Google recently generated $10.6 billion in annual revenues with 12,200 employees. Not relevant to your business? Think again. Divide one by the other and you see they’re generating over $800,000 in revenue per employee. Aim high!

Actually, aim low. Focus on the bottom line. On that $10.6 billion in revenue Google earned 30% in profit. For every dollar they brought in the door, 30 cents dropped to the bottom line.

REMEMBER THESE KEY METRICS:

• Revenue per employee
• Profit margin (profit as a percent of revenue).

Lately people have been asking me questions about the current IRS mileage rate and how to use it – so I wanted to give a quick reminder to everybody: this year’s (2007) rate is 48.5 cents per mile.

For a more in-depth discussion about the IRS mileage rate, how to use it, and some limitations, please click here.

It’s worth noting, too, that you’re supposed to keep a mileage log. I know, it’s a pain, so ask your CPA what her/his opinion on the matter is.

Some CPAs we work with are adamant about strictly accounting for business miles, while others are more forgiving of what could generously be called, “annual estimates.” All the tax people we work with, however, tell us that auto expenses (and meals and entertainment) are a favorite target during IRS audits.

For the record, all of this year’s numbers can be found here, and you have one-click access to them under the “Quick Links” section at our home page: www.FinancialThink.com.

If your bookkeeping system is in maintenance mode, you should be done with at least a soft close of the books today, the 15th of the month. A quick, accurate monthly close gives you good numbers to work with - numbers that support smart decision making. So here’s a guideline to help you and your finance team stay on track.

The monthly close

The monthly close process results in a set of financial statements that tell a story about the financial performance and condition of your business.

Generate these financial statements – P&L, Balance Sheet, Cash Flow, A/R and A/P – by the 15th of each month to meet three primary needs:

• Management needs information to make decisions about how to run the company
• Bankers and investors use the data to evaluate your business
• Tax agencies like the IRS use your financial statements to confirm compliance.

A typical monthly close checklist can range from 20 to over 100 items, but the process can be organized into five parts:

1. Complete data entry. Important items here:

• Bank, credit card, loan, and line of credit transactions all entered and accounts reconciled
• Customer invoices/sales all entered and dated in the correct month
• Vendor bills/checks all entered and dated in the correct month
• Payroll entries current including wages, payroll tax, worker’s compensation, PTO, and retirement plan deferrals and liabilities
• Other key accruals entered such as general liability insurance

2. Open items

• Last month’s open items addressed.
• Suspense account is actively managed; items aren’t stuck in there and left for dead until tax time
• An open items list outside of the books is maintained. A bookkeeping system is constantly changing to meet the business goals of its owners and keep up with new compliance tasks. There will always be open items such as instituting job costing, converting to a new payroll system, aligning the chart of accounts to make for better forecasting, memorizing management reports, etc.

3. Backup system. In place, working (recently tested), daily backups being made including offsite copies of data file.

4. Line by line review of financial statements

• P&L
• Balance Sheet
• Support schedules
• General ledger detail

5. Management reports. Report package delivered on time to Management with “known issues” identified that might affect Management’s interpretation of the numbers and decision-making process.

The key to the monthly close is a commitment to the process. I guarantee it: you’ll never have “more time” to catch up later. But if you ever get audited, run into a cash flow crisis, work on government contracts, take on partners or try to sell your business, you will be thankful you had the foresight to close the books promptly month in and month out.

Starting today you pay two cents more to mail a letter. It might not sound like much, but it’s another contributor to expense creep - the steady erosion of profits from lots of “little” cost increases.

For example, January of this year brought a four-cent increase in the allowable business mileage expense as well as minimum wage increases in several states throughout the country. No doubt your company’s health insurance premiums went up this year, too, and borrowing money is more expensive: the Prime Rate is now more than 100% higher than it was three years ago.

Taken together, these modest increases add up. That’s why I periodically blog about expense creep: you should never stop combing through your P&L, looking for ways to cut costs both large and small.

It’s easy to become complacent; I know from personal experience. I just found out we can save 10% by paying our offsite document storage vendor annually instead of monthly. I should have asked them up front when we signed up. Sure, it’s only $40 a year, but I’d rather have that $40 in profit than not at all.

And now that I’m “awake” to this issue, it got me thinking…if we go paperless and stopped storing all those boxes, how long before we recoup our investment?

Cost control…it’s a never-ending process.

There’s a ton of free information on the internet about buying insurance for business and personal protection, but it tends to be the same advice over and over. In today’s post I’m linking you to a few articles on the topic that caught my eye because they are a little different than the usual fare.

First, Charles Wilson of RiskSmart Solutions offers a tidy one-pager about why you don’t want to underinsure your business assets.

He points out that it can happen intentionally when people low-ball asset value in order to lower insurance premiums. And it can happen unintentionally when people forget to add assets to the list, don’t account for inflation and true replacement costs, or forget about incidentals such as shipping and sales tax.

Charles also mentions a “co-insurance clause,” which lets your insurance company under-reimburse you for the loss if you have underestimated the value of your assets.

Maybe I’m particular to Charles’ work because like us, he doesn’t make his money on referral fees or commissions. He makes his money on the value of his consulting services only, so there’s much less chance of conflict of interest. So when Charles offers advice on how to select a good insurance broker, it’s well worth heeding.

Next is a recent Inc. Magazine article that addresses a new category of insurance – cyber risk. It’s worth the quick read and it’s something we should all put on our radar screens as we do our risk management planning.

I like this next article because it deals with personal insurance (not business), and it flat out recommends that you save your money and don’t buy at least ten types of insurance. Agree or disagree, it’s refreshing when someone gives a strong opinion like this and takes the “less is more” approach.

Finally, an all-purpose insurance website for small business was recommended by Ilana DeBare in a recent Mind Your Business column.

Buying insurance certainly isn’t the most interesting part of running a business, but if you pair this necessary evil with establishing a corporation or an LLC, signing good contracts, and taking care of your customers, you should be in pretty good shape.