Spring 2008

President’s Message

Two 2 year olds, an 8 year-old, and one old dog are enough to keep anybody busy!

Before you fire off an email asking me asking how we got Two 2 year olds, let me explain. No, we didn’t have twins, and no, we didn’t adopt another baby. We’re quite content, if not slightly overwhelmed with our two kids Joshua (8) and Rachel (20 mos). . . and surrogate child Nash (10), our dog who thinks he’s still a young pup – more on this in a moment.

The 2nd two year old I’m referring to is our firm, Michigan CFO Associates, which celebrated its 2nd anniversary in early May. Of the two 2 year olds, I can tell you with certainty the one that requires a pacifier and diaper changes is significantly more work.

Nevertheless, I’m very excited to hit the two year mark in business, and as you’ve probably noticed, I’ve renamed the firm from Michigan CFO Services, Inc. to Michigan CFO Associates. It’s a minor change, but it reflects the vision of where we’re going. We’ll have more exciting news coming shortly.

Now, back to that ‘old dog’. It seems that Nash (car-buffs will pick up on the origin of his first name, given his last name) still believes he is the young pup he once was, and cannot resist a good chase or an opportunity to fetch anything that can be thrown. Unfortunately, this resulted in his 2nd torn ACL in the last 12 months (yes, dogs can tear their ACL), which was quickly followed by a second large surgical bill from the vet.

I’ve already received several offers for a “cheaper alternative to surgery” from some hunter friends of mine. Unfortunately, thier “cheaper alternative” fails to factor in the high cost of divorce, which would surely ensue, given my dog-loving wife. After careful analysis, I concluded that by this comparison, the surgery is practically free. Perspective is everything in these decisions.

Anyway, I am happy to report that Nash is recovering well, despite having half his rear-end shaved.

As always, please feel free to forward this newsletter to anyone you believe may have an interest.

Best Regards,

Todd Rammler, CMA, MSA
President

Small Business “Makeover Magic”

Michigan CFO Associates participates in the 2nd Annual Walsh College Business Leadership Institute event.

In May the Business Leadership Institute of Walsh College held the second annual Small Business Conference featuring the “Makeover Magic” event at the college’s Novi campus.

The event was well attended by many small-business owners as well as professionals from many disciplines. Each year small-business owners apply for a “makeover” and the lucky winners receive complimentary consulting services from professionals in a variety of disciplines including accounting, marketing, HR, and legal, just to name a few.

Last year three businesses were selected for the makeover, and all three were present at this year’s event to give a report on thier experience and transformation during the past 12 months. It was a truly interesting and worthwhile session to hear straight from the business owners what issues they were facing and the solutions they implemented.

The event also featured breakout sessions where attendees could select from a variety of short classes focusing on specific topics relevant to small-business ownership.

Michigan CFO Associates attended as an event sponsor.

For more information on the Makeover Magic event, please visit: http://www.walshcollege.edu/?id=890&sid=1

Embezzlement Warning Signs

THINK EMBEZZLEMENT CAN’T HAPPEN TO YOU? HERE ARE A SMALL SAMPLE OF MICHIGAN EMBEZZLEMENT CASES THAT HAVE MADE THE NEWS

Boyne USA

In late October, 2007 deputies arrested a 37 year old Harbor Springs woman amid allegations that she embezzled more than $200,000 from Boyne USA where she had worked as the head bookkeeper.

American Total Security

In mid-October, 2007, a 49 year old Boyne City woman was sentenced to serve 18 months to 10 years in prison after she pleaded guilty to a charge of embezzlement of more than $20,000. The charges stemmed from allegations that she embezzled more than $500,000 from her former employer – who were also her sister and brother-in-law.

Harbor Springs Chamber of Commerce
In October, 2004, a 31-year-old woman was sentenced to jail time after she pleaded guilty to a charge stemming from allegations that she embezzled more than $46,000 from the Harbor Springs Chamber of Commerce while working as its director.

Although embezzlement cases may seem to be grabbing more headlines in recent years, crime statistics show the rate of arrests have remained fairly level over the past 10 years.

What is on the rise is the dollar amounts involved in the cases.

In fact, the state legislature passed a law in 2007, increasing the penalties for such crimes.

Under the old law, the most serious embezzlement offense carried a maximum penalty of up to 10 years in prison.

The new law, created two additional tiers of punishment. Now embezzled amounts from $20,000-$50,000 are punishable by up to 10 years in prison; $50,000-$100,000 carries a 15 year maximum and more than $200,000 carries a 20 year maximum.

Embezzlement by definition is a crime committed by someone in a position of trust.

It can be the loss of a small amount of money such as a couple of dollars taken from a cash register, or it can be a considerable sum stolen through an elaborate bookkeeping scheme.

Possible warning signs of embezzlement might include:

* An unusual drop in your profits.
* Disorganized records.
* Unexplained changes in your accounting records.
* Unusually large or numerous credits to a particular customer.
* An employee works late, on the weekends and refuses to take vacations.
* An employee’s standard of living changes drastically.
* Missing documents.
* Delayed bank deposits.
* Customer complaints about having already paid a bill.
* Too many increases in past due accounts receivable.
* Altered check amounts.
* Duplicate payments made to suppliers.
* Too many outstanding checks on the bank reconciliations.
* Too many payments being made to individuals with the same name or address.
* Vendors’ addresses are the same as an employee’s address.
* Late bank reconciliations.
* Accounts receivable and payable don’t balance to the ledger.
* The petty cash fund is disappearing.

Employees should know their jobs and feel trusted. But they should also realize that they are held accountable for their actions.

While nobody wants to run a business like an armed camp, experts agree that if you have a built-in control system, administer it tightly, and audit it frequently, embezzling can be prevented.

Safeguards To Prevent Embezzlement

* Manager or supervisor approval of all timecards or timesheets, including all overtime.
* Mandatory vacations for those with payroll responsibilities with another employee performing this function in their absence.
* Executive approval of all paychecks.
* The ability to modify wage rates, add employees, etc., within the system should be restricted to only those necessary. These individuals should have their records periodically reviewed.
* Delegate the responsibility for receiving checks and cash to someone other than the person who records incoming funds.
* Mail statements to outside accounts directly at least monthly.
* Have an outside accountant audit your cash and accounts annually.

While we would all like to believe our employees are honest, that is not always the case. Having financial safeguards in place can help ensure you recognize warning signs and protect your company from embezzlement.

Further information on preventing embezzlement can be found on the following link to the United States Chamber of Commerce:
http://business.uschamber.com/p04/p04_8250.asp

What Are You Charging?

Nearly a year ago, a general manager of a high-end home theater equipment manufacturer watched the 18 year old company’s sales decline. Worried about the business’s direction, he began looking for new ways to improve the company’s bottom line. After turning to a market research consulting firm, he was a bit surprised when they recommended a strategy that seemed downright counter-intuitive – raise prices.

Market surveys showed that despite the company’s reputation, its products were starting to be perceived as a lesser quality precisely because their prices had remained stagnant for so long. The market research firm recommended that they hike their prices by as much as 20% – 30%.

How much of a difference can pricing make? At the beginning of their book, The Price Advantage, authors Michael Marn, Eric Roegner, and Craig Zawada answer this important question. “Pricing is far and away the most powerful profit lever that a company can influence,” they explain. “The right price will boost profits faster than increasing volume; the wrong price will sink profits just as quickly.” The authors cite an extensive 2002 business survey that found a 1% increase in pricing returned, on average, 11% more in profits.

Understand This: Customers Want To Give You Money

“A lot of small businesses get pricing backwards,” explains price consultant Reed Holden. “The percentage of customers that buy strictly based on price is no more than 15% to 35% in any market,” says Holden. “Most of a business’s customers are relationship or value-based, but by focusing mainly on price, you run the risk of converting them to price-based customers, and those are the ones that are the first to move when your prices go up.”

How Do I know If “The Price is Right”

A telltale sign that your company’s pricing structure is undervaluing your products or services involves the law of diminishing returns, or what marketing expert Thom Winninger calls the spiral effect. Winninger emphasizes the need to avoid price traps like quoting rates over the phone, copycat advertising, and the overuse of discounts. Instead, he stresses more subtle strategies like combining products to make price shopping more difficult and focusing sales and pricing efforts on the most profitable items.

“The Beautiful Thing About a Sandwich ”

Among the favored tactics for avoiding cutthroat price battle are combining your products or services together into larger packages – and segmentation – adding or subtracting features on your products to target different tiers within a market.

“That’s the beautiful thing about a sandwich, it bundles stuff together,” explains Winninger. “You may lose some money on the meat, but you still get your high margins on the lettuce and the bread.” Clustering products or services builds a stronger bond with your customer and ensures that you’re including your most profitable products in the sale.

Sticking to Your Guns

Perhaps the most difficult step in changing your prices comes in dealing with your customers’ reactions to them, particularly if you end up raising prices significantly.
The key to weathering a brewing revolt over your new, higher prices starts with emphasizing the right reasons behind the increase. You want to justify the new prices by talking about all the things that will positively affect your customers, like the new, more efficient version of your product or your faster, more accurate delivery system.

Contact Michigan CFO Associates for assistance in managing your small business.

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