Archive for the ‘small business’ category

Leadership Skills for Entrepreneurs

September 25th, 2014

Leadership SkillsAs a small business entrepreneur in a dynamic business world, it is vital to stay informed on the things that impact your company. There is always more to learn about business, and consistent development is a component of success. Savvy business owners recognize that internal improvements are not limited to how the business runs but also to who is running the business. That’s why it is important to create opportunities to develop your skills so that you can improve business performance.

Here are three skills that are common to successful business owners:

Diligence

A large number of entrepreneurs start companies every day. They have great ideas in mind for companies that will make an impact in the market. Many of them take it a step further by getting the concepts out of their head and onto paper, but fall short when it comes to taking the next steps. Running your own business requires extraordinary commitment to get the results desired.

Management

Having your own business means cultivating the skills to be a self-starter. You need to be able to direct yourself to handle multiple tasks in order to manage your business well. You must have the ability to look at your responsibilities and motivate yourself to get going. Improving in this area equips you to work independently without requiring someone else to micro-manage your efforts. As a result, you can see the vision and run with it, looking for ways to put plans in action with the desire to produce good results.

Learn to prioritize by recognizing that you cannot do everything at once. Then arrange your tasks in the order of importance that will have the greatest impact on making progress on your business.

Finally, and probably one of the most important tips for managerial success, is to do what you do best and be willing to delegate or outsource the rest.

Good Judgment

As a business owner you will need to make many decisions concerning your company. So having the ability to make the best decisions from multiple options is very important. You may have had success by referring to your instincts, but when possible, use quantifiable data to back-up your business assumptions, and be sure to consult with industry specific experts when you come to challenges that you are unsure about.

Are diligence, managerial acumen, and sound judgment skills that can be learned, developed, and continually improved upon? If there is strong desire for success, and an understanding and acceptance that it is possible to achieve that success when you have a regimen for starting, running and growing your business one step at a time, then yes, they are.

One method commonly used by successful entrepreneurs, is to keep a reminder of your mission in front of you at all times. This can be in the form of a vision board, a handwritten note on a sheet of paper, or some other tangible item that reminds you to stay focused, and inspires you to take action. Write down your goals and the strategies that you will use to reach them. Convert big goals into bite sized steps so that you can continue to persevere when the task seems overwhelming. Continually develop yourself into a better and more capable business person every day.

2 Concepts for Improving Your Brand

July 19th, 2014

Improving, or repositioning, a brand has a direct impact on the financial performance of a business. Companies that are successful in building their brands enjoy higher customer loyalty and are more likely to attract new customers. An improved brand has a positive impact on profit margins and allows a company to raise its price without becoming less profitable due to a reduction in business. A stronger brand leads to increased market share, revenues and profitability.

Understanding the two concepts of actual value and perceived value, and applying them to your product or service’s brand can help you increase margins for your business and make more money.

Soda sells for 75 cents at the grocery store or $8 at an amusement park. Steaks are priced from $18 at a casual restaurant to around $40 at a fine dining establishment. A cup of coffee can range from one dollar to well over $5. The vast difference in these prices is a result of brand positioning and the value that the brand represents in the marketplace.

If you want to increase prices in your business and make more of a margin on each sale, analyze your brand to see how you can reposition and improve it to be more valuable in the minds of your current and potential customers. Do this by boosting actual value or perceived value.

1. Actual Value

Increasing actual value likely will cost your business more money but will enable you to charge more too if your customers care about the improvements. For example, in the auto business, a sunroof, leather seats and chrome wheels are considered upgrades. It costs manufacturers more to install these, but since car buyers think these features make a car more comfortable, sporty, luxurious, durable or attractive, these add-ons increase the value of the car, and customers will pay more for it.

In your business you are adding actual value when you are paying more on a continuous basis for the cost of materials or labor to improve the customer’s view and desire for your product or service. In the case of the cars, the sunroof, leather and chrome wheels must be added or available every time in order to offer the increased value and capture the added profits that result. Using premium or preferred materials or skill sets rather than just good or good enough materials and labor will allow you to have higher price points if your add-ons are desirable to your customers.

2. Perceived Value

Increases in perceived value are generally more profitable than increases in actual value because you do not necessarily have to spend more money, or any money at all, to achieve increases in perceived value, but you can still charge more for the added value.

Consumers will pay higher prices for attractively packaged products. Making a product package more attractive may not cost more. It can be as simple as using a brighter or darker brand color, a more commanding or refined font or a different shape of bottle. These changes can make a product appear richer or of higher quality, yet the inside product may be the same as a lower priced competitor. It’s all about the perception.

Associations, affiliations and trust also boost perceived value. For example, two identical products may sell for vastly different prices if one is associated with higher professionalism, expertise, style, or just plain fun. For example, if a product is worn, used or favored by celebrities, then it suddenly achieves higher perceived value.

Professional certifications work the same way. A Certified Public Accountant (CPA) may be able to charge a more for bookkeeping and services than an accountant with a degree but no certification. If the CPA is better at the work, it isn’t necessarily due to the certification, but the perception is there for the CPA to leverage.

Protect, build and analyze your brand to figure out ways to boost value for your customers. Whether it is actual or perceived the added buzz and sales can help you reach your annual profit goals faster.

Set Your Prices by Knowing Your Costs

January 20th, 2014

It seems like a simple fact of business; to turn a profit your prices have to be higher than your costs. Is it really as simple as just adding some percentage to your costs to make your company profitable? Actually, it is. The hard part is determining your true costs.

With product-based businesses, setting prices starts with a markup on the product costs. Service businesses can start with a markup of an hourly rate, for the employees and/or owners providing the services to the clients. Those costs should be starting points, but many new business owners use these alone as a basis to set prices. For many new small-business owners, figuring out the complete costs of what they’re selling can be difficult. However, not knowing the true costs can result in underpricing products and services.

The price floor is the absolute minimum at which you can set your prices without sustaining losses on each sale. The price ceiling is the absolute maximum price the market will bear. The price you charge for your products or services will fall somewhere in between.

Here’s what your price needs to cover:

  • The immediate cost of what you’re selling
  • A portion of your selling and general expenses
  • A reasonable profit left over for you

Include every component of your cost-of-goods-sold as you work the numbers for a product-based business. For a service business, use a reasonable hourly rate as your starting point; for yourself (if you’re not counted as an employee) and remember to add on the costs of benefits and employment taxes. Pull the selling and general expenses right off your profit and loss statement; if you have figures from two or three periods to work with, take an average. As for your desired net profits, add on a reasonable percentage for your industry. For example, someone selling original artwork could expect to see a higher profit percentage on each individual sale than could someone selling one-size-fits-all rubber noses.

8 Reasons Small Businesses Can’t Make a Profit

November 11th, 2013

8 Reasons Small Businesses Can’t Make a ProfitI know from running an accounting and bookkeeping practice that many small business owners are making the same mistakes, and those mistakes prevent them from accomplishing the goal of being profitable. After all, a business isn’t there just to make money, it should be profitable.

This list of eight common mistakes that reduce or eliminate profitability is one all small business owners should check themselves against:

1.  Underestimating all the costs involved in producing, packaging and shipping a product
2.  Overestimating the size of the market for a product or service
3.  Undercharging for their services
4.  Not classifying expenses properly to take advantage of tax codes
5.  Purchasing too much, not enough or the wrong kind of insurance
6.  Overpaying on bank fees and credit card fees
7.  No collection process in place for customers that have not paid
8.  Not having accurate, up-to-date reports to provide the above information so corrections can be made

Many business owners try to keep their own records, (or have a spouse or friend help) and because they lack the knowledge and/or time to do it properly, they don’t have the information needed to evaluate and correct potential problems.

Sometimes there is enough money coming into the business to continue despite making many of these errors but correcting them could mean a much better payback for the owner. More often what happens is that the owner gets frustrated and overwhelmed. In such an environment of confusion time is not leveraged properly, decisions can be made in desperation, and more and greater mistakes are made, further distancing the company from its profit objective.

Once a proper bookkeeping system is set up and brought current, the owner can see the whole picture and assess where changes need to be made. Sometimes minor changes like switching to a different bank or credit card company, increasing prices, or outsourcing a specific task can have a big impact on profitability. Other times something more involved is necessary such as implementing a system of pricing levels, changing advertising tactics, or even changing the direction of the company to be able to offer a more competitive and profitable product line.

Having accurate bookkeeping, and its associated reports, provides the business owner with the necessary information to get a clear picture of the economics of the company. Evaluating business operations and making the day-to-day decisions becomes a process based on the facts of the business not the “feel”. Even if your company makes pants, you shouldn’t be running it by the “seat of your pants”.

Is Your Budget Incomplete?

October 8th, 2013

Is your budget incomplete?Estimating and matching expenses to revenue (real or anticipated) is important because it helps business owners to determine whether they have enough money to fund operations, expand the business and generate income for themselves. Without a budget or a plan, a business runs the risk of spending more money than it is taking in or, conversely, not spending enough money to grow the business and compete.

So you assemble a budget spreadsheet that starts with your projected profit, then accounts for the operating expenses required to generate that profit, and calculates the gross profit margin, and then estimates the required sales revenues. You look over the results and decide that the profit goal is doable because the sales revenues are realistic and the required expenses are complete. But are they? Have you considered all of the following?

Purchase Price vs Landed Price
Does your budget account for the difference between the purchase price for a product and the landed price? The landed price is what really matters, because it includes the costs of freight, duties, taxes, storage, etc. Knowing the true cost of getting the product into your hands is crucial when setting the price and insuring profitability. Clearly it is advantageous to reduce the cost of each or any component of landed cost. Each one will allow the seller to lower the final selling price or increase the profit margin associated with that sale.

Slow Growth
Many entrepreneurs don’t account for how much money they will spend if their idea does not take off as fast as they hope. When budgeting, make sure to create at least one “very worst case” scenario that does not have much or any growth, just so you know what will happen if it all goes wrong.

The Effects of Scale
Scaling may affect more areas of your business than you can anticipate. Ongoing processes such as training new employees and maintaining quality control are just some areas that might get exponentially more difficult, without even factoring in the effect of any new operations. Be sure to budget in the money and time to make systems and procedures more efficient, as new problems related to scale will inevitably arise.

Insurance, Equipment and Software Applications
Three of the biggest expenses that may surprise you as an entrepreneur are:

Insurance: You need to budget in much more than you pay as an employee for health, disability and business insurance.

Equipment: Will you need additional equipment and office furniture to provide the production capacity that your profit projection required? Even simple items like tools, racks, chairs and file cabinets can add up to substantial costs.

Software: You’ll need to purchase licenses for each user.

The Cost of Networking
Entrepreneurs sometimes forget how expensive it can be to do networking in the right places. Conferences, for example are great for networking. However, ticket costs, hotels and transportation to conferences add up. Even if most of your networking is at free or low cost events, consider how much money is spent taking people out to lunch and coffee to network with them one-on-one afterwards.

The Costs at Home
When you’re caught up in the fast pace of running and growing your business, it’s easy to forget that there needs to be at least enough money to put food on the table at home. Even if you cut your personal expenses down to bare bones, they do still exist. Make sure they make it into your budget, rather than stressing about them down the line.

Paying Taxes
It’s easy if you’re self-employed, especially if it’s in a start-up, to forget to put enough money aside for taxes. Budget 15-20% of gross revenue or 35% of net revenue (until you know your business better) for paying the taxman. It would be advisable to put the money aside in a separate bank account every month so you’ll always be able to make your tax payments in full and on time.

Unpredictable Costs
There will always be costs you couldn’t have predicted, and because of this it’s important to have a buffer-fund of as much money as you can spare to handle those server crashes, extra hires or other incidental costs you couldn’t have known to figure into the official budget. Consider that an extra 10% of your budget should be included in a Miscellaneous Expenses line item on your budget spreadsheet.

Review the Business Periodically
While many companies draft a budget yearly, small business owners should do so more often. In fact, many small business owners find themselves planning just a month or two ahead because business can be quite volatile and unexpected expenses can throw off revenue assumptions.

Bottom Line
Budgeting is an easy but essential process that business owners use to forecast (and then match) current and future revenue to expenses. The goal is to make sure that enough money is available to keep the business up and running, to grow the business, to compete, and to ensure a solid emergency fund.