Forest or the trees?

You have heard the expression, “can’t see the forest for the trees,” but what if the problem is really that you are too focused on the forest?

The business world is full of consultants that use buzz words such as visioning and terms like mission statement. The idea is to get business people to understand the big picture and to think long-term. If you have attended many workshops you have undoubtedly heard the story about the three stone masons.

The building site did not look like much. The land had been excavated. Foundations had been prepared, and the first courses of stone had been placed. In several places the walls rose higher than a man’s head, and the building was beginning to take shape.

One of the elders of the town visited the site, and he saw three masons working on different parts of the building. He asked one of them what he was doing. The mason replied that he was building a wall, and it was back breaking work. The elder asked another mason what he was doing, and he replied that he was building a wall that would become part of a grand building that would last for generations. The elder then approached the third mason and asked the same question. The third mason replied that he was building a magnificent and mighty cathedral to glorify God.

The story is told to encourage people to value their work by the contribution that they are making to the ultimate goal of the organization. Each of the masons gave an accurate response. The first focused on the activity. The second took a broader view, and the third took a still broader long-term view. In the terms used by planners, the responses were about activity, mission, and vision, respectively.

That is a nice story, and it makes a good point. It emphasizes understanding the mission and working to achieve the vision. However, it ignores the simple truth that all three of the masons were doing the same thing. They were building a wall. Trainers using this story often add extra detail about how the first workman was unhappy. Then as they move to their descriptions of the second and then the third interview, the workers become happier. It is true that perspective matters, and it is true that having a sense of purpose is important. However the act of selecting stones, cutting them to fit, and building a wall is difficult and sometimes dangerous labor. Laborers, craftsman, and crew leaders finish the work day exhausted and sore. No amount of knowing that they were building a cathedral that would stand for the ages and glorify God is going to ease aching muscles and soothe calloused hands.

I’m not implying that moral of the story is wrong. However, I think it is time to refocus attention on activities. Paradoxically, the best way to accomplish the mission and achieve the vision may be to understand the activities of a business and to perform them well. We see this in sports. Consider baseball. As exciting as it is too see home runs or double and triple plays, those are not the things that win games. Teams win because they consistently get hits. Base hits put men on base and drive in runs. Football provides another good example. While the playing field is 100 yards long, the objective play after play is on moving the ball 10 yards in four plays for a first down. Teams that are able to do that over and over again win football games. Teams that focus on winning games or getting touchdowns lose. Teams that focus on moving the ball get first downs and win.

If you want to succeed in your business, you need to understand the activities that comprise your business. In the context of the story about the three masons, it does not really matter whether the mason is building a majestic cathedral that will stand for the ages if the stones are not selected with care and placed properly. While there may be glory in working to achieve the vision, success is dependent on the activities or tasks. While it is possible to get so bogged down with operational details that you forget the ultimate objective (not seeing the forest for the trees), it is also possible to become consumed by the big picture and the long-term objective. It is important to notice the trees. Without the trees, there would be no forest to see.

How to see the trees
Business owners have been thoroughly schooled in how to see the big picture and how to adopt a long-term view. They have participated in visioning exercises and learned to write mission statements. The idea of focusing on operations and activities may not be as exciting as strategic thinking, but it is time to return to basics.

One difficulty faced by companies trying to evaluate their operations is trying to find comparisons. Companies, particularly successful companies, tend to think that they are unique or that they have some sort of special recipe or secret sauce. While it is true that their success is probably due to some sort of competitive advantage, it is not true that they are unique. They may be faster or more efficient. They may be better. They may do some things differently, but they are probably not unique. The problem with believing that they are unique is it blinds them to the simple truth that most of the basic processes they use are similar to the basic processes of other businesses. This makes it nearly impossible for them to benchmark. Benchmarking is the process of comparing your processes to some sort of standard (or benchmark).

If you want to really understand your business, then understand the activities and details by figuring out the basic processes and then analyzing each step in the process. If you compare yourself to accepted benchmarks, you can evaluate how successful you are at each step. Consider sales. The typical sales cycle looks like this.

• Prospect: Identify likely customers.
• Contact: Approach customers and connect with them in some way.
• Qualify: Evaluate how likely a customer is to purchase your product.
• Present: Offer your product to the customer.
• Close: Complete the deal. Deliver the product, and get paid.
• Referral: Ask your customer for referrals.

Wholesale or retail, expensive or inexpensive, long cycle or short, online or brick and mortar does not matter. These are the basic steps. Attention to the details in each step is what will set you apart from your competition.

You can apply the same logic to your supply chain and fulfillment processes. The basic steps are similar for all businesses. How you handle details is what gives you a competitive advantage. How big an inventory do you maintain? How do you manage supplier relationships? How do you ship products?

You can deconstruct your processes even when they are not as obvious as sales or supply chain or fulfillment. Does your business rely on inbound calls? Do you have several people working phones? If so, then that activity can be compared to a call center. Does your business require a lot of transaction processing? Compare your business to other businesses with high volumes of transactions. Do you ship a lot of product? Measure yourself as a distribution center. Do you store and manage a lot of data? Benchmark yourself against data storage companies. Do you maintain a large physical inventory? The function to evaluate in this case would be warehousing.

Forests grow in natural cycles. The first things to grow on open land are fast growing grasses and other small leafy plants. The next things to grow are shrubs. The first trees are softwood trees, and in time the softwood trees give way to hardwoods. The types of plants and trees in a forest are also determined by climate, soil type and water. There are many things to see in a forest, and if you want to see them, you have to look at the trees.

Do you need sales training?

I’m not sure what I expected when I left the relative security of a salaried position for a sales job that paid a commission. I had an idea that the life was not really the one Arthur Miller depicted in Death of a Salesman, but I did not know if it would be better, or worse. I was going to sell financial services. I read a few books about sales. Harvey Mackay’s Swim With the Sharks Without Being Eaten Alive helped, as did the concepts in Dale Carnegie’s How to Win Friends and Influence People. It was a strange new world for me. I wondered about taking some sort of training class, but any doubts that I had were quickly dispelled by my new boss who informed me that he would teach me everything I needed to know.

I set out to make my fortune. Under the tutelage of my boss and a few other sales people that pitied the new recruit, I began a new career in sales. I had no idea what I was doing. I learned great bits of wisdom such as, “If they aren’t saying no, they are saying yes.” I struggled to accept that every “no” got me one step closer to “yes.” I discovered the value of being a persistent, professional pest, and as much as I like to talk, I recognized the power of silence as a negotiating tool. My boss taught me to “up sell” and to direct prospects to products with higher commissions. I picked up the so called secrets of selling fairly easily and quickly. I was on my way to being a salesman. How could I go wrong? My boss would teach me everything I needed to know.

Unfortunately, I was not on my way to being a successful salesman. My boss was a fine man. He was thoughtful and kind. He did a good job of organizing the sales territory. He knew the customer base and the product, and he seemed a “natural” salesman. He was patiently encouraging. He learned his craft over many years, and he had many teachers. Unfortunately, as with many people who do something well, he had no idea why he was successful. (This happens in other fields also. Great athletes do not always make great coaches.) The reason this was unfortunate, is that there was no way that he could teach me everything I needed to know.

Ultimately, I did manage to learn to be a good salesman. I learned how to consult with clients and understand their needs so that I could provide a solution instead of simply pushing a product. I learned how to provide value to the customer. I learned the importance of developing long-term relationships so that I could continue providing solutions and customer value through repeat business. It took me three years, and I ultimately changed jobs. That was when I learned the value of sales training.

My first experience with sales training came about six months into the new job. A major shakeup of senior management resulted in a new CEO and some reorganization. The new CEO decided to hold a company-wide meeting. One day of the meeting was set aside for sales training. This was the first formal sales training experience for much of the sales team, and all of us were skeptical. I had finally become an excellent sales person after three years of on the job training, and I was certain that there was nothing new for me to learn. This sentiment was shared by many of the high performers. Fortunately we kept an open mind. We learned a lot, and as a result of that experience my perspective on sales changed.

No matter your experience or your sales teams’ ability, sales training can help. Like any skill, sales can be taught. The quality of instruction will make a big difference in how well or how quickly sales can learned. Good training and practice can help novice salespeople learn the basics. The same training helps experienced and successful salespeople by confirming that they are doing the right things and helping them make adjustments if necessary. Sales training can help build a common vocabulary for your sales team and it helps standardize processes. Common vocabulary and procedures make it possible for teams to function smoothly. Sales training also helps support the idea that selling is an activity that can be studied and practiced. Training helps reinforce the importance of planning, and it serves as an important reminder to pay attention to detail.

There are many different types of training programs. Whether you are an experienced salesperson or just learning the ropes, training may be able to improve your sales skills. Give it a try.

  

Bank Local

Bankers are not very popular these days. Neither are they considered very trustworthy. A quick search on Google or Bing brings up quite a collection of articles about declining trust. Here are two examples.

• What Banks are Still Missing: Trust, May 4, 2009
• Trust in Banks…gone! How to get it back? November 17, 2010

A healthy mistrust of banking is very trendy. Distrust of large financial institutions is as American as apple pie. The second and third Presidents of the United States were both leery of banks. President John Adams was no friend of banks when he said,

Banks have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation than they can have done or ever will do good.

Thomas Jefferson also had some scathing words.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. 

The problem with the universal condemnation of banks and bankers is that it is misplaced. There are several banking systems. Adams and Jefferson were writing about a national bank. The recent financial meltdown was caused by another type of bank, the “too big to fail” banks and financial institutions. These are the banks that consumer guru Clark Howard calls “giant monster mega-banks.” However, locally owned and community based banks still deserve our trust and respect. If anything good comes out of the financial meltdown and the near collapse of the big banks, it may be a return to banking at locally owned and community based banks. If this happens, then it is part of a larger trend of doing business locally.

Many modern banks and financial institutions are primarily transaction processors and speculators, but those are new roles for bankers. Banks, especially in small town America, used to be the institutions that helped start small businesses and made it possible for people to buy homes. When little boys and girls saved their allowance or paper route or babysitting money, they dutifully took it downtown to the bank, and the friendly banker put it into an account and marked the deposit in a passbook. Banks encouraged people to put money away for a rainy day or to save for big purchases. Before the days of MasterCharge (now MasterCard) and BankAmericard (now Visa), banks encouraged customers to save for holiday shopping with Christmas Club Accounts. Now banks encourage customers to take on high interest rate debt. It is hard to say which came first, the rise of giant banks or the change in social mores from planning and saving to debt. In either case, too much debt is a huge part of the morass in which the world finds itself today. It turns out that easy credit had consequences.

The solution is to return to banking as it used to be. If you know where to look, you can still find a friendly banker. There are still places where children can deposit their allowance into passbook accounts. You can still find bankers that will discuss your business plan and work with you to help your business succeed, and there are still banks that will lend you money because the loan committee knows you personally, and they consider your character as important as your FICO score. A community bank  in Central Texas runs an ad where the banker asks, “Who is your banker?” He’s not asking the name of the bank. He’s asking the name of the person at your bank that knows your name. Do you bank where someone knows your name?

Local and community banks in your town also support neighborhood business. They have a vested interest in the success of the local grocery or pharmacy or hardware store because they shop in those stores. When the banker lends money to someone to open a new restaurant, it is not simply another loan to generate profit for the bank. Instead it is a new business for the community and another place that families, including the banker's family, can go out to eat.

Neighborhood bankers don’t just want local business to make enough money to repay their loans. They want local businesses to be successful so that the community is prosperous. When local banks make a profit, the money stays in the community and supports local business.

If you long for the days of a friendly banker that knows your name and not just your account number, if you want to do business with someone that will take the time to learn your business and wants you to succeed, if you want to bank with someone that is part of your community and not just a branch of some giant corporation, then it is time for you to start banking with the locally owned banks in your community.

Why Groupon Succeeds

Have you ever used Groupon? Groupon is a service that sends out a daily email with coupons for local businesses. Most of the deals are pretty good. If you don’t have any idea what I am talking about, ask around. One of your friends probably subscribes to Groupon or has used it on Facebook. Business owners that have used Groupon to promote their business have reported that doing so resulted in a lot of sales. Groupon is a new company, and it appears to be successful. According to recent speculation, Google may even be considering purchasing Groupon.

The whole concept and implementation is innovative. Even so, there must be some secret to their success. Do you wonder what it is? Do they have some sort of super-efficient way to manage their vendor and customer relationships? Could it be cutting edge technology?

Well? The answers are no and no. The secret is their attention to detail and the quality of their writing. Groupon does not rely on business offering deals for ad copy. It has a writing staff. It may not be off-the-wall like this product description I’ve added to the end of this post for a wool coat from the J. Peterman Company, but according to CEO Andrew Mason,

. . . having well-written, engaging content is a key part of convincing users to keep reading about new shops that they might never have never heard of.

Creative writing was a hallmark of J. Peterman whose ad copy was so well known that it even ended up as part of the plot line on the popular TV show Seinfeld.

Groupon works because Mason and his team understand the importance of branding and of articulating a value proposition to customers. Groupon recognizes that it has two customer groups: the vendor with the product and the customer looking for a deal, and it offers value to each group. Groupon’s brand represents good deals for consumers and an easy approach to product promotion using online coupons to for vendors, and the company avoids the trap of being another coupon clipping site.

Check out this blog article about Groupon. DEMO: The secret of Groupon’s success is … good writing?

  

J. Peterman Company product description:

North Woods Know-How

Men who wear jackets like this know things.

• How to start a fire in the rain.
• Measure a cord of wood.
• Build empires.

Like Samuel Bingham. Started out as a saw-filer and eventually became “The King of the Cascades.” At 60, he was still showing the greenhorns how to untangle log jams on the Gatineau.

Or J.R. Booth. Started out as a carpenter with $9 in his pocket. Worked well into his 90s and left a railway empire estimated at $33 million.

Clearly two men worth emulating.

Wool Zip Jacket (No. 2833). Both rugged and handsome, it’s made of a 90% Melton wool blend that’s brushed so the warp and welt yarns aren’t visible. 2-button adjustable cuffs. Side slits. Front and back yokes.

The front yoke is unique in that it covers the pockets, making them the perfect place to keep maps, a deed, or your GPS unit. Extremely warm but not bulky.

Every North Woods estate should come with one of these jackets and a black lab. Imported.

Men’s sizes: S, M, L, XL, XXL.

Colors: Navy, Red.

A different approach to business plans

I wrote a short note to an old Marine Corps buddy who is launching a new business. This is what I wrote.

Here are a few things for you to think about as you get rolling.

You need to develop a one sentence description of your venture that captures the essence of what you plan to do. If you want to dust off your old field manual and use SMEAC that will work. Just be sure you cover the Who, What, Where, When, Why, and How.

Be sure you have a clear vision of what you are trying to accomplish. In the business planning world, this is called a vision statement. Figure out something that helps share your vision that is memorable and short. KISS is the acronym to remember for this one. “Keep It Short and Simple.”

You also need to have a clear understanding of your mission. One way to do this is to take the time to write out a simple mission statement.

If all of this sounds like the beginning of a formal business plan, that is because it is. Here are the basic components of a plan.

Summary
Overview of the business
Analysis of the market
Description of products
Organization and management
Marketing and sales plan
Financial details

If you have experience with business plans, most of this should be familiar, but what is SMEAC? If you have a military background, then you may recognize SMEAC as a Five Paragraph Order. The Five Paragraph Order, or some variation, is the format for virtually everything the military does. The initials stand for:

Situation
Mission
Execution
Admin and Logistics
Command and Signal

The armed forces are large bureaucratic organizations, and it is easy to poke fun at them. However, two things that the military does better than most are organizing and planning. For example the basic administrative tasks of military units are divided into four parts: 1) Personnel, 2) Intelligence, 3) Training and Operations, and 4) Supply. Those four groupings are clear, concise and complete. One of the ways that the military accomplishes its organization and planning tasks so well is that it has developed consistent methods and proven them over time. The processes are also simple and easy to remember. For example, when troops need to report enemy intelligence, they simply remember the acronym SALUTE which stands for Size (of the enemy force), Activity (of the enemy), Location (of the enemy), Unit, Time, and Equipment (of the enemy). This is simple and easy to remember. It also provides all of the information necessary.

SMEAC is an easy to remember way to organize a plan. It will work with big projects and small projects. It is simple, and it contains all of the elements that would normally be included in a business plan. The following explanation is simplistic, but it will help you to understand the concept.

Situation
This section is exactly what it sounds like. It is the section where you will provide an overview of the relevant facts and provide background information. This is also the place where you would explain the business opportunity.

Mission
This section is where you will explain what you will do. You do not need to explain exactly how you plan to do it. You will explain how in the next section.

Execution
In the previous section, you described what you were planning to do. In this section, you will describe how you will do it.

Admin and Logistics
This section will include the details to support what you say you will do in the Mission section. It will tie to how you plan to do it as described in the Execution section.

Command and Signal
In this section you will describe your organization.

As you can see, the Five Paragraph Order is clear, concise and complete. I’m not suggesting that you use it instead of the business planning formats that you already use for two reasons. The first reason is that if you are already comfortable with a process that works, you should stick with it. (If what you are already doing does not work, that is another matter.) The second reason is that most of the other people that you show your plan will be more familiar with a more traditional format. Even so, it is useful for you to understand this way of organizing your plan. It will help you to write a more complete plan and to write it more quickly. SMEAC is also so simple that you may find that you are able to take the time to plan that you may have done without planning in the past.

Is tax deferred saving a bad idea?

The concept is appealing. Save money using pre-tax dollars in a special account. You can use the tax savings to put more money to work. The earnings in the account will not be taxed, and you will have bigger balance years from now than if you had saved after tax dollars in a taxable account. You will pay taxes on your withdrawals, but you may be subject to lower tax rates. You will be much better off than if you save after tax dollars in a taxable account. It sounds too good to be true.

I cannot tell you whether tax deferred accounts make sense for you. That decision should be based on your particular situation. However, before you automatically assume that it is a good idea to put money into tax deferred plan such as an IRA, SEP, 401(k), 403(b), or 457 plan, it makes sense to examine three basic assumptions.

Tax savings means a bigger balance
This may is true. However the tradeoff is that withdrawals will be taxable. Whether deferring tax will give you more after tax income is dependent on current and future tax rates. The biggest reason that balances are larger is that if a person was going to save $100, then he or she would have to earn $139 at a 28 percent tax rate to have $100 to save. The assumption is that people who would save $100 after tax dollars will save $139 pretax dollars. That assumption is not always true.

Tax deferred plans reduce your tax
This may also be true; however the statement is based on several assumptions. If the assumptions are false, which is possible, then tax deferred plans may not reduce your tax bill. They may even increase it. The blanket statement that tax deferred plans will reduce tax burdens is based on an assumption that tax rates will be lower when funds are withdrawn than when the income is deferred. There are several reasons that this might not be true.

One reason is that lifetime earnings follow a predictable pattern. People at the beginning of their careers tend to make less than people later in their careers. A healthy portion of the balance from a tax deferred savings plan is likely to have been set aside when income was relatively low. With progressive tax rates, lower income taxpayers pay tax at lower marginal rates. Of course the argument is that the money will be withdrawn at retirement and income will be necessarily lower. That argument is contrary to the reasons that people save for retirement. The income withdrawn from tax deferred plans will be taxable. If the taxable income is lower, then the plan did not accomplish the objective of accumulating a large enough balance to provide a replacement income.

Another reason that tax deferred plans may not reduce your tax is actually a collection of reasons under one heading: Tax is too complex a subject to make blanket assumptions. Here are just a few of the issues:

• Future tax rates are unpredictable.
• Social Security taxation is tied to other taxable income.
• AMT is usually difficult to plan around.
• If you experience a windfall, then you are likely to have higher income later, and that may mean higher tax rates.
• If you save a lot, then you may have higher income later.
• You may be living in a state without an income tax and plan to retire to a state with an income tax.
• Tax deferred account earnings are taxed as ordinary income at withdrawal. This is true even if the earnings are the result of long-term capital gains or qualified dividends which may be taxed at lower rates.
• Tax rate comparisons assume that alternative investments are taxable investments. This ignores tax-free investments. 

A question of control
In addition to the two assumptions explored above, there is also the question of control. The implicit assumption whenever a person uses a tax deferred vehicle is that he or she remains in control of the investment. This is true even though nearly all people know about age limits for penalty free withdrawals. The withdrawal limitations are a reasonable tradeoff for the tax deferral.

Control of funds in tax deferred accounts is actually a much bigger question than withdrawal limitations. There are two. The first is related to age. Tax deferred plans typically have some sort of required minimum distribution. This means that you will be required to withdraw some portion of your account regardless of your need for funds, and you will be required to pay income tax on the amount you withdraw. This is a huge amount of control to cede in exchange for tax deferral, and it is much more significant than having to reach a minimum age.

The second control question relates to how tax deferred accounts fit into your estate planning. This is a complex topic well beyond the scope of this article. However, the time to find out that tax deferred accounts may not be the best instruments for your estate plan is before you start putting a lot of money into them.

Is tax deferred saving a bad idea?
The answer to this question is dependent on a variety of factors. Tax deferred plans are neither good nor bad. Instead, they are tools that work well in some situations and not so well in other situations. If you are contemplating a tax deferred plan, ask yourself some question such as these:

• What do you anticipate your income will be over your lifetime?
• When do you expect to earn more or earn less?
• What are your expectations about your future tax rates?
• What does your expectation about your earnings and tax rates mean to you?
• How important is it to you to be able to control your withdrawals in the future?
• Do you have estate planning concerns?

What should you do?

The first thing you should do is to consider your situation. Ask yourself what you are trying to accomplish. If your objective is to shift income and defer tax, then use a tax deferred plan. If your objective is simply to save for some purpose, explore all of your alternatives and weigh the pros and cons of each. If a tax deferred plan is your best option, the use it. You may find that investing after tax income in a taxable account is your best option. It is likely that you will determine that you need some combination of tax deferred and taxable accounts.

If you are not sure what to do, seek advice from a professional. A CPA or financial planner should be able to explain your options and help you decide. If you have estate planning questions, then be certain that you seek advice from an attorney skilled in that area. If your situation is complex, you may want to involve several advisors with different skill sets.

Do you need a zero balance account?

A zero balance account is an account that usually has a zero or extremely low balance. Businesses use zero balance accounts to manage cash by moving money into the account only when it is going to be needed for a specific purpose. For example, payroll accounts are often zero balance accounts. Businesses will move the funds necessary to cover payroll into the account right before issuing paychecks, and then as employees cash the checks, the balance will drop back to zero. Zero balance accounts let businesses keep cash invested until it is needed. Zero balance accounts also help reduce exposure to fraud because it limits the number of people who have access to other business accounts.

Zero balance accounts are useful whenever a business makes routine or predictable payments out of an account. The most common example of this is payroll, but other examples could include rent or vendor payments.

So the question is, “Do you need a zero balance account?” The short answer is that you do if a zero balance account will help you put idle cash to work. While it may seem to be a lot of extra effort, many banks that provide cash management services can help you automate the process.

There is another reason to consider a zero balance account, and this reason applies to all businesses. It also applies to people that do not own businesses. The reason is fraud. Do you bank or shop online or use a debit card? Have you set up automatic debit transactions with vendors? A zero balance account can protect you. Consumers have a measure of fraud protection when they use credit cards. Business credit cards may not have the same protections. Debit cards may offer fraud protections, but legal protections may be limited. There are also some issues with automatic debit transactions.

Here is how a zero balance account could work for you. First establish a new checking account. Use a checking account because savings or money market accounts often limit the number of withdrawals that you can make. Keep your existing checking account. You use the same financial institution where you normally bank. That will make it easy for you to make transfers as necessary, and it will limit your additional recordkeeping. Try to use an account that allows a zero or very low minimum balance and either no fees or small fees. Some financial institutions will combine the balances of all of your accounts for the purposes of calculating minimum balances. You should also choose an account that will let you set up automatic transfers.

Once you have the account established, link it to your debit cards and online banking. Use the new account for automated debits and other predictable transactions. If possible, unlink your debit card from your old account. You can set up automatic transactions that will transfer funds from your first account to your new low balance account to cover your routine transactions. When you know that you are going to be using your debit card transfer the funds to cover your anticipated transaction. The idea is to limit your exposure to risk by limiting the amount of money in your account. Another way that it works is that setting up a cash management process that requires regular attention also increases your awareness so that if you are a victim of fraud or theft, then you will be able to respond more quickly.

Does a zero balance account makes sense for you or your business?

Have you prepared your 2010 taxes yet?

Even though there is more than a month left in 2010 and tax deadlines are well in the future, it is not too soon to get started cleaning up your books and preparing to file your taxes. Getting started now can help you by reducing the amount that you spend on bookkeeping, accounting, and tax services, and it could reduce the size of your tax bill. If you begin reviewing your tax situation now, you will also have some time for last minute tax planning for 2010.

Getting started
The first thing you need to do is to get your books in order. Whether you have a full-time bookkeeper or simply save everything in a shoebox for your CPA, a little organizing can go a long way. If you need more guidance than this brief article provides, contact your bookkeeper or CPA. They will be happy to tell you how to improve the way you organize your records. What you pay for an hour or two of consulting will be more than offset by the money that you can save by being organized. Your CPA or bookkeeper might even provide the consultation for free. You may even decide that working more closely with your professional accountant will give you more time to spend on the rest of your business.

Separate business and personal
Make sure that your personal and business lives are separate. This seems obvious, but every year small business owners or employees with unreimbursed expenses turn over business records comingled with personal records. It may be too late for 2010, however you should make sure that you have different bank accounts and credit cards for your business and personal lives. You may not need special business accounts, but you should make certain that they are separate.

Get your books in order
There are a couple of important parts to this step. The first step is to organize your records the way that CPAs and bookkeepers do. Figure out all of your sources of income and group them into logical categories. Then organize all of your expense. Business owners tend to focus on expenses because they worry about cash flow. However most people used to working with money are accustomed to seeing revenue, then expense, then net income. It is not a bad idea for you to think in that order also. If you think about it, the success of your business depends on money coming in the door, not just your ability to control expenses. Income and expense groupings are not just for business. If you organize your personal records this way, you will find your personal record keeping easier. An added bonus to organizing your records this way is that bankers also expect to see your financial statements in this order. If you ever need to complete a credit application, it will be easier for you to find the information that you need.

Once you have grouped your records into the two large categories of income and expense, further categorize the records by type. How you do this will depend on the type of business you own. If you have W-2 income then keep that apart from business income. You will want to group business income by whether it was for services or goods. A quick note about employee business expenses is in order at this point. If you are organizing your records because you have employee business expenses, you will want to sort out any payments that you received for expenses by whether they were taxable or nontaxable. Your employer should be able to tell you this.

After you have categorized your income, do the same with your expenses. If you already have a bookkeeping system with a set of accounts, then simply use those accounts. This is a good time to review your chart of accounts for completeness and accuracy. If you do not already have a way to categorize your expenses, take a look at your previous tax returns and see how your CPA divided up your expenses. Your CPA may even have a tax organizer that you can use. Depending on the arrangement that you have with your bookkeeper of CPA, this process could be as simple as organizing your receipts and statements, or it could include entering the expenses into your bookkeeping system. If all of this is getting unwieldy for you, then this is a good time to talk to your CPA or bookkeeper about how they can help you manage your books.

What about records that you do not yet have?
You will not receive some statements or reports until the end of the year or even until January or February. No problem. Set up folders for the statements or reports that you expect to receive later. Then when you receive them, simply add them to the appropriate folder.

How this helps
This may seem like a lot of work that could just as easily wait until later. However, by beginning now, you will be more likely to have everything you need later when you take your files to your CPA. In addition, having complete and well organized records makes your CPA’s task easier so that he or she can work faster. That will save you money. In addition, complete and well organized records will make it less likely that your CPA will miss something, and in the event that your return is selected to be audited, good documentation will make the audit much easier for you.

AICPA Supports Repeal of Burdensome Tax Information Reporting Measure

AICPA Supports Repeal of Burdensome Tax Information Reporting Measure

The American Institute of Certified Public Accountants told members of Congress recently they should repeal the section of the new health care law that requires businesses to report to the Internal Revenue Service any purchase from a vendor of goods or services worth $600 or more during the calendar year.

The AICPA said it will be burdensome and costly for small businesses to compile the data and prepare the Form 1099-MISC information return. Furthermore, the AICPA said the information collected on the 1099 forms will not be very helpful to the IRS in collecting any unpaid taxes that should have been paid by the vendor because it will be difficult to reconcile payments reported on the forms and income reported by the vendor.

The reporting requirement is included in the Patient Protection and Affordable Care Act and is effective for purchases made in 2012 that will be reported on 1099 forms filed in 2013.

A copy of the AICPA’s letter to members of the U.S. Senate is pasted below. An identical letter was sent to members of the U.S. House of Representatives.

If you would like to speak to someone about the AICPA’s letter, please contact Shirley Twillman, AICPA senior manager for media relations, at 202-434-9220 or stwillman@aicpa.org.

To read the entire article and the letter, please click on the link above.

Repost from CNN/Money.com: IRS starts mopping up Congress's tax-reporting mess

IRS starts mopping up Congress's tax-reporting mess
By Neil deMause, contributing writerJuly 9, 2010: 11:18 AM ET

NEW YORK (CNNMoney.com) -- With a new mandate looming that will require business owners to file millions more tax forms, the Internal Revenue Service has begun the daunting process of figuring out how to turn the law's sweeping demands into actual rules for taxpayers.

To read the rest of the article click here. IRS starts mopping up Congress's tax-reporting mess

From Accounting Web: Collecting unpaid taxes four pennies at a time

The article below is reposted from AccountingWEB, a popular blog related to the accounting profession. It describes a collection effort by the IRS.

Aaron Zeff is the owner of Harv’s Metro Car Wash in Sacramento, California. Imagine his surprise when, one day last March, federal agents showed up at his business demanding payment of an amount owed from tax year 2006.

Just how much did Zeff need to cough up? Four pennies.

Check out the article for the entire story.
Collecting unpaid taxes four pennies at a time AccountingWEB.com

Do you need a board of directors?

If you are not a corporation and required to have some sort of board, you may be wondering why anyone would even ask this question. After all, a board of directors represents the shareholders, and if you are a sole proprietor, you are the shareholder. If you are in a partnership, you and the other partners are the shareholders. It makes sense that you don’t need anyone else to look after shareholder (your) interests.

Or does it?

A board is . . .
A board is the governing body of a corporation. It is responsible to the owners of the corporation. It hires and fires the CEO and sometimes other officers. It sets policy and direction. Board members are supposed to be selected on the basis of their skills, experience, knowledge, or some other strength. No single board member is expected to be an expert in everything, but their strengths should complement each other. The board should be a moderating influence when necessary, and it should lead the corporation in new directions when necessary.

At this point, business owners are saying, “But that is my job!” They are right, and strictly speaking there is no need for a board to represent the owners and to direct management when the owners and management are the same. However, it might be good for business owners to learn the lesson that writers learn when they are first learning their craft. It is not a good idea to try to edit your own work. It is always a good idea to find a source of independent feedback so that you do not end up breathing your own exhaust. This is a term that refers to getting caught up in your own world view so that you lose sight of other ideas or approaches. The sad truth is that we are often not very honest critics. We either give ourselves a pass on opportunities for improvement, or we downplay our strengths. One approach that many businesses use to find an independent voice is to hire consultants. The consultant approach may be good for specific problems. However for ongoing advice, it makes sense to find a more permanent solution. That is where the a board comes into the picture.

While the role of the board may formally be all about policy and direction, effective boards are also advisory bodies. Wise CEOs take advantage of the accumulated expertise of their companies’ boards. Large partnerships are able to do the same thing because the partners often bring multiple skills and experiences to the firm. Not-for-profit organizations do the same thing. Sole proprietors and small partnerships however, do not typically have boards. Skill, knowledge, and expertise are limited to the owner or the partner or employees hired for certain tasks. What if something is missing? It is beginning to sound like a good idea to have a board or a team of advisors.

A board is not . . .
Having a board is not the same as hiring professionals to perform specific functions for your business. Your board will not take the place of your attorney or your CPA. Your board’s risk management advice will not be a substitute for a good relationship with a trusted insurance agent. However, your board may be able to help you in ways that these professionals cannot.

How to create a board
Your objective is to find a source of guidance, and you hope to be able to create a team of people willing to help you lead your business.

This is something more than just a group from the civic club or business networking group, but it does not have to be much more. Your objective is to find a group of people with skills or knowledge that are willing to help contribute to your success. It is easier to do this than you might think. The most anticipated hurdle to overcome is your own thinking that there is not anyone out there that would want to do this, or if there are people that want to do this, then they will charge dearly for their time. Good news. While there are people who make their living as consultants that will charge you dearly, there are just as many people that will help you without sending you a bill. The key is in understanding why they might want to help you build your business.
 
People will agree to help you for several reasons. The first is simple self interest. Your success will contribute to the economic growth of the entire local business community. If they help you, and your business grows, then their business will probably grow also. In addition, when you are ask other people for help because of their skills or expertise, they realize that you are likely to reciprocate. Another reason is altruism. Many people, particularly those who have been successful in life, enjoy helping other people become successful. One potent example of this is SCORE which has 12,400 volunteers with experience in over 600 business skills.. This is a group that shares its accumulated experience with small businesses. They do it simply because they can and because people need the help.
 
If you are trying to grow your business, seriously consider forming a board.

Re-post from Sysomos Blog: Why Corporate Social Media Fails

Here's a blog post that I thought was interesting. The post reviews two obvious problems, lack of planning and inadequate resources. It then describes a few other less obvious issues. Certainly the lack of decent content is a problem, but how many companies think about all of the implications of social media. The final item, "The failure to build relationships" is an observation that makes the entire post worth reading.

Social media works well when companies use it to build relationships. Companies that use help encourage customer conversations are successful. Companies that think that Facebook or Twitter are simply innovative billboards are not. Check out the post. Why Corporate Social Media Fails

By the way, this post is an interesting example of the effect of social media. I read a status update on Linked In that referred to this post. The update was also shared on Twitter. The update was from a person that once worked for a not-for-profit where I had been a volunteer. However, I connected with her originally because she was the sister of a respected co-worker. It is a small world, and social media makes it smaller.

Who is on your team?

In the last week or so, I’ve been thinking about teamwork. The Word Cup is big news. Basketball teams are fighting over new talent in the NBA draft. Lance Armstrong is assembling a team for the Tour de France. Teamwork is in the news.

A well run business is like team. Businesses have owners and managers and workers. In big businesses the various players are pretty well defined. Small businesses tend to be more like pickup games though. Owners and employees do whatever job needs doing. It’s not all that different from showing up at the ball field where one day the team needs a left fielder and another day the team needs a short stop or a catcher. Specific skills may not be as important as simply being there to do the work. That works fine until the team realizes that it is good enough to play in a tournament. That’s when the team captain goes out and tries to recruit ringers. Unfortunately the new players rarely lead the team to victory. No matter what their skill or talent, it is not a substitute for practicing and playing with the team.

Think about how this applies to business. Many small businesses rely on employees to do whatever needs doing. It is simply too expensive to hire a lot of people, and until the business gets to be a certain size there is not be enough work for full-time employees. The owner usually manages the business, does the bookkeeping and payroll, hires and fires employees, manages compensation, keeps up with rules and regulations, and pays taxes. Since none of those things have to do with making or selling products and turning a profit, the business owner does all those things in his or her spare time. When tournament time comes, and the small business owner is struggling with financial statements and taxes or trying to understand insurance or deferred compensation, he or she goes out to find an expert. Unfortunately, just as with the softball or basketball team, the new player often does not know enough about the business to make a difference.

The way to victory is sign the players to your team before the tournament. You can do this even if you do not have any money by choosing the right people when you seek advice. When your books got too involved, did you ship them off to the least expensive book keeper you could find? Do you shop for a new accountant every year? Is your insurance agent simply someone you send money to every year? Is your attorney’s business card buried in a stack of cards in your desk? If the answer to any of these questions is, “yes,” then I have a new idea for you.

Find a single professional that will assemble a team for you. Many professionals recognizing the value of a team approach have developed relationships with other professionals. For example, many CPA’s routinely refer clients to the same team of advisors for legal matters, insurance, investment advice, and even hiring assistance. If you already have an accountant, attorney, book keeper, insurance agent, or investment advisor, ask that person for recommendations. Find out if they routinely refer to each other or if they ever work as a team. If you don’t already work with any of these professionals, then be sure to ask about professional relationships with other service providers when you are hiring them.

After you have identified a team of professionals that will work together for you, take the time to meet with them to discuss your business and your needs. You might try to meet with them together. If your CPA acts as a business advisor, then he or she may be able to help you do this. Consider a business lunch. The amount of time you spend with each professional will vary. The amount of time that you spend may vary. You may find it desirable to pay for a consultation. The short list below describes some of the things you might want to discuss.

• Attorney: You will want to discuss the form of your business and related liabilities and regulations that may affect your business.
• Accountant: The topics here include tax planning and structuring your accounting system so that it will provide you useful information. Other topics include cash management and accounting controls. Depending on the form of your businesses, you may also want your accountant to help you figure out how to distribute income.
• Bookkeeper: You may not have a separate bookkeeper if your books are simple or if you do not have a large volume of transactions. However if your books are complex or you have a lot of entries, or if you have payroll, then hiring a bookkeeper will be more efficient than doing it yourself and less expensive than having your accountant do the work personally. Ideally your accountant will handle the bookkeeping for you by assigning it to a bookkeeper or junior.
• Insurance Agent: The obvious items to discuss with your insurance agent include anything having to do with property or liability insurance for your business. If you or your employees drive for business, then you also need to discuss auto liability coverage. If you are a sole proprietor in a partnership or in some other business where you can be held personally liable, you should also review your personal coverage. If you provide health insurance to your employees, you may have a different agent for the health insurance.
• Investment Advisor: The discussion will include retirement planning and related issues. Your CPA will advise you on the tax consequences of various retirement plans and deferred arrangements. Your investment advisor will actually help you set them up for yourself or your employees.

 The objective is to create a team of professionals that know you and work together. Ideally one individual such as your CPA or planner can coordinate the work that they do. If that is not possible, then you can do it yourself. They key is to assemble your players and have them become part of your team early. If you wait until the tournament or the finals, it will be too late.

 

Hiring older workers

What did you think when you read the title of this post? Does it seem like a good idea? Is it a bad idea? How do you know? Ignore all of the obvious stereotypes of older and younger workers and take a look at this quote from an interview by Beth Kowitt, on June 11, 2010 in the Fortune Magazine section of the money.cnn.com website.

70% of all money in banks is held by people over 50. That's an example of an industry that's finally coming to realize that a 60-year-old client might actually appreciate dealing with a 60-year-old banker. Other sectors likely to welcome a more mature approach: adventure travel, luxury cars, lifelong learning, or retail.

The same article discusses strategies that retirees returning to the workforce should use and suggests:

sell yourself as a mature person. Stress your capacity to make smart decisions, your good judgment in managing people, your contributions in brainstorming and business development, and your lifetime connections. This is your advantage.

What do you think? Does that sound like the kind of worker that you want working for you? The proliferation of books such as Encore: Finding Work that Matters in the Second Half of Life by Marc Freedman and Don't Retire, REWIRE! by Jeri Sedlar and Rick Miners suggests that more older workers are either choosing to begin second careers instead of retiring, or they are reentering the workforce after retiring. This trend could mean a supply of experienced and knowledgeable workers for your business. Are you in a business sector that might benefit from more mature and experienced workers? Would your customers be more comfortable with older workers?

Finding qualified employees is always a challenge. Recognizing and understanding the trends related to more experienced workers can help you.

Are your customers coming or going?

Business owners need to know something about the people that are their customers or could be their customers. Over the last few decades there has been a decided shift from the north and north east to the south, and in recent years people have been leaving California for other areas. This chart by the Pew Research Center describes illustrates migration flows since 1975. The recent housing bubble and collapse has exacerbated these movements, and as this article in Reuters explains, the Midwestern manufacturing states may recover from the housing crisis more slowly than the Southern states.

Graphic representation really puts these movements into perspective. Check out this interactive map from Forbes showing movement from one county to another in 2008. The outflows from Chicago, Detroit, and Los Angeles startling. The inflows to Atlanta, Dallas, Manhattan, and Seattle are equally startling. It is not hard to figure out which would be the best places to grow a business. You can find the migration for your own county in 2008, by clicking on your county.

Tips on self-employment and working from home

If you have been following employment trends over the last few years, then you are probably aware of two important trends.

1. People in their 50's, 60's, and even 70’s aren't retiring. They are reinventing. They are taking their skills and changing careers. A few recent books such as Encore: Finding Work that Matters in the Second Half of Life by Marc Freedman make this point. There are also a variety of resources such as BoomersNextStep.com that provide services directly to the “Boomer” generation.
2. More people are working from home. This may be because companies are developing flexible work arrangements. It may be because of increased use of contractors.

One thing that links these trends is that many of the “encore careers” that boomers are pursuing involve working at home. Whether this is because a successful career has become the springboard for a second career as a consultant or because the boomer has the experience, knowledge, and skill to negotiate a non-traditional working arrangement, many older workers are not going into an office every day.

This new way of work brings some challenges though, and as Bill Vick from BoomersNextStep.com writes in Self-Employment and Working From Home Legal Facts:

Working from home can be a lot of fun and quite lucrative but there are a lot of things that you need to know from a legal standpoint that will help keep you out of trouble. Things such as managing finances, paying appropriate taxes, and following laws that the IRS has created are all important things that you’ve got to learn.

These are just a few of the question you should ask.

• Am I an employee or a contractor?
• If I am self-employed, how to I handle my bookkeeping and taxes?
• What other laws or rules affect me?

Check out this excellent article from BoomersNextStep.com to get started on the answers to these questions and others. Self-Employment and Working From Home Legal Facts

Improve your firm's data security

Worried about data security? An article in the Journal of Accountancy by Ron Box, CPA/CITP/CFF, CISSP provides a handy list of data security best practices. To read the article click on this link. Firm Up Your Data Security

• Ensure that senior management will support the security policy.
• Consider using a security policy template or other authoritative guideline.
• Include consequences for noncompliance.
• Thoroughly review applicable laws.
• Use clear and concise ideas to communicate the security policy.
• Require a regular review process.
• Review all internal controls for any appropriate modification, including all audit reports since the previous review.
• Test the system.
• Use the security policy as an opportunity to establish an ongoing security-training program.

401k and IRA Rollovers Provide Tax-Free Business Start-Up Funding (Does this sound to good to be true?)

Have you heard of Rollovers for Business Startups or ROBS? It sounds like a great idea, except for one small problem which I will get to in a minute. With ROBS, you use a 401(k) or IRA distribution to fund a new business and avoid taxes and penalties on 401(k) or IRA distributions. The idea is to form a new corporation, set up a new 401(k), rollover the funds into the new 401(k), and then use the funds to purchase stock in the new corporation.

Sounds like a great idea doesn’t it? Here is the small problem I mentioned earlier. The IRS is examining these plans, and in October 2008 even issued a memo saying that some of these plans may violate tax law. The plans may also violate some rules affecting pensions, so the IRS and Department of Labor are working together.

Read this article posted on the Tax Prof Blog for more details.

401k and IRA Rollovers Provide Tax-Free Business Start-Up Funding

Book Review: The Four Principles of Happy Cash Flow

The Four Principles of Happy Cash Flow
By Leita Hart, CPA

Cash is king! This is a simple three word sentence, but it is very powerful, and forgetting that cash is king can have severe consequences for business owners. Business owners that do not understand cash flow can actually find themselves in the odd position of making a profit while going out of business!

Knowing that cash is important, however, is only the first step. Business owners need to know how to generate cash, and they need to know how to manage their cash once they get it. The good news is that understanding cash flow does not have to be hard.

In The Four Principles of Happy Cash Flow Leita Hart has condensed cash management into four basic principles, and she describes them in simple easy to understand terms. She demonstrates the concepts by using examples from familiar companies such as Dell and Wal-Mart, and she explains how the principles can be applied to businesses of all types and sizes. The book includes ideas for:

• Maximizing cash balances,
• Getting money in the door faster,
• Managing or controlling inventory,
• And more.

Click here to see a review of the book on Amazon.com.

National Small Business Week

WASHINGTON - The nation's top entrepreneurs will be honored at the U.S. Small Business Administration's National Small Business Week events to be held May 23-25, in Washington, D.C. A series of events and educational forums will mark the 57th anniversary of the agency and the 47th annual proclamation of National Small Business Week.

More than 100 outstanding small business owners from across the country will receive awards while gathering for three days at the city's Mandarin Oriental Hotel. They will meet with top agency officials, congressional representatives and national business leaders. The highlight of the celebration will be the announcement of the National Small Business Person of the Year.

Men and women also will be recognized for their involvement in disaster recovery, government contracting, and their support for small businesses and entrepreneurship. Awards also will be presented to SBA partners in financial and entrepreneurial development, including best SCORE Chapter, Small Business Development Center and Women's Business Center during 2009.

The State Small Business Award Winners and recipients of the Champion and other Entrepreneurial awards are nominated by local trade associations, chambers of commerce, other business organizations and government agencies. Co-Sponsors include: SCORE - Counselors to America's Small Business; VISA; Ford; Administaff; Google; eBay; Raytheon; Cbeyond; Intuit; Northrop Grumman; Lockheed Martin; Verio; NADCO and NAGGL.

Additional information on the Small Business Week 2010 events is available at http://www.nationalsmallbusinessweek.com/.

The source for this post is a US SBA press release.

Green is good business!

The green movement has grown tremendously, and it has become mainstream. This is a trend you need to understand. If you have been reading the business pages over the last several years, you have probably seen a lot of terms such as green building, renewable energy, and sustainability. Not too long ago, conventional wisdom said that going green cost too much. It turns out that conventional wisdom was wrong.

Green is good business!
Who knew? It turns out that it makes sense to conserve energy. Energy costs are high and going higher. It makes sense to conserve raw materials. Reduce, Reuse, and Recycle are not just buzzwords. They are tools to reduce costs. They reduce the cost of hauling away garbage and of storing garbage in land fills. Green also means using renewable resources and local sourcing. These practices can reduce costs too.

Customers like it too. As more people become aware of what it means to be green, they are demanding that the companies they do business with become green. In fact, green has gone from a niche market to mainstream. Customers may even be willing to pay more for green products.

Green has gone mainstream.
If you have any doubt, do some quick research on major corporations that have announced green initiatives. Among the companies that are going green are CSC, BP, GE, Marriott, Verizon, Wal-Mart, and more. Local governments across the country are announcing green initiatives.

What does this mean for your business?
The growing green movement is an opportunity for you. You should think about doing two things.

1. Understand what it means to be green.
2. Figure out how to satisfy your customers' desire to be green.

Understand what it means to be green.
Understanding what it means to be green is both easier and more difficult than you might imagine. There is a lot of really bad information floating around. Get your information from a variety of reputable sources. One place that you can start is on my Help being green blog. There are a lot of resources posted on the right side of the page.

Don't be afraid to ask questions, and be assured that you know more than you realize. You will learn that a lot of things that have to do with being green are pretty simple.

Figure out how to satisfy your customers' desire to be green.
This could be as simple as letting your customers know about  your green practices. However, depending on the type of business you have, you may also want to evaluate your product mix. Leaning what your customers want may be a challenge, but you can begin by looking at approaches used by other businesses. In addition, if your customers know you are thinking about going green, some of them will be happy to tell you what they want. Ask them.
 
Remember that conventional wisdom that going green cost too much? It turns out that not going green might cost you even more.

Slow Money

Have you heard of Slow Money? Does it even make sense to you? Modern life is supposed to be fast paced, and business is supposed to be about getting deals done. If we even think of the speed of money, then we think back to introductory macro economics courses where the professor droned on and on about velocity of money, and faster was supposed to be better. The Slow Money movement has been around a while, and it has been building slowly. (How else?) It is a trend small business owners need to understand.

So what is Slow Money?
According to John Tozzi, in his post Big Ideas for 2010  on the Successful Entrepreneur Blog, Slow Money is an example of two emerging ideas:

1. New ways to finance social ventures
2. Local capital markets

Tozzi in an earlier article, Slow Money, Local Business, and Social Capital, described the slow money movement and observed:

The emerging model involves several trends we’ve been tracking for a while: crowd funding, community development capital, buy local movements, and for-profit social enterprise.

The idea behind Slow Money is that people ought to do business where they live and eat and work and play. In many ways, the movement is a reaction against growing globalization. In addition, people are beginning to question whether it was a good thing to replace family farms with giant industrial agriculture factories.

This is what the Slow Money Alliance has to say on their website.

Slow Money's mission is to build local and national networks, and develop new financial products and services, dedicated to:

• investing in small food enterprises and local food systems;
• connecting investors to their local economies; and,
• building the nurture capital industry

What might this all mean to you and your business?
The values that are the foundation of the Slow Money movement are embodied in the belief that people are part of a place. That belief is not at odds with the idea that individuals are part of a broader national or even global community, but it does question whether bigger is always better and whether the constant search for cheaper and faster is worth the tradeoffs in quality that sometimes occur. The many “shop local” movements springing up around the country are evidence of a desire for the things the Slow Money movement describes. So too are the twin movements to reclaim small town America and to create livable cities. Small villages and towns all over the United States died as large corporations displaced locally owned stores agribusiness took over family farms. It is up to small business to get back into the marketplace. In many places, as people rediscover small town or village life, some of these places are coming back to life. This is not just a rural or suburban movement. In cities, corner grocers and soda fountains and drugstores with lunch counters were displaced by giant chains. Today, however, locally owned stores are returning.

The reason that this is important for small business owners is that locally business is small business. The Slow Money movement is all about supporting small business and “connecting investors to their local economies.” You need to know all about Slow Money, because Slow Money is all about you.

Two Rules for a Successful Presentation

I ran across some great advice on the Conversation Blog of the Harvard Business Review. The post was Two Rules for a Successful Presentation Since small business owners frequently give presentations, it seemed worth repeating. What? You say you never give presentations? Think again. Business owners give presentations every time they talk to their customers or their bankers.

The rules by Nick Morgan, the President of Public Words Inc, are simple.

Rule One: Know Thy Audience.
Presentations are about their audiences, not their speakers. Before you write anything down, or commit anything to a Power Point slide, you must give some thought to your listeners.

This applies to more than presentations a the Rotary or Lions Club. The same thing applies whenever you talk to a customer. You have to understand the customer's needs before you can understand how to meet them and how to make the sale.

It is even harder to apply the lesson when talking to a banker about a loan. Business owners want to talk about their plans and why they need the money. All of that is important, but why it is important becomes obvious in the context of "Know Thy Audience." The banker wants to know that he will be paid back. So when you make your presentation asking for a loan, remember why you are talking about your business.

Rule Two: Tell Them One Thing, and One Thing Only
This is a difficult rule for most presenters to follow. But it's essential. The oral genre is highly inefficient. We audience members simply don't remember much of what we hear. We're easily sidetracked, confused, and tricked. We get distracted by everything from the color of the presenter's tie to the person sitting in the next row to our own internal monologues.

This one, according to Morgan, is difficult. When speakers get up in front of an audience, they want to talk about everything they know. We've all been to presentations where the speaker keeps listing so many examples that we forgot the original point.

These two rules presented by Morgan should remind us of a couple of other public speaking terms. WIFM and KISS. Keep in mind that your audience often has a simple question, and you can give them the answer. The question? "What's In it For Me?" When you give them the answer Keep It Short and Simple.

Click on the title to read the origninal post by Nick Morgan.

Book Review: Younger Next Year

Younger Next Year: A Guide to Living Like 50 Until You're 80 and Beyond
By Chris Crowley and Harry S. Lodge, M.D.

I was skeptical when I first heard about this Younger Next Year. There are so many books about healthy lifestyles or dieting or exercise, I’m not sure the world needs more. I’ve also grown weary of every new age bit of hocus pocus that seems to show up on the best seller list and talk show circuit. The guides supposedly based on medical research are not any better. One day caffeine is bad, so we are all supposed to give up coffee and tea, and then the next day it is good. Alcohol used to be bad, now wine is good. As far as food types go, choose your poison: carbohydrates, fats, or protein. It was refreshing to read a book that distilled it all down to something simple, “Quit eating crap!” Then to top it off, the authors continue to tell it like it is by reminding us that we really do know what is good to eat and what is not. They also remind us that deep down inside our genes, we know we need to get moving. We just weren't made to sit on the couch in front of the TV all the time.

Younger Next Year is a great book. It is not just another diet or lifestyle book. It will give you something to think about. It was fun to read.

I heard about this book on a cross country skiing and camping trip in the Boundary Waters Canoe Area Wilderness in Minnesota. I’m fairly active, so wandering about on the lakes and in the woods of the North Woods is fun for me. One of the people on the trip mentioned the book, and it sounded interesting.

The basic premise is that our whole understanding of aging is bunk. We seem to have this idea that people begin some sort of downhill slide sometime before they reach 50. Then when they reach 50, their bodies really begin failing so that life is really a gradual and pathetic descent into painful decay. Upon reaching retirement people can look forward to a feeble existence living out their days in a nursing home. Look around. That’s just not true for everyone. It is not even true for most. Sadly it is true for too many. It does not have to be this way.

Chris Crowley and Harry Lodge got the idea for the book after Chris went to Dr. Lodge for a checkup after retiring. Like many people, Crowley needed to make a few adjustments to his lifestyle. Unlike many people, he really listened when the doc gave him the news. It turns out that many of the things that we think of as normal aging are actually the result of our behavior. The majority of illness, it seems is caused by our modern lifestyle. A few simple ideas can help us stop and even reverse that “normal” decline. In the book Chris describes his story in an entertaining fashion. Harry explains the science behind what Chris says. It is sometimes thoughtful and often witty. Neither of them pull their punches.

The book leaves the reader with a solid take away. The basic guidelines are all wrapped up in Harry’s Rules. There are seven of them. I’ll list them here, but you will get a lot more out of them if you get the book and read as Chris and Harry describe them. If you want a preview, then check out their website. The book has turned into quite a sensation. Chris and Harry now have a website, blogs, and even speaking engagements.

Harry’s Rules

1. Exercise 6 days a week
2. Do aerobic exercise 4 days a week
3. Do strength training 2 days a week
4. Spend less than you make
5. Quit eating crap
6. Care
7. Connect and commit

Check out the book. No matter how old you are today, 30, 40, 50, 60, 70, or more, you can be younger next year. By the way, the guy that told me about the book was retired. He said that trips like the winter camping trip we were on was part of how he stayed young.

Angie’s List and Yelp: How to make consumer sites work for you

Just when you thought that you had the Internet all figured out along comes something else for you to worry about. If you have a website, you have probably already heard about search engine optimization, also known as SEO. You may have already explored using widgets such as Add This. You’re blogging, tweeting,  and Facebooking.  You are Linked In.  What else is there to do?

How about getting back to basics? Build your reputation. You can do this by understanding and using consumer review sites. Two popular Internet services are  Angie’s List and Yelp.

Both sites provide customer reviews of merchants and service providers. Angie’s list has a small membership fee, Yelp is a free service. They are not the only review sites, but they are two of the most well known. Yelp began in San Francisco in 2004, and according to their site, subscribers have written over 10 million local reviews, and over 31 million people visited Yelp in a 30 day period. Yelp can be accessed from just about any device with Internet access, and it was listed in a Time magazine article, 10 Essential Websites.

Angie’s list has been providing reviews since it was started in Columbus, Ohio in 1995 by Angie Hicks. Angie’s List groups customer reviews by service and location. The small membership fee provides access to local reviews on AngiesList.com, live support, Angie’s List magazine, access to a complaint resolution team, and product discounts.

Why this is important to you and your business 
More and more people are using consumer review services such as Angie’s List and Yelp, and the recommendations are powerful. More than a million belong to Angie’s list, and Yelp gets more than 31 million visits a month. That is a lot of people. Word of mouth reviews have clearly moved beyond friends talking to friends. Whether you do a great job or a lousy job, people are likely to talk about you on consumer review sites.

Carpe Diem! 
If you understand the power of consumer reviews, you can make them work for you. Here’s how.

• Don’t bother trying to game the system
• Understand your customers and your business
• Deliver the goods
• Ask for referrals

Gaming the system
This is a loser’s game. The reputable consumer review sites work hard to present unbiased reviews. You can try to join the sites and review your own business, but you will probably get caught. Besides, if need to write your own review to get a good one, then you have bigger problems than a customer review site. It is a good idea to look yourself up on the sites so that you can see what your customers think of you.

Understanding your customers and your business
The key to good reviews is happy customers, and the key to happy customers is knowing what they want and giving it to them. A couple of buzzwords that you should know are “customer value” and “branding.” A customer value is simply the reason that customers buy a product. What value do customers see in your product? What are you offering? What is your "value proposition?" Branding is how you present yourself based on what you offer. Unless the goods or services you sell are inferior to others at similar price points, then the most likely cause of customer dissatisfaction is that what you say your offer, your brand, does not agree with what your customers want. Consider this extreme example.

A farmer went out to buy a vehicle and asks the salesman for the best he has. The farmer has a lot of money, so price is not a consideration. A few weeks later the farmer returned to the salesman complaining that he had been sold a piece of junk. When the salesman asked what was wrong with the Ferrari,  the farmer replied that it got bogged down in the field and there was no place to hook up the seed spreader.

If your customers want tractors, do not try to sell them fine Italian sports cars! A popular theme in sales is “consultative selling.” The idea is that salespeople should work with customers to identify their wants and needs and then demonstrate how the products meet those. This is different from the usual approach salespeople use when calling on customers to pitch their wares. Check out this blog post by Jill Konrath, Sales Classics: Why You Must Go Into Sales Calls Totally, Stark-Raving Naked for another take on the topic.

Deliver the goods
Assuming that you understand what your customer wants and that you have it, close the sale. Then deliver the goods. Your sale was a promise. Keep it. This means doing:

• What you say you will do
• When you said you would do it
• At the price you agreed

If you read through reviews on Angie’s List, two things will become obvious fairly quickly. A lot of companies do not do what they said they would do when they said they would do it for the agreed price, and customers are actually surprised when companies do keep their promises. If you want the best reviews, you will have to do more, sooner, and for less than expected. However simply doing what they promised to do appears to yield good reviews also.

Ask for referrals
This advice has been around for a long time, and it works. Ask your customers to tell other people about you. Ask them if they belong to consumer review sites such as Angiel's List and Yelp. If they do, ask them to write about you. If you have done well by them, then they will do well by you.

So, how can you make consumer sites work for you? Find out what your customers want. Keep your promises, and ask your customers to tell their friends about you.

Borrowing money for your business

All businesses borrow. They need cash for operations, and they need cash to invest in assets so they can build the business. Businesses can get the cash by they need by making a profit. However this may not be enough for growth.

Generally speaking, businesses borrow for one of three basic reasons. They need money to:

• Get started
• Grow
• Smooth out cash flow

When you started your business, you may have borrowed from family or friends. You may have used your credit cards. It could be that your business is a professional services business, and you were able to start small with just a few clients, and it really did not take much money to get started. Perhaps you turned your hobby into a business. Now you’ve reached the point that you need some money to get to the next level. Maybe you are an attorney and you are ready to hire a paralegal. Maybe you need a new lathe for your woodworking shop, or a new delivery van for the catering business. What do you do?

Good news! Even though you have heard all of the bad news about tight credit, there are plenty of things you can do to make it easier to borrow money. There are only two things you have to know.

1. Know yourself and your business.
2. Know your banker.

Know yourself and your business
You need to know about yourself and your business for two reasons. You need to be able to make good plans, and you need to be able to present those plans to whoever is going to lend you money. Give your CPA and bookkeeper a call and get a copy of your most recent financial statements. While you are at it, get copies of the previous few years. Look at everything and not just the P&L. If you don’t understand financial ratios, ask your CPA to explain them. The ratios are tools that you can use (and your lender will use) to evaluate the relationship between your debt and your assets, how much debt service you can handle, how you manage your cash flow, and whether your business is profitable. If you are a sole proprietor or a partnership, you will also want to review your personal financial situation. If you are not sure how to prepare your own personal financial statements, ask your CPA or bookkeeper for help. You should expect to pay a fee for these professional services, but trying to save a little in the beginning could cost you later.

 Once you understand your current situation, you can start working on the future. If you put together a business plan when you started your business, then this part should be easy. All you have to do is update your plan. If you don’t already have a business plan, then develop one. You can do this yourself. There are guides and templates available in many places. You can purchase planning software. You can also ask your CPA for assistance. The Small Business Administration provides a template. Another place to look for help is the Service Corps of Retired Executives (SCORE). This is a link to their template gallery.

However you develop your plan, it will contain these basic parts.

• Summary
• Overview of the business
• Analysis of the market
• Description of products
• Organization and management
• Marketing and sales plan
• Financial details

With a good understanding of your business and a business plan, you will be prepared to get to know your banker.

Know your banker
What does it mean to know your banker? In this case it means a few things. Some of them may not be possible right away because they take time. Some of them you can do immediately.

• Develop a relationship with the bank and with the people in it.
• Get to know everything your bank can do for you.
• Understand what your banker needs from you.

Develop a relationship with the bank and with the people in it
This should be obvious. Remember the movie, It’s a Wonderful Life. Think about the contrast between George Bailey at the Bailey Building and Loan Association and Mr. Potter. Find a bank that wants to get to know you and your business. Figure out who the George Bailey’s in your community might be, and avoid the Mr. Potters.

The other part of this is, once you find your version of George Bailey, you need to be a loyal customer. The bank will not want a relationship with you unless you demonstrate that you want a relationship with it. You should do most of your business with your new bank. You should also try to do it in person. When you walk in the door, you want the people in the bank to recognize you. Loyal customers are as important to your bank as they are to your business.

Get to know everything your bank can do for you
Many business people simply cannot imagine the range of services available at even the smallest community bank or credit union. Most people know about checking and savings accounts. They know about money market accounts and CDs. People know about loans such as mortgages, auto loans, and personal loans. However, did you know that many banks also provide merchant services? Did you know that your bank could help you install an ATM in your store for customers? Did you know that your bank can probably set up a lockbox arrangement so that customer payments can go directly to the bank and your account? Did you know that your bank can probably help with cash management tools such as zero balance accounts? If you need access to cash, did you know you could set up a line of credit instead of borrowing with a term loan? If you take the time to get to know all of the products and services your bank offers you might discover some new ways of managing your cash.

Understand what your banker needs from you
The simplest description of banking is that banks take the money deposited by some customers and lend it to other customers. They pay interest on deposits, and they charge interest on loans. They make money when the interest they charge is greater than the interest they pay. They lose money when customers do not pay back their loans. This means that your banker needs you to deposit money. Your banker also needs you to borrow money and pay it back. If you want to borrow money, you have to make the case that you will do just that.

That is why your first steps were getting your financial statements together and developing your business plan. You will need your financial statements and business plan to make your case. You will typically need the current year and the previous two or three years. Ideally your financial statements will demonstrate that you are solvent and have appropriate liquidity. They may also show how you handle payables and receivables. In short, the statements will explain your current situation and your history. If the statements reveal any serious flaws in your operations, be prepared to explain them.

Your business plan will tell the story that you hope will unfold. You will describe your company and your customers. Your plan will describe your products and why customers will buy them. It will explain your marketing and sales plans. Finally, your plan will make clear how you will use the money you borrow. This is the most important part because it will also explain exactly how you expect to pay the money back.