Business Posts

Accounting vs. Bookkeeping

As a new business owner, you may hear the terms bookkeeping and accounting used interchangeably. While both bookkeepers and accountants work with financial data and help business owners manage their finances, they have complementary but different responsibilities. This blog post will distinguish between the functions of each and their respective roles in a business.

A bookkeeper completes the clerical side of accounting functions, recording transactions and maintaining accurate records. Bookkeepers record, or “post,” the sales, expenses, cash, and bank transactions of the business. This enables a business owner to easily understand how much money is entering and leaving the business.

The complexity of the bookkeeping process depends on the size of the business and the number of transactions conducted daily, weekly, and monthly. However, the following are common bookkeeping tasks:

  1. Recording income and expenses
  2. Managing payroll
  3. Creating invoices and making payments
  4. Comparing the balances in a business’ books against bank transactions and reconciling any discrepancies
  5. Tracking accounts payable (money owed by the business) and accounts receivable (money owed to the business)
  6. Maintaining the general ledger, the master accounting document containing all of the business’ financial transactions

Most businesses use the double-entry bookkeeping system, in which every debit to an account requires a corresponding and opposite credit to another.

An accountant uses the data recorded in the business’ ledgers to interpret, analyze, and report on the financial health of the business. Accountants offer detailed insights that inform business decision-making, including:

  1. Preparing big-picture financial statements to assess the financial health of the business, such as balance sheets and income and cash flow statements
  2. Analyzing journals and ledger entries and making any necessary adjustments
  3. Providing tax advice and completing and filing tax returns
  4. Offering financial advice and insight regarding the consequences of financial decisions

How a small business handles bookkeeping and accounting can vary depending on the size of the business and the owner’s areas of expertise. At a minimum, a business owner must keep records of expenses and sales and, if the business has employees, manage payroll. You may decide to handle those functions yourself initially and just retain an accountant or CPA as an advisor.

Very simple bookkeeping and accounting may be done manually. There are also a variety of accounting software packages available for business owners who are inclined to do their own. QuickBooks is the most popular brand and has the largest market share. It is used by most bookkeeping services and can be used to generate financial reports.

As your business grows, you may decide to hire someone to join your company or you may hire a third party to provide bookkeeping, accounting, and/or tax advisory services.

For more information about bookkeeping and accounting, as well as other aspects of business operations for new startups, visit our BizVids Tutorials or register for a NaperLaunch Academy workshop. NaperLaunch coaches and SCORE mentors are also available to provide one-on-one virtual assistance.

Monday, March 15, 2021 - 09:00

Risk, Insurance, and Small Business

Owning a business presents opportunities for personal financial success and satisfaction in a particular occupation. However, it also comes with several different types of risk. These include economic, compliance, security and fraud, operational, reputational, financial, and competition risks. Risk managers are engaged in identifying risks and deploying proven techniques to treat each of these types of risks.

Today we will consider the operational risks of a business and the treatment technique of risk transfer. This post is for informational purposes only and nothing here should be taken as advice or direction. Any purchase of insurance should be discussed in detail with a qualified licensed insurance professional.

Operational risk can happen internally or externally or involve a combination of factors. Something could unexpectedly happen that causes a loss of business continuity. That unexpected event could be a natural disaster or fire that damages or destroys a physical business. It might involve a server outage caused by technical problems, people, or a power cut. Many operational risks are also people related. An owner or an employee might make mistakes that cause injury or damage that will, at a minimum, cost time and money. Whether the result of a people or process failure, operational risks can adversely impact a business in terms of money, time, and reputation.

Getting a third party to bear the costs of operational risk is called a risk transfer. To get a third party to accept the risk will require something in return. Insurance is a common example of a risk transfer. When individuals or businesses buy insurance policies, the risks of unknown severe financial losses are transferred to an insurer for a smaller and predictable expense: an insurance premium.

There are four fundamental insurance coverage contracts or policies that are applicable to most small businesses, depending on the nature of their specific operations. Here is a brief description of each with some suggestions on how to shop for coverage and what to ask an insurance professional when seeking an insurance risk transfer.

The Business Owner’s Policy (BOP)

A BOP combines business property and business liability insurance into one convenient policy. The property coverage part protects a business from losses resulting from fire, theft, or some other covered disaster causing damage to business owned property. The liability coverage part protects against claims involving bodily injury, property damage, or personal or advertising injury that could arise from regular business operations.

Businesses can tailor a BOP to help meet their unique needs by adding optional coverages like data breach, business income for off-premises utility services, and other specialized coverages.

Consider buying a business owner’s policy if:

  • Your business has a physical location, whether it is out of your home or in a rented or owned office, retail space, or similar workplace.
  • There is a possibility of being sued–for example, by a customer who was injured because of your negligent act.
  • You have assets that could be stolen or damaged–whether digital assets, customer data, equipment, furniture, cash, or inventory.
The Business Auto Policy (BAP)

Business auto insurance protects a business against financial costs resulting from an auto accident if you or an employee is found at fault. The BAP will pay for property damage and bodily injury resulting from use of the business’s vehicle. The BAP can also cover medical expenses for the people in the business’s vehicle and physical damage caused to an owned vehicle.

The BAP will pay for claims such as these:

  • An employee injures a pedestrian while driving a company vehicle and the injured pedestrian requires medical treatment.
  • An owned vehicle swerves off the road while being driven to work and causes property damage to structures or other vehicles.
  • An employee driving on a work-related errand accidentally hits another car, causing damage.
The Commercial Umbrella Policy

Commercial umbrella policies provide an extra level of liability protection over the policy limits of underlying coverage. Significant assets can be at risk when businesses are the target of lawsuits. If the cost of a claim exceeds the limits of a business’s underlying primary insurance in the BOP or BAP, for instance, then the umbrella policy will cover the amount of claim that exceeds those limits. Without commercial umbrella insurance, business owners could be obligated to pay out of pocket for legal fees, medical bills, and damage expenses that exceed the limits of their underlying primary business coverages.

Consider purchasing an umbrella policy if:

  • The work performed in your business has the potential of causing significant damage or injury.
  • The characteristics of your expected customers suggest potentially higher financial value of injuries or property damage you may cause (e.g., you perform work for celebrities or high-net worth clients).
The Workers’ Compensation Policy

Workers’ compensation insurance provides benefits to employees for work-related injuries or illnesses, including medical care, lost wages, and more. Workers’ compensation insurance also provides a deceased worker's family with a financial benefit. If a worker's family decides to sue the company, the employer’s liability coverage part found in all workers’ compensation policies can also help cover related legal fees incurred by the business.

Workers’ compensation insurance can help protect your business and employees in events such as these:

  • An employee slips on ice while walking up the stairs to the office, causing injury that requires an emergency room visit and weeks of recovery time.
  • An employee’s back is injured when lifting a box of printer paper and requires a doctor’s attention, medication, and physical therapy.
  • An employee returning to the office from visiting a client is injured in a car accident and requires hospitalization.

We have only discussed four basic policies here, but there are many different insurance policies for just about everything you might imagine. If other coverage is needed, an insurance professional can describe additional policies intended for situations involving employee theft, professional liability, and product liability, as well as fidelity and surety bonds.

Business librarians, NaperLaunch coaches, and SCORE mentors are available for one-to-one mentoring sessions on these and other topics. They are also discussed in the NaperLaunch Academy Workshop series.

Tuesday, March 9, 2021 - 08:45

5 Tips for Mapping Marketing Messages

In a previous post we described the process of creating a unique value proposition. Your UVP is a natural starting point for creating your marketing messages because it clearly identifies your target customer and explains the end benefit of using your product or service and what makes it unique and different from the competition.

With your UVP in hand, the next step is mapping your marketing messages. Developed by marketers George Stenitzer and Tripp Frohlichstein, message mapping is a framework used to create compelling, relevant messages for various audience segments. It enables you to hook people’s attention by quickly answering the question “What’s in it for me?”. It also serves as a tool to ensure the delivery of a consistent message that addresses all of your audiences, including customers, employees, investors, and influencers. The goal is to get others to talk about you using your language, thereby building your brand.

A message map consists of one main idea, supported by three reasons to believe it (called positive points). As your map develops, you find three proof points to support each positive point. These proof points may take the form of testimonials, reviews, statistics, or other evidence. A variety of message mapping templates can be found online; for an example of a basic message map, see Fig. 1.

Figure 1. Basic Message Map

Basic Message Map

Figure 2 shows an example of a completed message map using this format. In this example message map created for NaperLaunch, the main idea is supported by positive points and proof points related to the services, brand values, and differentiation from competitors.

Figure 2. Completed Message Map

Completed Message Map

As you map your marketing messages, keep these 5 tips in mind:

  • Think about the audience. Envision the ideal customer for your product or service. What are their characteristics? What are the problems that this customer faces? If you created a Lean Business Model Canvas for your business, this information will be in the Customer Segments box. If you’re feeling ambitious, you can create customer personas. The better you understand your audience, the easier it will be to create messages that speak directly to them and communicate the benefits your product or service can provide.
  • Choose your words carefully. Because a marketing message is brief, every word matters. Strive to use words that will resonate strongly with your target audience and that will need little explanation. Think about the emotions your words evoke and the various meanings the words may have for the audience.
  • Consider the tone. The tone of a message can be just as important as the words used to craft it. Think about how you want your audience to view your company. Do you want them to view you as an expert? A problem-solver? A gateway to fun and excitement? Depending on the message, the desired tone might be positive, authoritative, or empathetic.
  • Do your research. Look at successful brands and companies that target your audience. What words and tones do these companies use to convey their message? How does their audience respond? Visit their websites and social media profiles to see how they communicate and interact with this audience.
  • Give your audience a reason to believe. Consider the reasons why your target audience will choose to engage in the goals of your marketing campaign. Why should they buy from your company? Why is your service, product, or idea better than your competition’s? How are you able to best meet your audience’s needs? Just be sure you can deliver on these reasons to believe; audiences are savvy and will be able to see through any inflated promises.

For more in-depth discussion on this and related topics, consider registering for the NaperLaunch Academy workshops or contact a NaperLaunch coach or SCORE mentor to set up a one-on-one virtual appointment.

Monday, March 1, 2021 - 14:45