatever you sell from the sale price of that unit.

Say you run a pizza shop and you want to figure out the margin on a large cheese pizza. Let:

Margin (M) = ?

Price (P) =  $12

Ingredients (I) = $3

Wage (W) for the employee who makes the pizza = $7

The formula for the contribution margin would be P – (I + W) = M or 12 – (3 + 7) = 2

This means that you make two dollars off of every twelve dollar pizza that you sell.

From there, you take the fixed costs that you business has over a certain period and divide them by the two dollars that you make on every pizza. This would tell you how many pizzas you need to sell in order to break-even over that given period.

The complexity of the formula for how to perform a break-even analysis depends on the variety of your offerings. In the above example, for instance, you would need to factor in the different kinds of pizzas you sell, as well as other food items, but the general idea is always the same.

Cutting Your Company’s Costs

If, after you figure out how to perform a break-even analysis, you BEP is higher than you’d like it to be, you can look at your costs and figure out where you can retool certain aspects of your business in order to lower the BEP.

This can range from raising the prices on your products and services to using the most cost-effective supplies to finding another office space where your rent isn’t as high.

By figuring out how to perform a break-even analysis, you can take variables and put them in place of the actual numbers to try and find the best solution for running your business, so that you can make a healthy profit.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website

Small Business Growth Strategies: Tips to Help Your Company Grow Profitably

small business growth strategies

When it comes to your company, there are several different small business growth strategies that you can employ in order to make sure that your company thrives and your profits grow.

From establishing your own unique niche to making sure that your customers know that you’re offering is the best in the market, there are many things that you can do to make sure that your company expands and enjoys a lucrative future.

Let’s take a look at some small business growth strategies that other entrepreneurs have used. You may be able to adopt some of these for yourself or draw inspiration for your own ideas on how to make your company expand.

Common Growth Strategies for Small Businesses

  • Finding a Niche – Does your target demographic have a certain need that you and your competitors are failing to meet? By doing market research among the chief audience that you want to sell to, you can find out if they’re getting everything they want from businesses like yours.

If you manage to dominate a section of a market early enough, your name can become one of few (or, in some cases, the only one) associated with that product or service. This method takes a lot of work, but the reward for finding an untapped segment of the market and providing for it far outweighs the work that goes into finding it.

  • Network, Network, Network – Whether you do so at a conference, an industry trade event, through professional associations, speeches, or dedicated networking events, you’ll never know who you’ll meet.  Small business growth strategies that involve networking are great because you can meet people who have interests similar to yours and chat with them about what you do.

Who knows what kind of relationships networking could lead to? You might meet potential business partners, employees, suppliers, and other people who could help your company thrive.

  • Develop Your Website – In this day and age, when an increasing amount of business is conducted online, there’s no reason not to have a website for your business. That said, once you do have a website, you want to develop it so that it’s as easy to use as possible.

By supporting your company with an engaging website, you make it easier for customers to find you and buy from you.  A well-developed website will allow customers to find what they want quickly and easily.  Being able to navigate a site with ease is essential to keeping a customer happy and turning them into a repeat buyer.

  • Advertise – This seems like a fairly obvious method as far as small business growth strategies go, but it never hurts to reiterate it.

Many times, the most successful means of getting the word out about your company can depend on what your target demographic is. Younger buyers may look to social media and the internet more, while older consumers rely on television and print. Figure out who you want to advertise to and that should give you some idea about how to do it.

  • Diversify – When it comes to running your own business, variety can always help you in some way.  Depending on your industry, the range of products and services that you provide could make your firm a one-stop shop for the needs of some customers. If your industry is one that is especially affected by the seasons of the year, then diversifying what you offer is definitely a great way to get your business to grow and become an industry leader.
  • Find New Uses For What You Offer – When it comes to being able to get things done, some people have to rely on being able to do more with less. If you can find a new use for something that you offer, then your customers will reward your innovation with brand loyalty and recognition that makes your company’s name synonymous with the industry in which you operate.

Take the time to look over various strategies, figure out what works best for your company, and formulate a strong business plan that maps out exactly where you want to go and how you plan to get there.  By doing that, your company will be on its way to profitable growth in no time.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website

How to Reduce Operating Costs: Cost Saving Strategies for All Businesses

reduce operating costs

Whether you want to reduce operating costs out of desire or necessity, the options that you have available to you are varied enough that you should be able to find a solution that fits your company.  With that in mind, let’s look at how to reduce operating costs and what other entrepreneurs, as well as business experts, have done in the past.

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Financial Spring Cleaning: Budgeting Tips for Businesses

Budgeting Tips for BusinessesAs a business owner who wears many hats, you are faced with the difficult task of how to best allocate your time. There are a few budgeting tips for businesses that could help save your most valuable asset – your time. The last thing you need is to spend hours and hours in boring financial budgeting meetings when you should probably be out growing your Company’s sales.

Here are two simple and complementary budgeting tips for businesses to use to gather valuable insight into your Company’s financial position in just minutes.

Budgeting Tips For Businesses #1: Annual Profit and Loss Budget

The first budgeting tip for businesses is an annual profit and loss budget. Most accounting packages have this simple capability.  Do the best you can to forecast what your year will look like and be conservative.  Try not to forecast big jumps in sales unless there is a compelling reason to do so.

Add a 10% cushion to your budgeted operating expenses.  On a monthly basis, press a few buttons in your accounting package to produce a “Budget vs. Actual” report with percentages.  Now, you can quickly tell where you stand with respect to financial performance and easily see which expense accounts you need to focus on.

Budgeting Tips for Businesses #2: Cash Flow Forecast

The second and complementary budgeting tool for businesses is a cash flow forecast. If your accounting software has this capability, then use it.  If it does not, then create a simple Excel template.  On a weekly basis, you want to map out what you think your cash receipts will be minus the cash you will pay out. Feel free to map out as long a period of time as you like.  My preference is one year.  Now, you will know exactly when you might experience a cash shortfall.  In the event of a potential cash shortfall, the benefit to you is that you will know exactly when it would happen and have ample time to deal with it; instead of experiencing a “cash emergency.”

These two simple tools should take you no more than 30 minutes per week to review.  They will go a long way to reducing your stress level and remove any doubts from your mind about your Company’s financial position.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

Rationalize your business now before it is too late

Compensation PackageOne topic that is all over the news these days is state employee benefits.  I understand that compensation is a very challenging issue; with key constituents making powerful points on both sides of the argument.  The point, as I understand it, seems to be:  “what was agreed to” and “what can afford to be paid.”  I tried to think about the issue in basic terms and came up with a similar example that I see time and time again in my CFO consulting practice.  So, let’s look at the issue from a business owner’s perspective.

I asked one of my business owner clients how he arrived at the dollar amount of his monthly compensation package.  He replied to me that $X is the amount of money that he needs to live on.  Gently, I explained to him that based on his company’s current revenue and net income, his business could only afford to pay him $X MINUS $5,000 per month.  You can imagine how my response was received by this hard-charging entrepreneur.  I explained to him that he (and his business) was sitting on a ticking time bomb that was called “his pay.”

He had already weakened his company over the last year by taking more compensation out of his business than his business could afford to pay him.  The problem showed up in the form of a lower-than-usual cash balance, a higher line of credit balance, and a constant scramble to collect accounts receivable in order to make payroll.  In other words, the business was doing just fine (financially healthy and growing slowly), but it was beginning to struggle to pay its owner’s ever-increasing compensation demands.  I figured that I better press the argument before the company reached the point of no return; aka “ceasing to exist in the business world.”

I explained to the business owner that the growth in his compensation package had outpaced the growth in his business and therefore he was slowly killing his business and therefore his livelihood.  Any business, I explained, can only afford to pay its owner “so much”.  You have to decide if you can live on whatever that “so much” is or consider other alternatives.  You are a risk-taking entrepreneur.  You have to decide if you can grow the business to the point that it can afford to pay you the compensation that you desire and refrain from taking your ideal compensation out of the business before that time arrives.  If you believe that your business will never be able to provide the compensation that you desire, either deal with it or sell that business and go start another business that will provide you what you seek.  No one can answer that question but the business owner.

My client wasn’t having any of it.  He told me that he was accustomed to living a certain “lifestyle” and come hell or high water, he was going to live that lifestyle.  I explained to him that he needed to reduce his pay or else he would go out of business. There was no other way around it.  He is choosing not to do it.  He believes that he will grow his business quickly and eliminate the current stress.  Ah, the charmed life of an entrepreneur!

The same example applies to the current state benefits debate.  The states built the benefits packages, attracted the employees with it, and now revenue has fallen short and the states can’t afford to pay the benefits packages they previously negotiated.  The current path is simply unsustainable.  State employees refuse to have their benefits reduced and I fully understand their argument and actually agree with them. However, if a reduction is not made to the benefits in order to bring them in line with revenue, the state will be forced to restructure in some way; maybe even lay-offs.  What would you do if you were faced with this crisis?  It’s not an easy question to answer.

Remember, running a business successfully does not need to be complicated.  Keep it simple!