Thursday, April 29, 2010

Selling naked?

I ran across the Selling to Big Companies blog by Jill Konrath. She wrote the book Selling to Big Companies, and has just written another one titled Snap Selling. Her latest entry caught my eye. Sales Classics: Why You Must Go Into Sales Calls Totally, Stark-Raving Naked I bet it got your attention too. We've all heard the stories about people working from home in their pajamas, so it should be no surprise that . . .

Actually, it turns out that salespeople are learning that when they go into presentations "naked," that is without powerpoint presentations or flip charts something odd happens.
Without the brochure, they were forced to focus on the prospect's business. They asked questions about how it was going. They explored the challenges and the issues the prospect was concerned about. They discussed the prospect's goals, ideas and expectations.
That sounds like what should happen in a sales call, but it is actually pretty profound. Most sales calls are not very different than the show and tell presentations children give in elementary school, and the focus of the salesperson is usually on the product or the company or even how cool the salesperson is. I once had a salesperson call on me. It seemed that every conversation started with, "I'm in the airport, and I'm calling you on my cell phone." I think I was supposed to be impressed.

So what happened? Did the sales reps get the sale? How did they manage the call without the slick brochures and clever marketing pieces?
The prospects loved it. They felt valued and understood. They felt like the reps cared and were concerned. They asked for the rep's advice and even wanted specific recommendations.

Despite this final temptation to pull out a brochure, these reps suggested a second meeting as the next step. They got it - and shortly thereafter ended up with bigger contracts than even they could have imagined at the beginning.
I'm not surprised. When I was in sales I learned that customers want to buy solutions. Good sales people work at learning customers' wants and needs and then go about figuring out how to help their customers' accomplish their goals.

Jill Konrath put it well in her post. Check it out.

Wednesday, April 28, 2010

Small business help from the IRS

Did you know that the IRS offers free online presentations and webinars? Check out the IRS Video Portal for
  • Archived versions of live panel discussions
  • Archived webinars
  • Video clips
  • Audio archives of tax practitioner phone forums
The portal offers a wealth of material for individuals, small businesses and tax practitioners.
Click on the Small Business tab, and you will find a list of topics. The list below describes some of the material available in the various areas.
  • Business Expenses: Includes a summary of the 2009 law change affecting net operating losses and a video on home office deductions.
  • Business Income
  • Changing Your Business
  • Disaster Information
  • Employers: Information about payroll, hiring family members, required taxes, and similar topics.
  • Filing/Paying Taxes
  • Forms:
  • Post-Filing Issues: If you have questions after filing, this is a place to learn about letters and notices, examinations, collections, offers in compromise, and other topics.
  • Resources
  • Retirement Plans: This section contains information about retirement plans for small businesses. The topics include funding and benefit restrictions, SEPS, and more.
  • Scams & Fraud: This includes several overviews that can help keep you from being a victim of a scam or a fraud.
  • Small Biz Workshop: "The Virtual Small Business Tax Workshop is composed of nine interactive lessons designed to help new small business owners learn their tax rights and responsibilities."
  • Starting a Business: Includes a variety of videos on topics such as record keeping and Schedule C requirements.

Tuesday, April 27, 2010

Is free Wi-Fi a good thing?

Have you noticed all of the signs advertising free Wi-Fi lately? Bookstores, fast-food chains, coffee houses, restaurants, and oil change shops are among the places offering free access to the Internet. I suppose this is evidence that the world is becoming more connected, and there is little doubt that people who feel a need to be connected 24/7 are comforted by ubiquitous wireless access, but is it a good thing? Is it good for your business?

Before answering those two questions, ask yourself two other important questions.
  • Does adding Wi-Fi increase your value to your customers?
  • Does adding Wi-Fi contribute to your bottom line?
Adding value
Whether Wi-Fi adds value is not a simple a question. Consider the many coffee shops and restaurants that have added Wi-Fi hotspots. The access is not secure, and it is often slow. Even so, customers that use their computers see value in having Internet access. However, what about the other customers? Does a room full of people typing away on computers or using mobile devices provide the atmosphere that they seek? Do they resent not being able to find a place to sit and enjoy their visit because the tables are full of people who have long since finished their coffee but are still working on their computers? This is probably not a problem at fast-food establishments because customers value speed and because other cues such as decorating schemes and uncomfortable furniture encourages them not to dawdle.

What about other types of businesses? Do you run a business that requires people to wait? Unlike restaurant patrons, customers waiting for an oil change may not expect comfortable ambiance. (The coffee in most car repair waiting rooms is hardly drinkable.) Adding Wi-Fi might help customers turn down time into productive time.

The key is to understand your customers and your market.

The bottom line
It does not cost much to set up a Wi-Fi hotspot. Monthly Internet access charges, even for high volume business use, could be under $100. Wireless routers are also not expensive. If providing a hotspot increases sales, then it is probably a good idea. In the last example above, a car repair shop, it might be reasonable to assume that customers would come to the shop instead of a competitor's because of the hotspot. It is easy to see how the adding a hotspot increases customers' perceived value and how that could lead to increased profits.

Restaurants or coffee shops are different though. Most of these businesses depend on a constant flow of customers purchasing at least a minimum amount of something. Adding a hotspot encourages customers to linger. This means that tables do not turn over as quickly. If keeping tables occupied increased sales, that would be fine, but that is usually not the case. In addition, customers that are turned away or have to wait a long time are not likely to be satisfied customers. In this case, adding Wi-Fi might reduce sales.

The bigger picture
The topic of this post was Wi-Fi, but it could just as easily have been about any number of business decisions. Here is an example using the auto industry.

Should a luxury car company introduce a smaller economy car? Cadillac introduced the Cimarron, which Time Magazine named one of The 50 Worst Cars of All Time. BMW introduced the Mini Cooper to much acclaim. What was the difference? BMW understood its market and introduced a sporty car with an interesting history. It leveraged the brand and extended the product line. BMW added value and incrased the bottom line. Cadillac stuck a label on a moderately popular Chevy and decided that charging a high price would make it a luxury car. This damaged the Cadillac brand, decreased customer value, and hurt the bottom line.

What this all really means
Finding new ways to meet customer needs is always a good idea. Creativity and innovation are good things, and businesses that are always looking for ways to meet customer needs are probably going to be successful. Before they can do that though, they must understand their business and their customer. They've also got to ask themselves two questions.
  • Does this increase your value to customers?
  • Does this contribute to the bottom line?

Sunday, April 25, 2010

Business insight from Liz Handlin's Ultimate Resumes Blog

I ran across Liz Handlin's service and her blog about a year ago. I have not been in a position to need her resume crafting skills, although many people much smarter than I am think that it is a good idea to always have a current resume on hand. If I did, I would certainly use her service, Ultimate Resumes.

Last week she posted an article that should be required reading for small businesses, Top Ten Things I Have Learned As An Entrepreneur. You can click on my Blogs to check out links to see her entire blog, or you can click here to read the article.

She relates that having been a business owner for the last four years has been a learning experience, and working for herself has given her a different perspective than working for large companies. Her tips address a variety of issues that will be familiar to small business owners, particularly those in service industries. She addresses customer satisfaction, how to handle mistakes, referrals, pricing, getting paid, and more.

Give it a read.

Saturday, April 24, 2010

Book Review: Let My People Go Surfing: The Education of a Reluctant Businessman

Let My People Go Surfing: The Education of a Reluctant Businessman
By Yvon Chouinard

Yvon Choinard is the founder and moving force behind Patagonia. This book is his story. Most people come to think of business books as "how to" books. We learned how to manage in The One Minute Manager. We learned how to evaluate business in, The Balanced Scorecard, and we learned how to emulate success with, In Search of Excellence. We could even learn to Swim with the Sharks Without Being Eaten Alive. For those interested in the people behind the businesses, there are plenty of biographies. Business people looking for advice from the past are even exploring books such as The Art of War and The Prince.

Let My People Go Surfing: The Education of a Reluctant Businessman does not fit neatly into any of those molds. The book is part biography and Choinard's life is fascinating. As a child, he moved from Quebec to Southern California. He spoke little English, and the family had little money. The narrative includes interesting stories about childhood challenges, and in time we learn how he became a climber. Choinard did not really start out to build a business. He started out trying to develop better climbing gear and trying to support his hobby. He sold his equipment out of the trunk of his car!

The book is a story about building a business. Choinard talks about the challenges of growing a business. Some of the challenges were formidable. The equipment his company produced was designed for specific uses by people that knew what the equipment was and how to use it. Even so, that did not prevent product liability lawsuits, and Choinard writes about his legal difficulties. The approach is forthright, and he candidly talks about the challenges he faced and how he went about addressing them. He spends as much time describing decisions that did not work out as he does those that did.

The book is also a story about business philosophy. Choinard and Patagonia operate according to a set of core beliefs. Their customer focused, highest quality, product driven practices are derived from these beliefs. The three general guidelines Patagonia has for promotion demonstrate this.

  1. Our charter is to inspire and education rather than promote.
  2. We would rather earn credibility than buy it. The best resources for us are the word-of-mouth recommendation from a friend or favorable comments in the press
  3. We advertise only as a last resort.
Patagonia demonstrates that it is possible to be successful and to also embrace "social responsibility." The company emphasizes renewable resources and sustainability. It works hard to understand and meet employee needs. For example, Patagonia was one of the first employers to offer employer sponsored day care. One of the reasons for this is that Patagonia also recognizes that its employees are its greatest resource.

If you are looking for some new ideas about business, and you want something other than the usual business book. Check out Let My People Go Surfing: The Education of a Reluctant Businessman.

Thursday, April 22, 2010

Financial statements and your business

Many small businesses operate on a cash basis, and the extent of their financial reporting is a monthly bank statement. At the end of the year, they pull all of their receipts together and group them so that they can complete their tax forms. That is a tough way to run a business because it is difficult for business owners to keep track of their financial position without good financial statements.

Why do you need financial statements?
Financial statements tell the story of a business. Income statements tell the story over time. Balance sheets tell the story at a point in time. Business owners want to know if they are making a profit and if they are going keep making a profit. Financial statements can help answer those questions. At some time or another, business owners will want to tell this story to others as well.
  • Investors
  • Suppliers
  • Customers
Investors want to know if they are going to be paid back. Suppliers want to know if you will be around as a customer. If you are, how they want to know how big a customer you might be, and they want to know if you can afford to pay for their goods. Customers want to know if you are going to remain in business. If they buy products from you, they want to know that you will be able to stand behind them. If you provide some sort of professional service, they want to know that they will be able to go to you in the future.

Why not have financial statements?
Some small business owners have the misperception that it is too difficult or too expensive to maintain the records necessary to produce financial statements. Fortunately, keeping good financial records is actually fairly simple and not very expensive. Business owners can use spreadsheets such as Microsoft Excel, or they can use bookkeeping programs such as QuickBooks. Templates are available for spreadsheet users. Businesses that opt for bookkeeping software will even find that the software grows with them. The cost of these programs can be under a couple of hundred dollars. Business owners can also hire bookkeepers to do the work for them. This is also less expensive than many business owners realize, and having organized records and financial statements will reduce the cost of tax preparation. It can also make it easier to obtain financing.

Basic Statements
However you keep your records, you should produce these statements.
  • Balance Sheet: This is a snapshot of short-term and long-term assets and liabilities.
  • Income Statement: This is commonly called a P&L or profit and loss statement. It begins with revenue and then shows the effect of various expenses and ends with net income.
  • Statement of Cash Flows: This is a description of how cash flowed in and out of your business, and it describes generally where money came from and how it was used in terms of operating, investing, or financing activities.
  • Statement of Retained Earnings: This is a statement showing the accumulated earnings of a business.
Financial ratios
Once you have your financial statements in hand, you can review them. A few of the common ratios typically used to evaluate businesses are listed below. The list is far from complete. For example it does not include activity measures such as conversion periods or turnover ratios.

Measuring profit
Gross profit margin: This is a measure of how much of your income can go towards overhead and profit.
Gross Profit / Net Sales
(Net Sales – Cost of Goods Sold) / Net Sales

Operating margin: This tells you the profitablity of your core business.
Operating Income / Net Sales
(Operating Revenues – Operating Expeneses) / Net Sales

Measuring Liquidity
Current ratio: This is a measure of your ability to pay short-term debt.
Current Assets / Current Liabilities
Quick ratio or "Acid Test:" This is a more stringent variation of the current ratio. The Acid Test compares current assets net of inventory to current liabilities.

Evaluating Debt
Debt to assets ratio: This measures how much you rely on borrowing to finance operations.
Total Liabilities / Total Assets
Times interest earned or Interest coverage: This ratio measures the relationship between your income and your interest expense.
Net income / Interest Expense

Debt service coverage: This ratio shows the relationship between your operating income and your debt service expense.
Net Operating Income / Debt Service

Tuesday, April 20, 2010

Ways to borrow money

Many businesses operate with borrowed money. In financial terms, borrowed money gives a business operating leverage. The term leverage means the same thing that it does in physics. A business that borrows uses the money like a lever to amplify the force that it can apply. Businesses also borrow money because it can be less expensive to borrow than to raise money other ways. Creditors typically have some sort of claim on a business, and they can be fairly certain of a return, so they demand less risk premium than equity investors. Even so, borrowing money can cause problems for businesses. It is important to understand how to borrow.

Sources of funds
Generally speaking, businesses commonly borrow four ways.
  1. Borrowing a lump sum: This is what people generally think of when they think of borrowing money. A borrower obtains money from a lender for a period of time. The borrower pays the money back according to some sort of schedule and pays the lender interest on the outstanding balance. This is typically the least expensive way to borrow.
  2. Securing a line of credit: With a line of credit, the borrower arranges for a lender to loan money as needed. The borrower does not obtain the money until it is needed. Interest is only paid on the outstanding balance. The lender may charge a fee for maintaining the line of credit. This costs more than borrowing a lump sum, but since interest is only paid on the outstanding balance, it could cost less than borrowing a lump sum. For some businesses this could be as simple as using a credit card. For other businesses, this could involve a sophisticated arrangement with a lender.
  3. Trade credit: Many business owners do not think of trade credit as financing, but it is. Vendors do not always demand cash payment on delivery of goods. They often offer terms allowing some period of time to pay. Vendors offering time to pay may also offer discounts for early payment. The cost of trade credit varies.
  4. Securing customer payment in advance: This is more common in construction or in businesses that use progress billing than in other industries. A good example might be a contractor that secures an upfront payment for supplies before beginning a remodeling project.
There are advantages and disadvantages to each of these methods, and business owners should consider the cost of each method, how they affect cash flow, and flexibility. If your business needs a large amount of money for a set period of time to purchase equipment or inventory, then it probably makes sense to borrow a lump sum.

If you need cash to smooth out cash flows or to address timing issues, then you might consider a line of credit. Businesses that buy and sell expensive inventory might consider a line of credit. For example, an antique dealer might keep a line of credit open to have funds in case he or she makes an extraordinary find.

The advantage of borrowing the lump sum is that it costs less for the amount borrowed. However, if the business cannot generate an immediate return because the funds are sitting waiting to be used, then even a lower cost is too high a cost and the payments on the loan are going to be due regardless of whether the funds help produce additional income. A line of credit, on the other hand, may require a small fee, and the cost of funds will be higher. However, since the interest is only paid on outstanding balances, then the total cost is likely to be smaller. The table below put this into perspective. With the $50,000 loan, interest is due every month, and the total amount paid is actually higher than with the line of credit even though the line of credit has a fee and a higher interest rate. This is because even though the highest amount borrowed was greater, the average amount was lower, and the time the balance was outstanding was shorter.

Lump Sum (6%)
Line of Credit (10%)*
Ttl Cost
*$100,000 Line of credit at 10% with a .25% fee.

The decision to use trade credit is dependent on a variety of factors including the terms, business cash flow, and the cost of other sources of funds. It is possible that if the business has sufficient cash flow, trade discounts that may be offered by a vendor may make trade credit less attractive.

Why your customers buy – Understanding the value proposition

One of the key things for businesses to understand is why their customers buy their product. Statements such as the following ones are meaningless.
  • We are the best at what we do.
  • We give great service.
  • We have a great product selection.
  • We offer a great value.
The first two are meaningless because they are vague. Your business may be the best, and it may be great, but what is it that you do? What are your customers purchasing? Another important problem is that they are focused on the business. The next two are slightly better because they begin to describe the products. Where they miss the mark is that they are not specific, and they are not focused on the customer. If this sounds familiar, it is because companies use the same concepts to develop their brand strategies.

A value proposition is a statement explaining why a customer should buy a product. Good value propositions articulate both the costs and the benefits of purchasing a product. For example, assume that you sell cars. What are you actually selling? Are your customers purchasing reliable transportation? Are they seeking a status symbol or making a statement? Do they want comfort and luxury? Are they looking for high performance? Mercedes and BMW are both German luxury that command a premium price. However, the Mercedes emphasizes luxury and the BMS emphasizes performance. Mercedes and BMW have different value propositions. At the other end of the price spectrum, Ford and General Motors both offer more affordable products, albeit without the performance features and without the luxury. This too is a different value proposition and a different set of customers. Companies that ignore their value propositions do so at their peril. Cadillac seriously damaged its brand when it introduced a small relatively inexpensive car hoping to attract economy minded buyers because buyers no longer automatically assumed that Cadillac meant large comfortable car and status.

Restaurants provide good examples of different value propositions too. Consider the difference in fine dining establishments, family restaurants, and fast food restaurants. Consider the values that customers might seek:
  • Fast, low cost
  • Family friendly, budget oriented
  • Leisurely, elegant, cozy, gourmet, price is not a big factor
Is it pretty obvious which set of values belongs to which market segment? Would McDonalds be successful if it dimmed the lights and sold $25 steaks? Would Ruth's Chris be successful if it introduced value meals?

Remember when crafting a value proposition, customer value is not just about low price or the product. Customers are buying what the product provides. For example, people shopping for jewelry can make their purchases in many places from discount stores to department stores to jewelry stores. If it was all about price, then Tiffany & Co. would not be in business. Instead, the Tiffany Blue Box is a status symbol. Tiffany & Co.'s value proposition says exactly what they do.
Since 1837, Tiffany & Co. has been the world's premier jeweler and America's house of design.
That is not to say that prices do not matter. Wal-Mart's value proposition is:
Everyday low prices
Price does matter. The trick is to figure out how it matters. If your product is a commodity, then value means low prices. If your product is status, then high prices may indicate value. This introduces another part of the value proposition. What exactly is the customer buying? Obviously if the customer is purchasing a computer, that is what the customer is buying. But what does that mean? Is the customer buying the box or the components? The customer is purchasing the ability to store and manipulate data. The customer is buying reliability. If you are selling televisions, the customer is not really interested in the device. The customer wants to watch TV. The customer is buying the ability to do that with vivid color and great sound. The customer is buying a viewing experience. If you are selling cars you are either selling transportation or you are selling a driving experience. That is why BMW advertises its value proposition as:
The ultimate driving machine
Even this blog has a value proposition. It is to help you grow your business by giving you useful information and sharing ideas. So now that you understand the idea, go write your own value proposition. Remember to answer these two important questions.
  1. What exactly is the customer purchasing? Remember, their goal is not just to own the product; their goal is to get what the product provides. That could be a lot of things.
  2. Why is the customer buying it?

Saturday, April 17, 2010

How to save money on your bookkeeping and tax services

Have you thought that you pay too much for accounting, bookkeeping, and tax services? You may be right, and there are things that you can do to reduce those expenses.

Keep good records.
Keep accurate records throughout the year, and organize them so that they will be ready for your bookkeeper or accountant. Separate your personal and business records. Divide your business expenses into categories such as office expenses, supplies, travel, meals and entertainment. Keep records of purchases for items such as office equipment, phones, and computers or other items that you can depreciate. If you drive an automobile for work, get one of those auto record books and keep it. Keep your business and personal records separate. If you have a home office, track your expenses for utilities, taxes, and anything that you spend related to your business. If you aren't sure what is important, ask your CPA or bookkeeper.

Organize your records.
Think about buying a bookkeeping program. It is worth your time to talk to your CPA or to a bookkeeper to learn how to set up your records. If you have a small business, seriously consider purchasing bookkeeping software such as QuickBooks or Peachtree. If you do, it is worth your while to ask an accountant or bookkeeper to help you set up your books.

Find a CPA.
If you do not already have a regular CPA, hire one. Ask the CPA that prepares your taxes to take you on as a regular client. A CPA can provide you with advice, he or she can help you avoid making mistakes, and he can help you understand how your business is doing. A good CPA's time is worth every penny.

Find a bookkeeper.
Ask your CPA for a recommendation. Paying for bookkeeping might seem expensive, but it is probably less expensive than doing it yourself. A good bookkeeper will be faster and more accurate than you are likely to be, and the time you save will be time you have to devote to your core business.

The cost of paying a bookkeeper to do your books throughout the year also will be less than the cost of asking your accountant to do it a month before your taxes are due or before you need financial statements for a loan. Even more important, a bookkeeper can provide you with regular statements to help you understand your business' financial position and cash flow.

Ask what you can do to reduce bookkeeping costs.
Talk to your bookkeeper! Find out if there are things that you could do to keep your costs down. Here are several examples.
  • Do you stuff all or your receipts in a folder and then ask your bookkeeper or accountant to organize them for you? This is expensive because your bookkeeper is not necessarily familiar with all of your activity. It takes extra time to figure out how to categorize expenses if you have not already organized them.
  • Do you wait until the end of the period to provide your documentation and then ask your bookkeeper or accountant for fast turnaround for your statements? There is always a tradeoff between time and money. Asking for expedited service adds to your cost.
  • Do you mix up your personal and business records? It takes time for your bookkeeper to figure out which is which, and it increases the possibility of mistakes.
  • Figure out how often you want financial statements and which ones you want. Your bookkeeper can provide you with them as often as you wish, but you pay for them even if you do not use them.

Ask what you can do to reduce your tax preparation costs. 
Talk to your CPA or the professional that prepares your filing. He or she can tell you exactly what you need to do in order to simplify your tax filing and to make it less expensive to prepare your return. Here are a few things  you can do.
  • Make sure your CPA and your bookkeeper talk to each other.
  • Take advantage of the checklists and organizers your accountant provides.
  • Review your documents before you take them to your accountant. Make sure that you have everything you need.
Return your calls! Respond to email!
When your bookkeeper or CPA calls or emails, assume it is important and respond! If you do not return your calls or answer your email, then one contact becomes two or three or more. That wastes a lot of time.

Friday, April 16, 2010

Figuring out estimated tax

If you are self employed it is very likely that you should pay estimated tax. This is what the IRS has to say about the topic in Publication 505.

General Rule
In most cases, you must pay estimated tax for 2010 if both of the following apply.
  1. You expect to owe at least $1,000 in tax for 2010, after subtracting your withholding and refundable credits.
  2. You expect your withholding and refundable credits to be less than the smaller of:
  • 90% of the tax to be shown on your 2010 tax return, or
  • 100% of the tax shown on your 2009 tax return. Your 2009 tax return must cover all 12 months.

You can use a worksheet to make a more accurate calculation. 

You do not have to pay estimated tax for 2010 if you meet all three of the following conditions.

  1. You had no tax liability for 2009.
  2. You were a U.S. citizen or resident alien for the whole year. 
  3. Your 2009 tax year covered a 12-month period.

There are special rules for farmers, fishermen, certain higher income taxpayers, aliens, and estates and trusts.

  • Farmers and Fishermen
  • Higher Income Taxpayers (The percentage of 2009 AGI changes from 100% to 110%.)
  • Aliens (Resident aliens should refer to Publiciation 505. Nonresident aliens should review Publication 519 for more information about Form 1040-ES (NR))
  • Estates and Trusts (use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax.)