I want to bring solutions to people within our community around The Villages, FL. I run Blue Heron Bookkeeping, a bookkeeping and accounting firm, which focuses on helping those who run businesses within our community. I want to give back time to owners so they can focus on their product. I also want to reduce costs to owners, making it more advantageous and easier to scale out the business. This, in turn, allows them to provide greater value to the community.

Accounting is the language of business and it has many different dialects. Some people understand it extremely well and others understand it enough to get by. Fortunately, I love accounting and this allows me to help business owners effectively communicate their business to the IRS, other businesses, and banks. Most importantly, my understanding of accounting can help me advise and prepare analyses for business owners, showing how they can make more money.

Decision making can make or break a business, but not all decisions are critical toward business continuity. In accounting, we are often brought in to advise in making critical decisions which we call make/buy or keep/kill decisions. They often include a long, drawn out financial analysis that involves sunk costs, involves long term analysis, takes exposure items into account, and leads us to which decision is most profitable based on the assumptions we identified.

For small businesses, a very in-depth decision making process is sometimes needed when adding a whole new product line or deciding to discontinue a product you have been producing. Almost all the other decisions you will make as a business will require much less analysis and many will happen in day to day operations. My goal is to guide you in the right direction for medium sized decisions and guide how you can analyze your situation and what factors are most important.

The key factors in decision making are:

• Supply
• Capacity
• Capital
• Risk
• Opportunity Cost

Supply and demand are likely the most well known factors. When there is a large quantity of a product or service that exceeds demand, companies must fight for market share. Usually those fights lead to decreases in price which leads to companies receiving less margin. Through evaluation of these two factors, you will identify just how competitive the marketplace is for a new product line or service. If you find a highly competitive market, you must take into account how likely you are to obtain customers and to what extent you may capture market share. If retention is a necessary component to your business, make sure you identify what the other companies are currently doing to retain customers so you can implement similar strategies.

Capacity is likely the hardest factor to identify. This involves analyzing your ability to currently get something done which is usually identified by using a time increment such as hours. How many hours do you currently work in the day? How many hours do you work on your product or service? How many hours do you work on other administrative tasks? How can you increase the amount of production you can provide?

Capital relates to infrastructure and cash flow that you currently have. Identifying the worth of everything you have involved within the business (from tools & vehicles to jobs in the sales funnel & customers who will likely contract with you again) can be a great project for business owners to do. Many items are overlooked and therefore underutilized in production. Make sure all of the things you currently have in the business are inventoried and utilized properly.

Risk is a very subjective analysis which is hard to quantify. I recommend analyzing risk by percentage of outcome along with the economic effects of those outcomes. When analyzing risks, make sure to include where catastrophic failure for the business as a whole occurs. You should evaluate those risk percentages much more heavily due to business continuity and it affecting current operations. Risks of investment are commonly analyzed through ratio analyses along with payback period.

Finally, understanding what you are giving up in pursuit of something new is called opportunity cost. Even daily decisions should involve opportunity cost analysis and this analysis is likely the most common analysis you do. When using opportunity cost, make sure to identify all the advantages and disadvantages of taking a certain path. This is most commonly done when adding employees or outsourcing services to other companies.

Putting the above into action, if I was put in a position where I was wanting to expand I would first identify capacity. My current duties of bookkeeping take a majority of my time, while administrative duties take the rest of the time which leaves me with zero capacity. I have identified my worth as a bookkeeper to be $80/hour. I have identified that there is excess demand currently within the marketplace for my services and the risk of bringing on additional clients is low with no catastrophic failure potential. When analyzing the worth of the administrative work I do, I find that I can outsource that work to a service provider for $50/hour.

Through the above narrative, my choice should be to outsource my administrative duties or to find someone to work with who can increase my capacity either through bookkeeping themselves or through doing those administrative duties. The costs of a new employee must be less than the revenue potential that I create by adding additional capacity to my business.

The above reasoning is why most small businesses choose to outsource their bookkeeping along with other service needs. Bookkeepers and service providers are typically more efficient than someone who does not perform the service full time. The time the business owner gets back, gives them the opportunity to increase the production or service of their business which, in turn, creates additional profit they can then take home.

Hopefully this was a helpful dialogue to help you make decisions and properly analyze them within your company. As always, feel free to reach out if you have any questions or would like to discuss your bookkeeping needs.