Because there is more to life than just work: Vacations are good for you

I learned an important lesson early in my career. Mike, my sales manager, told me that vacations are important.  I did not believe him. It is counterintuitive that taking time off could increase your output and income. There are only so many hours in a day and the more of them that you use for work, the more successful you will be. That just makes sense doesn’t it?

Yes and no. All other things being equal, the more hours you work, the more you will produce. Checking your Facebook page when you should be working on a project will make you less productive. However, all other things are not equal, and production can be difficult to measure. I am a CPA, and in the simplest terms, I work (and bill) by time. Like many professionals, my productivity can be measured in terms of billable hours. Measuring my productivity becomes a little more complex when looking at the bigger picture. Consider the things that I do that are not billable. I study to keep abreast of changing regulations and to increase my knowledge. I take time to listen to my clients express their concerns in ways that may not relate directly to the work I do for them.  I am an active participant in my professional association. None of these things add to the bottom line. However, they do make me a better accountant, and they help me do a better job for my clients. In the long run, this will increase my value to my clients and to my firm.

What about vacations though? Can they improve productivity? If you take time off from work, will you actually be better at work? My sales manager thought so, and he was the kind of person that thought that a 60 hour work week was taking it easy.

In college, I raced bicycles. We rode our bikes every day, and we pushed ourselves. I was always tired. One of the people I rode with was an incredible athlete, and she was invited to the Olympic Training Center.  When she returned from the OTC, she shared her new training “secret.” It was simply that to be a better athlete, work harder. In order to work harder when you work, rest! We started taking rest days, and we began alternating hard riding days with easier days. The result was that I could ride faster and further.

This same concept applies to work. Time away from work gives you the opportunity to refresh your mind and body. It does not matter what you do for vacation. Whether you were sipping umbrella drinks on a beach, climbing a mountain, canoeing in the wilderness, visiting family, or simply staying home and hanging out around the house, when you return to work, it will seem easier, and you will be a better worker.

Does this seem too good to be true? Consider the French. With short work weeks and a lot of vacation, the French are often derided unproductive, and whenever the French economy slows, many people are quick to say that the French should work more. However, a 2004 report by the National Bureau of Economic Research pointed out:

Over the past 30 years, productivity growth has been higher in France than in the United States. Moreover, productivity levels are about the same between the two countries . . .  France's GDP per person stands at 71 percent of GDP per person in the United States, largely due to the French working two-thirds as many hours as their American counterparts.

That suggests that the French produce nearly three-quarters of the output of the US even though they only put in two-thirds of the work. Part of the difference is that the French assign a higher value to leisure while Americans assign a higher value to income.

Do you encourage your employees to take time off to refresh? Are you planning a vacation this year?

Business lessons from a paper route: Getting paid – a paperboy’s guide to Accounts Receivable and collections.

In an earlier post, I wrote about delivering papers and how I learned that getting the job done lead to happy customers. Getting the job done meant delivering the paper on time and in a readable condition. We did not realize it at the time, but we were actually running our own small businesses. Paperboys were responsible for delivering papers, for collecting from customers, and even for sales and marketing. Picking the paper bundles up at the train station, assembling the paper, and delivering it to doorsteps across town was only part of the job.

My paper route was my first experience with accounts receivable and collections. In my town, paperboys delivered the paper and personally collected from customers. The paper cost seventy five cents each week. A small percentage of customers only took the Sunday paper, and they paid a quarter. Thursday was collection day. I would sling the bag I used to carry papers over my shoulder and start my route in the usual manner. However on collection day I would ring the bell at each house and let the customer know that I was collecting for the week’s paper. I kept track of what each customer paid with a set of cards on a ring. Each card had the customer’s and any special delivery instructions in the middle, and a box for each week around the outside of the card. When the customer paid me, I marked the box.

Cash flow is one of the biggest problems facing small businesses, and one of the keys to managing cash flow is to do a better job of managing accounts receivable. Leita Hart, a CPA based in Austin, Texas who provides excellent training programs to businesses, to government agencies, and to other accountants has written a simple yet effective book on the topic of cash flow, The Four Principles of Happy Cash Flow. One of her principles is getting money in the door faster. If your eyes glaze over when you hear terms such as cash conversion cycle, you need to read her short book.

Some of the things I learned as a paperboy can help you manage your receivables. The first five items will help you improve your collections, the last item will help you improve the quality of your service and increase your sales.

• Collect regularly
• Collect on time
• Expect timely payment
• Do not let past due accounts linger
• Tie collection to something that reminds what they are getting for their money
• Take advantage of the customer contact

There is a reason that bills come every month. Regular billing is easier than ad hoc billing, and it creates an expectation in the mind of the customer. Customers are creatures of habit. Even with electronic banking, consumers typically set aside a certain time each week or month to pay bills. Small business customers behave in much the same way, and larger businesses that have employees or even departments set up to pay bills, also find it easier to manage bill payments by setting up a schedule. My paper route customers knew that I would be along every Thursday to collect, and they had the money waiting by the door for me.

Once you have a collection schedule, stick to it. Do not be late. When I missed my Thursday collection, my customers were confused. By Friday or Saturday, the money they had set by the door had gone to some other use.

Always expect to be paid, and expect to be paid on time. You have made an agreement to provide a good or service, and your customer has agreed to pay you something in return. Keep your side of the agreement, and be clear that you expect your customers to keep to the agreement. One of my first lessons as a paperboy was that if customers did not have change, or left their purse or wallet in the car, it was the beginning of a bad relationship. I learned not to walk away from the door until I was paid. There are several reasons that customers may not want to pay you. They may manage their cash flow by delaying payables. Similarly, they may not have the money to pay you. However, withholding payment could also be an indication of customer dissatisfaction. Whatever the reason, you need to figure it out and address it.

Don’t neglect late payments. Two things happen when customers do not pay on time. The first is that as the time between the purchase and the payment grows longer, customers stop associating the value they received with the payment you are asking them to give you. They become less and less likely to pay you. Another thing that happens, particularly if the bill continues to grow, is that the customer becomes very aware of the amount of money and begins to question the size of the bill. As a paperboy, it was easy to collect a buck and a half if I missed a week. It was much harder to collect $2.25 or $3.00 or more.

When you collect, you should always remind customers why they are paying you. When I was a paperboy, I gave the customer the paper when I asked for payment for the week. You can do the same thing by providing detail in your billing statements.

Take advantage of your contact with customers when you collect. If all you do is ask for money, then you are missing great opportunities to get feedback from your customers that you can use to improve the quality of your product. You are also missing opportunities to find out if your customers have other needs that you can address.

Whatever your business, you can improve your cash flow by improving your collections. Hopefully, these simple things I learned as a paperboy will give you some ideas about how you can improve collections in your business.

Reconsidering who is important

Have you ever thought about the people around you and the work they do? In the context of your own business, have you ever tried to evaluate the relative importance of different jobs?

There are all sorts of ways to measure employees’ worth. The easiest and most common way is by looking at position and salary. An organization chart is a good way to tell what a company values. Generally pay, power, and prestige increase as positions go from the bottom of the chart to the top. It makes sense that the people at the top of an organization chart are the most important. Or does it?

There is an entire theory of organizational dynamics that is based on informal chains of command. The idea is that regardless of the formal structure, people within organizations create their own structures. It is disconcerting how little correlation there is between some of the informal structures that researchers have found and formal hierarchical organization charts.

If the supervisors are not more important than the front line workers and the managers are not more important than the supervisors, and the division directors are not more important than the managers, then who is important? Is it the CEO? No. Here is a short list:

• The person that seems to know everybody, remembers a lot of company history, and knows how things work,
• The administrative assistant who knows how to find everything,
• The assistant who prepares all of the agendas for important meetings, and
• The receptionist or switchboard operator that knows everyone everybody.

If you have ever been in sales, you know this list. These are the same people you get to know when you are trying to develop a relationship with a key client. Their opinions matter, even if they do not have a title or a desk in the executive suite. You will not even get a chance to pitch your product to the ultimate buyer if you do not sell to these people first. I’ve often found it amusing to read job ads for sales people that demand experience selling to C-level executives. The ads should ask for the people skills to interact with the people in the lobby or at the desk outside the executive’s office door.

If you have ever been a customer, then you know how important the last person on the list can be. Receptionists and switchboard operators are the first people that the public meets. Interestingly, companies that will spend huge amounts on web sites and advertising will often become very tightfisted when it comes time to hire administrative assistants, receptionists and switchboard operators. It occurs to me that companies send a not so subtle message to their customers when they don’t allocate resources to the people that customers contact most frequently. A good example of this is the trend toward outsourcing customer service. Instead of recognizing the competitive advantage of high quality customer service, many companies outsource this function to save money. The predictable result when customers interact with disinterested, poorly trained people without authority is that customers become unhappy. The same thing happens when companies replace the receptionist in the lobby with a security kiosk and a contracted security person. Do you really think your customers and vendors would rather check in with a bored security guard putting in the hours on a 12-hour shift than a knowledgeable and personable receptionist? Was it really a good idea to replace the switchboard operator with an electronic system that frustrates customers?

I think a good case can be made that some of the most important people in a company are the ones near the bottom of the organization chart. Whatever your business, you need to put knowledgeable, well-trained, and personable people in front of your customers. You also need the people within the organization that know the organization’s history and ways of doing things, and you need the people that seem to know everybody. If you think of your business as if it were a car, then these employees are like the tread on the tires that keep the car on the road and the oil and grease that keep everything moving without friction.

Maybe it is time to reconsider who is really important in your company. The next time you walk past the receptionist in the lobby consider that you may be walking past the most important person in your company (unless you have outsourced the job). Stop and say hello.

Unsung Heros

I spent some time in Newark airport over the Christmas holidays. It was a desolate place. A snowstorm rearranged a lot of travel plans, and the people that would normally have been bustling about were still at home or in hotels waiting for the days to pass until they could board their rescheduled flights. Most of the people in the airport had nowhere else to go. A few people were hoping that their regularly scheduled flight would actually be able to take off, and some of us thought we might get lucky with standby.

Of course I’ve managed to leave out an unseen army of other people who were also at the airport. That is one of the points I hope to make with this post. I just spent a lot of time talking about the travelers, but said little the other people. The airport was also full of people helping stranded travelers, feeding people, keeping shops open. The TSA folks were there. So were the gate agents and the ground crew and who knows who else. It is easy to overlook all of those people. At the airport, we usually focus on our destination, and all of the people along the way fade into easily forgotten scenery, and we take them for granted.

We shouldn’t.

Organizations spend a lot of time and money trying to come up with ideas for new products or better ways of doing things. A lot of times they create special teams of senior staff or managers. However, ideas about how to run faster or jump higher in an organization can come from anywhere. There is no rule that says the best ideas come from management or from employees that have been around a while. Sometimes the best ideas come from the newest employees, and sometimes ideas come from people well removed from the executive suite. Ideas can come from all over the organization. I thought about this while I was wandering around Newark airport.

I don’t know how many have seen the TV show Undercover Boss. It is a reality show in which the CEO of a company goes undercover and takes entry level jobs. It is an attitude adjusting experience. I watched an episode where the CEO of Frontier Airlines worked all sorts of jobs. (He was not very good at any of them.) He made a few changes after listening to people on the front lines who sell tickets, clean airplanes, and pump out toilets.

If this seems surprising, we might need to think about things differently. It should make sense that the people closest to the customer or the people doing the heavy lifting will be the ones that think about new ways to do things. The CEOs on Undercover CEO are frequently surprised how little they know about the daily work of the people on the front lines of their business.

I think many of us have a tendency to assign people to categories. It is easy and convenient, and it lets us ignore them. If you want an interesting example of this, look up Bill Crawford. He was a janitor at the Air Force Academy. He was just a janitor.

I got a stern reminder of this tendency at Newark. With nothing better to do, I decided to get my shoes shined. We’ve all seen shoeshine people. We walk past them in airports or on the streets of large cities. As I settled into the chair and put my feet up, I remarked that I had not had my shoes shined since the Marine Corps sent me to the Army jump school at Fort Benning years ago. It turns out that the man doing my shine learned about shoe polish in the Navy. He retired after twenty plus years as a Chief and went to work handling logistics for a well known firm. When the recession hit, he lost his job. He started shining shoes because he just could not tolerate being idle. His son is stationed at Coronado Bay. That is three proud generations of Navy men. Except for the snow storm, I would have wandered past the shoeshine man, and I never would have heard his story or been reminded that everyone has something to contribute. I wonder how many executives struggling with supply chains or facilities issues sat in that shoeshine man’s chair and had no idea that the man shining their shoes probably had the solution to their logistics problems.

The simple message that I received loud and clear while getting my shoes shined in Newark is this, “Everybody has value, and everybody has something to contribute.” If you want to be a successful business, then every single employee of your company needs to know this simple message and understand it. It is not enough for the management team to know the words. The employees have to know that you know the words and mean them when you say them. You can’t fake it.

By the way, that janitor from the Air Force Academy earned the nation’s highest military decoration, the Medal of Honor.

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.

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.

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.

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.

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.

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.

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.

Small business and the shop local movement

Once upon a time in towns and villages and small cities all over the United States, people shopped at stores owned by their neighbors. People ate food that came from nearby farms. Do-it-yourself types frequented local hardware stores as much for the free coffee and advice as for boxes of nails. If people needed a loan, then the bank president, or at least the loan officer, knew them. Of course this was before the creation of the superstore. It is now possible to go to giant stores stocked with a tremendous variety of low cost items. We can shop for eggs and milk, and then we can step just a few isles over to shop for clothing or office supplies, or electronics or furniture, or auto parts or just about anything.

While the megastores may have big selections and low prices, they have their own price, one that is not so obvious. Grocery stores, pharmacies, banks, hardware stores, dress shops, children’s clothing stores, restaurants, and the like used to be part of the community. Now the local managers of these national and international corporations may be neighbors, but the stores themselves have no ties to the community. Decisions about our towns and our lives are made in corporate headquarters far away. The profits made by the stores are sent to corporate offices in other places. The neighborhood grocer or drug store or hardware store can’t sponsor children’s baseball and softball leagues, and they can’t donate to PTAs because they don’t exist. Neighborhood children can’t get jobs because all of those everyday low prices don’t leave enough margin to pay students to work after school. This is changing.

Get ready for the backlash
People are getting tired of shopping in huge stores. They are beginning to recognize the Faustian bargain implicit in purchasing only for low prices. People are longing for the community they lost when the locally owned stores closed. They want to know where their food was grown.

There are entire movements dedicated to the concept of “shop local.” For example in Austin, TX, the Austin Independent Business Alliance has the motto, “Local Spoken Here,” and they include this quote on their website.

Shopping at locally owned businesses puts three times the dollars into our economy. A landmark study found that of $100 spent at a local business, $45 stays in the community. But that same $100 spent at a chain store would put only$13 in our local economy. Don't give your money away, keep it in our community.

The movement recognizes that it makes sense to pay a little more for quality too. Michael Pollan, in his book In Defense of Food, observes that it might be a good idea for people to spend a little more on food if it enables them to eat higher quality food.   The idea of locally grown food is also becoming more appealing. Many consumers around the country are shopping at farmer’s markets or joining farms involved in Community Supported Agriculture (CSA). Slow Food USA is a national organization that encourages eating locally produced food. Another organization with a broader focus is the Slow Money Alliance.

Consumers are also embracing new businesses that understand the value of shopping local, high quality, and local sources. One of these businesses is Greenling.com. Greenling is a grocery service that sells certified organic or local and sustainably produced food and delivers it to your door for free. Greenling is more than that though. Greenling embraces the idea of community and recognizes that its customers are its most valuable resource. Greenling hosts periodic get-togethers to showcase food and vendors, and it encourages customers to submit recipes or even to blog about their experience.

Food is gone as soon as we consume it, but the idea of paying more for quality for durable goods should make sense to everyone. The same concepts of paying for quality and staying local apply in other areas too. Consider buildings. The US Green Building Council (USGBC)  recognizes that using local building materials makes more sense than paying to ship supplies long distances by including local sourcing in the LEED rating system.

What does this all mean for small business?
Small businesses should benefit from this trend for one simple reason. They are the locally owned stores and businesses that consumers are returning to after their fling with the megastores. If you as a business owner want to take advantage of the trend, then you need to understand why people want to buy local, and you need to support them so that they can support you. Here are two key points.

• Customers buy local because local businesses are part of the community: Be part of the community. Be a friendly neighbor. Learn the names of your regulars. Support community activities like PTAs, softball and baseball teams, high school sports teams and local charities.
• Customers buy local to support the local economy: Support the local economy. Buy local. Give students after school jobs. Be an active part of the local business community.

As people continue to become disenchanted with big faceless corporations and return to local merchants, it is up to you to welcome them back and to make them glad they came home.

Boundary Waters Blogger: A Canoe Trailer That Will Last

Jason, a friend of mine, runs an outfitting service and guide service for people taking trips into the Boundary Waters Canoe Area Wilderness. The BWCAW is a 1.09 million acre wilderness area in Minnesota. On the other side of the border is Canada's Quetico Provencial Park. He recently bought a new canoe trailer and wrote about it on his blog. Boundary Waters Blogger: A Canoe Trailer That Will Last This is what he had to say about his new trailer.

Meet one of the most durable canoe trailers available. This photo shows our six-place canoe trailer with box by Remackel Welding. As we talked with other outfitters about canoe trailers that last the longest under heavy use, we repeatedly heard about the custom trailers by Dennis Remackel. He’s been making them by hand for several decades.

Jason's business is tough on equipment. When you or I buy camping gear, we may use it a few times a year. If we buy a canoe, we may be able to take it out a few weekends, and if we're lucky, we may get to go on a week long paddling trip. Jason's clients use his gear every day of the season. He buys high quaility stuff that lasts. If he trys to save a few pennies by buying cheap stuff, it ends up costing him dollars in replacement or repair costs. I did not ask, but I know he did not make the decision to buy the new trailer from Remackel Welding without a lot of thought.

So what's the point of this discussion?
Simply that Jason runs a first class business, and he pays a lot of attention to detail. (One of these days I ought to write an article on how he got started.) That attention to detail is why he bought the trailer he did, and it is why he bought it where he did. Here's a quick list from his post.

• Dennis gives people several options to customize their trailers."
•  . . . the trailer is dipped in molten zinc resulting in a trailer that won’t rust and never needs painting.
• The cool-factor is pretty high, and the practical durability factor is even higher.
• . . . wheel wells strong enough to stand on, and a plywood step on the tongue. The plywood is all marine grade.

If I were buying a trailer, I would go to Remackel based on what Jason wrote. Knowing the nature of the guiding and outfitting business, his remarks are pretty high praise.

What about you?

Do your customers talk about you and your products the way Jason talked about his new trailer? If not, what can you do so that they will? Here are a few things to try.

• Understand your customers and meet their needs. Remackel produces all sorts of trailers for all sorts of uses. It is not a one-size-fits-all operation.
• Offer customization. Jason needed extra durability so he went with a galvanized finish. Other people may be just as happy with less expensive finishes.
• Your reputation goes before you. Let it be a good one. Your customers can be your best salespeople. Offer them real value.