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When your business consists of just you, thinking about internal controls is not a priority. Once you have employees in your business, however, it is critical to keep control over company assets that are being managed by others.

The one subject that is not usually taught in the school system is the one that will have a huge impact on your life each and every day: money. How to earn it, spend it, invest it, and pass it on to the next generation.

The inability to manage money:

• Is the number 1 cause of divorce in North America
• Is responsible for the astronomical jump in personal bankruptcies in the past decade
• Perpetuates generational poverty
• Leads to stress, poor health, and poor self-image

If money is so important, why isn’t it being taught in our school systems? There are probably as many answers to that question as there are educators, but one of the major reasons is that money is seen as a commercial rather than an academic subject. Whatever the reasons, the fact that the subject of money is not taught in schools simply means that it must be taught at home. In many families, however, there are reasons why financial savvy is not being passed from generation to generation:

• Parents feel like they have never learned the skills to manage money themselves, much less be able to teach their children.
• They feel that talking about money with their children is crass. “Good” families don’t discuss income or wealth.
• They are afraid that discussing money will scare the children and make them fearful that they are “poor”.
• They are embarrassed about the family’s financial situation and are afraid that their children will see what terrible money managers they have been.

All of these reasons are rooted in the traditions that parents have been raised in. If these fears are not overcome, the end result is that their children in elementary school learn about money the same way they do about sex and drugs; from friends, television, and what they perceive that their parents are doing.

When children have to learn about finances from what they perceive their parents doing, they will be both forming some inaccurate pictures of their parents’ money management, and picking up their parents’ bad money habits, which eventually, they will pass on to their own children. As a small business owner, you have an even more important reason to teach your children about money and wealth. They may take over your business someday or start one of their own.

The Six Bad Money Habits Kids Learn From Their Parents

1. I’m too young (too busy, too old, too whatever) to plan for my retirement.
2. Let’s buy it now and pay later.
3. There will always be more money where that came from.
4. I don’t have enough money to bother investing.
5. Only poor people prepare and stick to a budget.
6. I just don’t have a head for numbers.

Take some time to examine your own teachings and experience with money and make sure that your kids don’t learn the wrong way.

Why rich kids need money skills every bit as much as poor kids

Being able to retain wealth is as important as being able to attract it in the first place. We’ve all read newspaper stories about lottery winners who become instant millionaires overnight and end up broke and on welfare within a year because they were never taught how to care for and manage wealth. More frequent but less reported stories abound on the flip side of the coin where people who started with nothing slowly and carefully amassed a great deal of wealth for themselves and their children.

Affluent parents in particular need to teach their children how to retain wealth or else they risk their children seeing money as something to be taken for granted. Something that will always be around. It’s easier to place a high value on a scarce commodity rather than one that’s laying around in abundance.

One of the most important reasons to teach our children the value of money is to help them learn to hone their value assessments. When we make comparative judgments about something’s monetary worth, we can use that same skill to judge non-monetary worth.

As parents, we always want to make the best decisions for our children. In fact, that is our job: keeping them safe from harm and ensuring that they don’t do anything in the short term that will harm them in the long term.

We know from prior experience, for example, that if our child was to take his $20 birthday money from Grandma and spend it all on Pokemon trading cards, he will get enjoyment out of the purchase for only about two days. Then, he will lose interest in the cards and they will eventually end up under his bed. That makes it easy for us to say “no” when asked. However, in the long run, it’s more important to help our children come to that value judgment on their own. It takes longer and requires more effort for us as parents, but we will be teaching our children lifelong lessons about value that they will apply to various situations even after they have grown up and flown the coop.

The value of a solid financial education to our children is incalculably great. It not only gives them the tools they need to become financially grounded but also to be able to pass your lessons along to their own children. Take time soon to help your children understand not only your company but the money flows in it. Both of you will be stronger for it.

Angie Mohr is a chartered accountant and certified management accountant. She can be heard regularly on radio with Small Business Survival Tips. Mohr is also a business columnist for a large daily newspaper and has written many articles for business magazines.

If your employees had to describe your management style, what do you think they would say? Would they rate you as a good boss to work for or someone more akin to Ebenezer Scrooge? Understanding your management style can help you be a more effective leader in your company. See if you recognize yourself in the following archetypes:

The Control Freak: These bosses like to be involved in every last detail of their business. They do not trust their employees to make reasoned and informed judgments on their own and all decision-making is done by the boss. Although this behaviour usually stems from a desire to ensure accuracy and productivity, it frequently results in just the opposite. One person cannot juggle so many responsibilities without something falling through the cracks. Employees of this type of boss feel disconnected from their work and give up on taking ownership and being proactive. This feeds into this boss’s contention that the only person that could possibly care about the company is the boss.

The “Warm Fuzzies” Boss: These bosses are concerned about people’s feelings over all else. They will withhold constructive criticism and can end up praising bad behaviour in the hopes of making their employees feel valued. Employees of this type of boss can feel disoriented and unsure of their place in the company. They can sense when praise is undeserved and therefore the praise has no motivating effect.

The Consensus Building Boss: This type of boss operates the business from a team perspective. He or she knows that each employee brings different skills and perspectives to the table and encourages the employees to share their concerns and suggestions. This helps employees to feel empowered and valued. However, there is danger here if this type of boss spends more time trying to build unanimous consensus than in effectively leading the team. This behaviour can lead to the employees feeling as if the ship has no captain and this can erode the empowerment.

The Out of Control Boss: This type of boss doesn’t have a good handle on the difference between what’s reasonable and what’s not. They tend to be so completely wrapped up in their own work that they spend no time or effort on managing staff effectively. This boss’s words and actions convey to the employees that they are just a nuisance. These employees tend to say “Sorry to bother you, but…” frequently. Because of the disconnect between the company and the boss, he or she often sets unreasonable deadlines or expects unmanageable amounts of productivity from the employees. This can also be demotivating as employees feel they can’t possibly win.

Of course, you won’t find yourself perfectly matching any of these archetypes, but you may find yourself relating to pieces of one or more. The first step in managing your management style is to be aware of the type of boss you are. Reason through how your actions and style would motivate or demotivate your staff. What are you doing that enhances the effective operation of your company and what are you doing that hinders it? If you have more than one employee, you can prepare an anonymous survey to find out what your staff really think of your style. Although this “boss rating” can be scary, it can also be the most effective way to find out what you’re doing right and wrong.

Being an effective boss not only improves morale and working conditions for everyone in your company, it also improves employee retention and productivity. It’s well worth the effort to ask yourself the question, “What type of boss am I?”.

Angie Mohr is a chartered accountant and certified management accountant. She can be heard regularly on radio with Small Business Survival Tips. Mohr is also a business columnist for a large daily newspaper and has written many articles for business magazines.

It may be difficult for you to contemplate setting aside funds if you are in the start up or rapid growth phases of your business. It may be enough of a challenge for you to simply meet your current cash requirements and to be able to pay employees and suppliers in a timely manner. “Once I get the business running smoothly, I’ll look into that,” is a refrain I hear frequently from small business owners all across North America. The problem is, much like your personal finances, putting savings off until later is almost never a good idea. Here are some ideas to get you started towards building your own war chest:

1. Determine how much you need. How much would you need to continue to operate your business for 3-6 months if there was a downturn in revenues? The revenue tap can slow to a trickle or stop altogether for many reasons, including natural disaster, obsolescence of your product or service, or increased competition. Each of these potentially business-ending situations requires immediate strategy and changes in operations on your behalf, but, in the interim, your company still needs to operate. A reasonable guideline for how much you should work towards putting aside for these situations is three months of operating expenses. A simple way to determine how much this would be is to pull out your company’s prior year financial statements and review the “Expenses” section on the income statement (or profit and loss statement depending on the terminology you use). If there were any significant expenses that you incurred last year that you don’t expect to recur, remove them from this analysis. Take the remaining expenses and divide each category by twelve. This will give you the average monthly expense. For example, if you spent $1,475 on office expenses last year, your average monthly expense is $1,475/12 or $123.




2. Set your savings timeframe. Calculate how long it will reasonably take you to save your three months’ worth of expenses. Let’s say that you determine that your total average operating expenses are $2,450 and that you want to have your war chest in place within twenty-four months. That would mean that you would have to put aside $102 per month for the next two years. Review your operating budget and see if you can fit that in. If you are forecasting a monthly profit, you can apportion part of those profits to the war chest. Or, if you are running a “right to the line” budget, analyze whether there are any areas you can reduce current spending by $102. If putting aside this amount is not reasonable, extend your savings timeframe out longer, for example, to thirty-six or forty-eight months. Although getting your war chest together as soon as you can is important, the main goal is simply to start putting money aside. Just as with your personal savings, the sooner you start, the more you’ll have. Soon, putting some of your profit aside will become an automatic habit.




3. Find a suitable “container” for your war chest. Once you have started accumulating savings, you will need to decide what to do with them. You could simply leave the money in your company’s chequing account. The downsides of this strategy are that those funds will not earn any interest, and that you may be tempted to spend the money for non-essential purposes (do you really need the newest BlackBerry?). If you decide to invest your savings, you will need to keep in mind the concept of liquidity. This money has been set aside specifically for purposes that cannot be predicted. You don’t know when you will need to access these funds. Therefore, it doesn’t make any sense to lock the money into a long-term Guaranteed Investment Certificate or other non-accessible investment. Review the investment options that are available to you and choose one that is liquid and still provides some return on your investment, such as a high interest rate savings account.

Putting money aside for difficult times will help you in your business life as much as it does in your personal life. How much can you start saving today?

Angie Mohr is a chartered accountant and certified management accountant. She can be heard regularly on radio with Small Business Survival Tips. Mohr is also a business columnist for a large daily newspaper and has written many articles for business magazines.

The need for a new accounting system may manifest itself in many different forms. You may find that payroll is becoming more onerous to calculate and track as you hire more employees. If you run a manufacturing or resale business, you may keep running out of stock on high-turnover items because you are out before you know it. If you run a service business, you may start losing track of how much time should be billed to each customer. Regardless of the various symptoms, the problem remains the same: your bookkeeping system is taking more of your time than it’s worth.

There is always a balance in any business enterprise between time and money. You can spend either time or money (or both). Scrimping on one will cost you more of the other. For example, if you decide to buy the least-frills accounting package that you can find on the shelves of your local office supply store, you may spend an extra 10 hours per week forcing it to do what you want it to do. If you could take that 10 hours and sell more to your customers, then it perhaps would be worth spending more on the software package.

Recently, Deloitte & Touche did a study of the top criteria used by businesses when selecting their bookkeeping software. It’s quite interesting to see that first-time business owners and seasoned entrepreneurs have different priorities in this regard. This would suggest that experience teaches business owners what’s really important when choosing financial software.

The top three criteria used by first time business owners are:

1. Price of software
2. Ease of implementation
3. Ease of use

These reasons make sense. They are all important things to consider in the purchasing decision. But now take a look at the top three criteria used by businesses selecting their second bookkeeping system:

1. Level of support provided by the local firm
2. Developer’s track record of performance
3. Software’s ability to fit the business

What do the experienced business owners know that the neophytes don’t? Let’s take a look at each point separately.

Level of support provided by the local firm – many of the entry-level accounting systems are billed as being turn-key; you just load the software and you’re up and running. However, it’s never quite that simple. It’s important to make sure that you can easily and economically access customer and technical support for your new system. Some software companies charge for support calls, which is fine as long as you can get hold of someone when you need them. You will also want to consider whether there are consultants based locally that can come into your business and provide customized setup and training. When you’re looking at consumer reviews of the product, pay special attention to what they say about support.

Developer’s track record of performance – a first-time software buyer may very well discount the importance of the how well the software has worked in the past, but seasoned entrepreneurs understand how much time it takes to work around bugs in the software or to install patches to fix problems as they arise. Keep in mind that bookkeeping software is generally updated annually, so there are many opportunities for programming errors to arise. Knowing that the company has been in business for several years with little incidence of major programming bugs can ease your mind in this area.

Software’s ability to fit the business – entry level bookkeeping software systems try to be “one size fits all”. They allow you to customize the chart of accounts to make sense with your particular type of business. For example, if your business is computer consulting, it doesn’t make any sense to have inventory accounts showing up in your books. However, each software system has strengths and weaknesses for every type of business. Some handle real-time inventory better than others. Some track billable time better. Having a good understanding of what’s important to track for your particular business will help you be able to assess which package is best for you.

As you can see, there are more considerations than just price when purchasing accounting software. Spending time understanding all of the critical considerations will help. You should also ask fellow business owners what they use and how it’s working for them. Another important source of information is your accountant. One caveat is to make sure that your accountant is familiar and comfortable with all of the popular accounting packages. For example, if your accountant has worked with only QuickBooks, it is more than likely that it will be QuickBooks that he or she recommends. Not exactly an objective opinion! All of the major software websites have either screenshots of the program or downloadable test versions. This gives you the opportunity to “test drive” the package to make sure that you’re comfortable with it.

Selecting your bookkeeping software is an important task in your small business and may seem daunting. Keep in mind however that most systems can be converted to other systems fairly painlessly. Mistakes are not terminal. Take your time up front in the selection process and you will be making the best decision regardless of the system you choose.

Angie Mohr is a chartered accountant and certified management accountant. She can be heard regularly on radio with Small Business Survival Tips. Mohr is also a business columnist for a large daily newspaper and has written many articles for business magazines.

Think about how much effort, time, and money that you have funneled into your business right from the time it was only a persistent thought in your head. How much time have you taken from your family, from your other pursuits? Starting a business means different things to different people, but the most common goal is to build something permanent, something to outlast you and provide security for your children and their children.

What can you do to make sure that your business outlasts you? How can you be one of the 4 and not one of the 96? There is no magic pill that you can take to arm yourself for the battle. There are only common sense (and sometimes boring) steps to build strong armor around your business. Every company that has been in existence for more than a decade has followed these guidelines and you should too:

1. Don’t dabble – it may be tempting to start up a business and “just see what happens”. But success rarely falls into one’s lap. Building a business is a large commitment and you need to be focused from the moment you conceive of the business. Put your all into it and adjust as you go along.
2. Plan for your capital needs – nothing can cause a slower, more painful death to a business than being under-capitalized. Not having enough money can cause dysfunctions like not paying your suppliers or the government, and borrowing on personal credit cards at a horrendous interest rate.
3. Be “relentlessly persistent” – designing your business model is not simply a start-up task. As your business grows and matures, you need to be continuously monitoring and analyzing many facets of the company: its profitability, its market placement, its promotional message, its internal systems. Fine-tuning and re-analyzing is a continuous process and you need to carve out time from your operational duties to work on this strategic planning.
4. Watch the pennies – this doesn’t just apply to your expenses, but also your revenues. Review your sales processes and see if you’ve left money on the table. Did you miss an opportunity to sell your customer a related item or service to the one they purchased? Could you have introduced them to one of your new products or services? Actively work on increasing the average dollar value of each sale. As McDonald’s says, “Would you like fries with that?”
5. Learn new skills – as your business grows, your entrepreneurial knowledge will have to keep up. You may need to learn about hiring and retaining employees, marketing, import and export, or inventory management. Although you may hire employees and managers to ultimately work on these tasks, you will need to know enough about them to steer the ship. Take every opportunity to learn new business skills: take courses, research the internet, buy books, and talk with fellow entrepreneurs.

Building your business is a never-ending process, but taking the steps necessary to make it not only big, but strong will help you to make a permanent mark on the business landscape.

Angie Mohr is a chartered accountant and certified management accountant. She can be heard regularly on radio with Small Business Survival Tips. Mohr is also a business columnist for a large daily newspaper and has written many articles for business magazines.

But what’s missing is an all-important question: How much will you need in your RRSP to retire comfortably? Is it $100,000, $500,000, $1 million? Without answering that question you are like a runner entering a track and field race without knowing where the finish line is! Are you in a hundred-yard dash or a marathon? It obviously makes a huge difference to your strategy and yet most Canadians enter the RRSP race completely unprepared. They’ll either burn out early and come up short or possibly overshoot their goal.

Why waste your life scrimping, sacrificing and saving every penny to build a million dollar RRSP then realize too late that you really only needed $200,000? Why die with $800,000 in the bank?

The only way I know to determine how much money you’ll need in your RRSP is to begin tracking your finances as soon as possible. With detailed information about where all your money is going now, you are armed and ready to get your finances under control. The first step is to determine if you are spending more than you are earning. That’s a sure-fire recipe for disaster regardless of whether you follow the RRSP strategy or try to pay down debt instead.

Tracking also will allow you to spot the money leaks and plug them as well as project which expenses you won’t have after you retire. Think about no more children’s costs, no mortgage payments, no costs associated with work and of course you won’t be siphoning off any more money to try and save for retirement since you’ll already be there.

OK, now you’ve thought about how much you’ll need. The next key figure you’ll need to know is what rate of return to expect on your RRSP investments and that’s a big problem since nobody knows for sure, no matter how intelligent and informed they may be. The place to start is with the past. While it doesn’t predict the future, it’s the best way to get some idea of what to expect. The problem is that most of us have no idea what rate of return we have made in our RRSP. Why not? Because our investment company doesn’t tell us.

That is why I wrote a simple Microsoft Excel worksheet I call the Personal Rate of Return (PRR) Calculator that comes with my book: Smoke and Mirrors: Financial Myths That Will Ruin Your Retirement Dreams.

The Personal Rate of Return Calculator

All you need to do is enter the date and amounts you invested in your RRSP since it started. Tell Excel the current market value of all your RRSP accounts and use the Solver to find out your personal rate. Has it been 8%? 5%? 2%? Worse?

Don’t fool yourself. If it’s been 2%, projecting future growth at 8% is foolhardy.

The next thing to do is list all your personal debt and their interest rates. Perhaps a mortgage at 5%? A line of credit at 7%? Maybe a bit of credit card debt at 10%? Compare your RRSP return to the interest on your debt. The greater the difference, the further ahead you’ll be by paying down debt before continuing to play the RRSP game.

David Trahair is a Chartered Accountant who has been dealing with small businesses for over 20 years. His book Smoke and Mirrors: Financial Myths That Will Ruin Your Retirement Dreams is available at Indigo, Chapters and other fine bookstores. For more information about David’s books and services, check out www.smokeandmirrors.ca.