Month: September 2019

It’s important for any business, whether big or small, to prioritize the safety of all employees in the workplace. Small businesses should especially take this seriously, considering that they are affected more severely compared to larger businesses, when accidents occur. Injuries sustained by workers can potentially increase insurance premiums, putting more pressure on the expenses of a company.

Methods like increasing the health budget can go a long way in ensuring that a business handles better in case of accidents. However, it’s more advisable that businesses try to prevent accidents in the first place, as that helps them avoid unnecessary hassles. Here are the best safety tips that can help you get more out of your small business:

1. Involve employees

Relying on externally-provided safety standards is a good thing to do as it can contribute to workplace safety, but it shouldn’t end there. At the end of the day, your employees are more conversant about the safety concerns of a workplace than anyone else. Keep in mind that they are working every day, and as such, they know what affects them. That’s why business owners should try to understand potential hazards by encouraging them to speak out. Besides, by doing so, you help to reduce work stress, and that too can contribute to workplace safety.

2. Give clear instructions

You may have heard of how employees will, at times, resort to unconventional methods such as winging it on their tasks when they don’t have enough information on what to do and how to do it. Such situations increase the chances of involvement in accidents, which is why small business owners should consider providing employees with clear workplace instructions.

3. Keep the workplace clean

A messy workplace increases operational risks, and that means less safety for employees. That’s why it’s vital to conduct regular safety inspections to ensure that the workspace condition is perfect for your employees. Boxes should be stacked up, and spills cleaned as quickly as possible, messy floors repaired, and such.

4. Review safety guidelines regularly

It’s normal for workplace environments to change from time to time, and this means that your safety guidelines should also be reviewed from time to time to cater for the changes. This is in consideration that workplace changes mostly involve things like introducing new equipment, bringing in new processes, hiring extra staff, and such.

5. Make good use of technology

To minimize workplace risks that may lead to injuries, business owners should consider using better methods of managing and investigating the root causes of various incidents. While most organizations go for spreadsheet-based systems for this purpose, a better solution would be to use Incident Management Software for better visibility and efficiency.

6. Maintain office machinery and equipment

Machines are never meant to last forever, and just like you will occasionally fall sick and require treatment, machines will also require frequent repairs to keep them working efficiently. Keep in mind that as machinery breaks down, it becomes less safe for workers. Besides, worn-out equipment can tempt employees to add their modifications to keep the machines working – that increases the operational risk even more.

7. Conduct risk assessment

This method goes a long way in reducing operational risk, hence lowering the chances of an accident. A cross-border risk assessment, for example, can be used in identifying risks in a unique way. This method is all about employees from different departments running each other’s audit for risk identification. That’s in consideration that a new set of eyes can see things differently, hence curbing risks early enough.

It’s the responsibility of every employer to protect their employees and ensure that they have a safe working space. The good thing with the tips discussed above is that they are easy to use even for small businesses. Besides, they go a long way in ensuring that you get the best out of your small business, as you won’t have to deal with avoidable accident cases.

In a perfect scenario, employees are cared for by their managers, motivation is through the roof, and productivity is evident throughout the company. But the sad reality is, most workers feel overworked and undervalued by their employer. A 2018 Gallup report found that only 34% of employees are engaged in their work, and as engagement is connected to productivity, this isn’t a very good number.

Moreover, in their quest for better employee productivity, some managers make mistakes that drastically reduce it instead. So where should you start? It’s important to remember that it’s not all about simply implementing policies or offering incentives, as your job involves understanding where your employees need help, too. A white paper on how to ‘Become a Pillar of Productivity’ by Special Counsel emphasizes the importance of conducting an evaluation of your team, including yourself, to see where exactly your inefficiencies lie. This way, you’re able to identify your specific productivity pain points and go from there. To give you an idea of some of the most common workplace productivity leaks from a managerial standpoint, here are four mistakes to look out for:

Not providing constructive criticism or feedback

Being granted the privilege of leading a team means having to know when to give constructive criticism to help them improve their work. Providing constructive criticism is one of our ‘4 Helpful Tips to Increase Employee Productivity’ because it lets them know what is expected of them, what they’re doing well, and what they could be doing better. Depending on the size of your team, check in once a week with your employees and remember to provide guidance wherever needed.

Not recognizing achievements

Along with regular feedback, you should also focus on providing a healthy dose of positive reinforcement. Having a balance of both makes employees feel appreciated and motivated to continue their work despite making mistakes. In fact, HR Daily Advisor report that 83% of employees find recognition more fulfilling than rewards or gifts, proving the profound impact of simply showing appreciation.

Recognition comes in many forms. Create an environment that enforces positive recognition by regularly pointing out small successes to build a habit within your team. You can also consider offering monetary rewards or mini gifts for a job well done.

Not engaging with your employees

Engaging with your employees about matters inside and away from the workplace makes them feel that you care about them. Give them an opportunity to voice out their concerns about workplace matters, whether it’s through anonymous or centralized methods. Remember to also check in on them regarding personal matters. Something as simple as remembering their anniversary or checking in on them when they’re sick will make them feel cared for. And you can go the extra mile by offering simple support methods such as giving them the day off or letting them work from home.

Not communicating clearly

A lack of clear communication can lead to misunderstandings that can cost thousands or even millions of dollars. Employees who are given tasks without a clear description of what is expected of them or how these fit in the bigger picture may simply do things the way they deem fit. Be a hands-on manager, explain how their work ties in with other projects, and clearly outline what you expect of them. This way, you ensure their success and yours, as well.

At the end of the day, it’s the simple things that can boost (or impair) employee productivity. A good leader who can set the foundations of a productive workplace by motivating, inspiring, and listening to employees while avoiding the pitfalls described above will reach their goals much faster.

One of the most important numbers you have to look at any time you’re considering making an investment in a company is the Ebitda. The abbreviation Ebitda stands for earnings before interest, tax, depreciation, and amortization. It is so important because it is a simple measure of a company’s financial performance. However, the Ebitda formula still has some limitations and not completely reliable. Find out how to calculate Ebitda, its benefits and limitations in this post today. 

What does Ebitda Mean?

As already mentioned, Ebitda refers to a company’s net income added to the interest, taxes, depreciation and amortization expenses. The Ebitda formula was first used and popularized in the mid-1980s by buyout investors who wanted to figure out if a company would be able to pay back their debt should it be refinanced. If the ratio of EBITDA to interest was too low, then they would know the company could not pay back its debt. 

Nowadays, investors use Ebitda to find out if well a company generates profit margins even before factors such as interest, depreciation, taxes, and amortization are considered. Through Ebitda, one company can also be compared to another one despite differences in size, and they can tell if the company can service current and future debts, just as the 1980s investors did.

How to calculate Ebitda

Some of the time, a company will provide the Ebitda number during its quarterly earnings report because so many investors have come to rely on it. Nevertheless, some companies will not do so, leaving you to calculate Ebitda on your own. That is because according to the generally accepted accounting principles (GAAP) in the US or International Financial Reporting Standards (IFRS), companies are not required to divulge the Ebitda. 

It is in these situations that knowing the Ebitda formula becomes so necessary. The good news is that it’s not too difficult to understand, which is partly why it is used by many investors. To work out Ebitda find the individual components from the company’s financial statements and then use this Ebitda formula:

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

or

EBITDA = Operating Profit + Depreciation expense + Amortization expense

Explaining Ebitda calculation

To really understand the meaning of Ebitda, you have to break it down into its individual components and then put them back together.

1. Interest

Different companies pay different amounts of interest depending on their capital structure. While there is technically no interest charged for equity capital, companies still prefer debt capital because it may be tax-deductible and less risky. Despite interest being an actual cost incurred by a company, the Ebitda formula adds it back to the income to eliminate differences in companies’ capital structures. This allows a fairer comparison between companies running different operations.

2. Taxes

Every company has to pay taxes according to the laws of the region it is located. Therefore, all companies have to pay taxes, although the tax rate will vary by region. Since taxes do not indicate anything about a company’s performance or the management’s expertise, it is added back to the net income to provide investors with a complete picture of financial performance. 

3. Depreciation and amortization

With time, a company’s assets will lose value due to wear and tear. Depreciation is thus calculated for tangible assets like buildings, while intangible assets like patents are amortized due to competitive protection. Both depreciation and amortization are calculated by non-absolute formulas and are thus added back to the net income through Ebitda calculations.

Calculating Ebitda example

The best way to understand Ebitda is by using a real-life example. On May 5, 2018, JC Penney posted income statements showing various financial figures but not the EBITDA. To do that, we shall use the above formula given that:

• net income = -$78 million (loss)
• interest rate = $78 million
• taxes = the taxes were added to the net income as a credit/benefit of $1 million
• depreciation/amortization = $141 million

Therefore, the Ebitda is:

(-$78) + $141 + $78 -$1 = $140 million Ebitda

What about Ebitda margin formula?

Whereas Ebitda is simply meant to show investors a company’s profitability before expenses, the Ebitda margin compares operating profit to revenue to find the operating profitability. To calculate the Ebitda margin, the total Ebitda is divided by the total revenue. When the Ebitda margin is high, it means that the company has low operating expenses compared to revenue and thus more profitable. 

In the above case of JC Penney, total revenue was $2.67 billion, equivalent to $2,671 million. Therefore, the Ebitda margin is:

$140 / $2,671 = 0.05

How Ebitda helps or hurts your business funding?

Just like in the 1980s, Ebitda is still used today when seeking business funding. To find out the value of a company, one needs to know that company’s cash flow. Ebitda values provide this metric, at least somewhat, because net income is added to interest, tax, depreciation and amortization expenses. In a way, therefore, it can be considered to be the company’s total cash flow for a period of time. That is why Gil Sadka, assistant professor of accounting at Columbia Business School in New York called Ebitda ‘a quasi-estimate of free cash flow’.

Being a non-GAAP figure, EBITDA can be tinkered with to provide a more attractive outlook for your company. In the above example, JC Penney could have hidden the fact that they experienced a net income loss for the quarter by announcing the Ebitda value. Of course, this is a good thing when you’re looking for funding from investors because you can present higher cash flow and receive more funding. This is not inherently cheating or lying, just highlighting the positives. 

It is also for this reason that financial experts are skeptical about the use of Ebitda. Investors such as Warren Buffett have been particularly vocal about their disdain for Ebitda because it completely ignores the cost of assets. That is why companies in financial trouble will be found trumpeting the Ebitda numbers to appease investors.

The simplest description of cash flow is the amount of money moving into and out of a business within a period but are you aware if you are carrying positive cash flow? For most businesses, cash flow is tracked during a month, but cash businesses may prefer daily or weekly options. When running a business, this is one of the most important metrics to keep an eye on because it dictates the financial performance of the business and perhaps even its survival. Therefore, you must consider this just as much as you think about profitability. 

What then is positive cash flow?

A business is considered to have positive cash flow when the money coming into the business is more than that going out. Money coming into the business is what you get paid for your products and services. At the same time, the money will be leaving the business in the form of bills, expenses like rent and salaries, possible loan repayments and even taxes. If the money coming in is more than that going out, that business is considered cash flow positive, and vice versa.

How does this compare to profitability?

Because this money is used to keep the business running, you have to maintain a balance in cash flow and lean toward being cash flow positive. But what’s tricky is that cash flow is very different from profit and this can sometimes trip you up. Consider the example of Tom who runs an online business selling hand-made apparel on their website.

Every month they buy raw materials worth $10,000 and spend another $5,000 on other expenses like rent, storage, shipping, etc.. In return, they make sales worth $20,000, leaving a profit of $5,000, which is pretty decent. By the end of January, some funds have still not been processed by the credit card company and some payments are still pending. When calculating for profit, though, these pending payments are counted as accounts receivable and factored in. However, for calculating cash flow, only completed payments are considered as money flowing into the business.

If, say, there is still $6,000 in pending payments, the cash flow in this situation would be negative – $14,000 in sales – ($10,000 + $5,000 in expenses) = -$1,000

To understand cash flow, it’s best to think about it as the difference in the balance of your business bank account between the end and start of the month; or a week, if that is your cash flow period. On the other hand,   gross profit is an accounting principle that works on an accrual basis. That is why profit is counted as soon as an invoice is sent to the customers, even if they are yet to pay. In the above example of Tom’s business, Tom’s business still made a $5,000 profit in January because profit was calculated as soon a product was shipped and a sale made. 

How to determine if you are cash flow positive

Looking at this example, you can see that a business can have negative cash flow and still claim to be in profit. Running a negative cash flow for one or two months is not uncommon due to delays, but keep doing it for several months and then you start having problems. Because cash flow is used to pay for expenses and raw materials, negative cash flow may stall your business. This is why whenever a business is in trouble, accountants and other finance professionals will focus more on the cash flow than the profitability to identify problems in the company. 

When you want to find out if your business has a positive cash flow, you need to create a cash flow report. The first entry to the report indicates all the cash you have in hand at the beginning of the month. In most cases, this is the balance on your business bank account. Check your bank statement for the balance left after your last transaction from the previous month. If you have multiple business accounts, make sure to include all of them to the first entry.

Now get to the body of the report that indicates the cash inflows and outflows. Cash inflows include all the cash received within that month from your customers while cash outflows include all the cash spent during that month. Since this is a cash flow report, only include actual cash transactions that happened that month. Going back to Tom’s example, if he sent an invoice for $1,000 in January but expects to be paid in February, this is not counted as a cash inflow in January. At the same time, if he paid for some expenses on the company credit card and doesn’t pay it back in January, this isn’t included in the cash outflow section either. 

In the end, you should have two columns with varying numbers and the difference determines if you are cash flow positive. Cash inflows are listed in the same column as the bank balance from the previous month, so add all these up. In the second column, add up all the expenses for the month. If the cash inflow is higher than the outflows, then your business is cash flow positive. 

How does positive cash flow affect your business?

By now you must already see the benefits of cash flow, and the most important one is to inform you about the financial health of your business. Even more important to your business is that you can use the findings to come up with a cash flow projection. Most business owners prepare for the future by working with a budget, which is just an estimate and guesswork of future income and expenses. However, cash flow projections are a lot more accurate and reliable, which can prepare you for the future even better. 

With positive cash flow, uncertainties about the future also disappear as you can predict future events. Consider a business that operates in a kind of cycle around the year with peak seasons at certain times of the year. Knowing this, you will know on which months you may need to order more raw materials in anticipation of higher demand. Therefore, you will be less likely to become overwhelmed by an increased number of orders in particular seasons. At the same time, you will be prepared for those seasons when cash inflow is low so that you can come up with cash for expenses. 

In the same way financial professionals value positive cash flow, so do creditors and lenders. When you go to ask for a line of credit or a loan from the bank, they will ask to see your cash flow report. This will show them how much money your business receives compared to how much is spent to determine if you have enough left to pay back the loan. Obviously, positive cash flow will lend you more credibility with lenders and you’re much more likely to get that loan, and at a more favorable rate. 

Finally, positive cash flow determines if your business is ready to grow and by how much. If you only focus on the profit, it may show you an attractive figure, but without the actual cash in hand, no advances can be made. But when you do know you have a certain amount of cash in hand, then you can plan for growth. In cases of negative cash flow, you will be informed earlier and plan how to cut your expenses until the cash flow shifts the other side.

What to remember about cash flow

The worst thing you can do is sit comfortably simply because you have a positive cash flow and secure for the future. Cash flow should be used as a tool for improvement, so constantly take time to make changes that favor your business in the long-term until you achieve your goals.