Profit

The Complexity of Goodwill

The Complexity of Goodwill

I often get asked about goodwill – its importance as well as how to value it. It’s complex. Goodwill is intangible. Hard to quantify but an important asset none the less. 

Goodwill is defined as the amount of money someone is willing to pay for a company over and above the value of the assets within the company. The company’s book value is the equity within the company as listed on the balance sheet. Any money paid above the book value is considered goodwill. It’s the difference between cash received during the purchase and the actual value of the company.

How Much Is Too Much Inventory?

How Much Is Too Much Inventory?

One thing I know is that business owners love their inventory.  Every consulting engagement I enter into always begins with a tour of the operation.  I see how the work flows through the office administration, into the production areas, and out to the customer.  The ins and outs of the business are exposed with the hope that inefficiencies can be identified.

Each owner self identifies areas of their operation they envision as the “killers of cash flow.”  They point to their invoicing and collection process, or the low billable hour employee utilization rate.  Rarely do they identify their warehouse as a problem.  In fact, it’s just the opposite.  They stand in the door with pride beaming from their eyes and point to the vast amount of options they have for their customers.  Then they say things like: “We have the best selection. Or you can’t sell it if you don’t have it.”

The Great Awakening of the Small Business Owner

The Great Awakening of the Small Business Owner

In the last 10 years, the most often stated characteristic of the small business owner by bankers and accountants is the lack of awareness and sophistication. Being a serial entrepreneur who prided himself on understanding my company’s financial position and using technology to help me in that process, I usually felt slighted by this comment. What I didn’t understand was that I was part of the “early adopter” group of entrepreneurs.

An article on Capterra.com presented the results of a survey of over 500 businesses who use accounting software. One results stood out in particular. It stated that over 52% of users saw a decrease in financial errors by adopting accounting software. Over half is significant. I thought about the financial wake that’s bound to occur when small business owners are presenting higher-quality accounting information to lenders. Heck, think about the operational efficiency of managers within small business when they have a cleaner set of numbers to make decisions from. 52% means that the early majority of software adopters were experiencing positive results.

Expense Control – One Rule to Rule them all

Expense Control – One Rule to Rule them all

There is simply one rule to live by in small business if you want to stay in business.  The rule is the change in your operating expenses should mirror the change in your gross profit.  This is typically called expense control.  However, it should be called the essential function of a business.  It’s essential because without it your company will die.

How each subscription is like a grain of sand.

How each subscription is like a grain of sand.

A subscription based business model can be highly lucrative for a business, but a growing burden for the consumer.  As monthly subscription rates drop to prices “less than you spend on your morning coffee”, consumers jump on the idea of a product or service helping them.  Businesses are betting on the low cost/benefit analysis of their subscription to build an enormous customer base.  Both are adding a grain of sand to their monthly cash flow.  The question is when is enough, enough?

How to know when to pull the “trigger.”

How to know when to pull the “trigger.”

Would have, should have, could have. All statements made by small business owners when they see they missed an important opportunity in the direction of their company.  Statements that indicate that hind sight is always clearer than looking forward.  Being able to identify threats and opportunities before they happen is a skill mastered by the best operators, and one you can learn to employ in your own business.