Marketing

Which Type of Business is the Best One to Own?

Which type of business is the best one to own? The short answer is one that makes money, but the long answer is that it should have all or some of the following characteristics:

Simple product or service: The more complex the product or service you are offering, the harder it is to operate your business. For example, it is much more difficult to train someone to be a management consultant than a server at a restaurant, although some restaurateurs might think otherwise.

Recurring and/or predictable revenue: Subscription-based services receive recurring payments on a monthly, quarterly, or annual basis, which tend to be highly predictable. A project-based business performs a service, gets paid, and has to find another customer, whereas, a subscription-based business may have no known end date or automatic renewals. A perfect example is a software company, but another example is a landscaper. A landscaper may not be thought of as a subscription-based business, but it actually is.

Cash in before cash out: Selling a product or service and then waiting to get paid can drain your cash resources, especially if you are growing. Ideally, you want to operate a business that receives cash up front and then pays expenses.

Low capital investment: If you need to invest large amounts of cash upfront for improvements and equipment then it creates a hurdle to overcome. This is especially true if you do not have a lot of cash and are using debt because the debt payments act as a handicap to your success. On the other hand, if you just need to rent a small office to start your therapy practice, then the risk is much lower.

Economic profits: Did you know that many small businesses do not produce much of an economic profit? For example, if you start your own medical practice and then make as much as you did as an employee then there is no economic profit. Although, you do have to give it a few years to determine this.

Easily scalable: This means that you can easily duplicate your success by either opening more locations or growing your operations easily without relying on the owner exclusively. A perfect example is a franchise, which has a blueprint to run the business smoothly. A bad example is a niche-consultant who works one on one with clients.

The interesting fact to note is that almost any business can modify its strategy to have the desirable traits above. The complex can simplify their offerings, services or products can be made recurring, and profits can be grown to more desirable levels.

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An Alternative to Setting Goals

Setting goals can become very frustrating and produce anxiety when we realize that they aren’t being achieved. Should you set goals that are very likely to happen or goals that are very difficult to reach? What if you miss your goal by a minor amount or the outcome was good, but not what you expected? Alternatively, there is a much less stressful, and possibly more effective alternative to setting goals and achieving your desired outcomes.

The truth about goal setting: The truth is that they are all guesses, estimates, arbitrary, and do not tell the whole story of what you are trying to accomplish. Ironically, you may achieve a better outcome than your goal, but still fail to achieve that goal because you didn’t make the numbers. For example, if you want to lose 20 pounds, but only lose 15 pounds because you also gained lean muscle mass, then you just failed at your goal. You may be healthier, are in better shape, look better, and are stronger, but according to your goal, you just lost. This doesn’t make sense, does it?

Think about the general direction you want to move towards: Do you want to lose weight, make more money, or save more money? Know the direction that you want to go in, but do not specify an exact number. However, it is still important for you to take measurements before, during, and at the end of the year.

Form habits: Goals are not accomplished without actions, which is why your energy should focus on your habits. If you want to lose weight, then start exercising on a daily basis, even if just for 20 minutes a day. If you want to increase sales, then spend 30 minutes a day on marketing activities. Devise a plan of which actions you need to take and then keep repeating them until you build momentum and start seeing results. Tweak as necessary.

Intensity should be based upon desired outcome: If you want to achieve dramatic results, then there should be a direct correlation between the size of the desired outcome and the amount of intensity and effort to achieve that outcome. A desire to increase sales significantly should spark you to spend more than 30 minutes a day on marketing activities, and quite possibly double or triple that.

The bottom line is to set actions instead of goals to achieve desired results.

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New Year, New Goals or a Waste of Time?

Christmas Day just passed by and another year is approaching in just 5 days. Did you set goals for the New Year or do you think they are just a waste of time? You are probably right either way, but if you do set goals, there are ways to increase your odds of actually achieving them. This is a twist on the SMART acronym of goal setting.

Make goals that you are passionate about: Do you want to run a marathon, grow your business, or start a business? If you are not passionate about your goal then trying to achieve it will feel like drudgery. Another way of looking at your goals is to determine the reason why you want to achieve it. If it would be nice for you to run a marathon without the reason, then your drive will not be strong enough.

Be able to achieve your goals: If your goal is nearly impossible to achieve then how do you continue working towards it when it is futile? This doesn’t mean that you shouldn’t have some stretch goals, but the more realistic your goals, then the higher your chance of success. On the other hand, if the goal is too easy, then you may not even bother to work towards it. Also, too many goals will dilute your focus so try to stick with a handful of goals.

Create an action plan and habits: Goals are achieved by the constant actions we take on a daily, weekly, or monthly basis. For example, if you want to increase sales by 20%, then develop key actions to implement and then review them weekly. If you want to lose weight, then make it a habit to exercise on a daily basis. Habits and actions are so important, that you can commit to certain actions, while ignoring everything else, and still achieve spectacular results.

Be clear: Put a number and timeframe on a goal, which allows you to work backwards and determine achievement. A bad goal is to say that you want to lose weight, while a good goal would be to lose 24 pounds in one year. To achieve losing 24 pounds, you can then break the goal into monthly targets to lose 2 pounds per month or approximately half a pound per week.

Review your progress: Periodically access where you are with your goals to see if your actions are working. If so, then continue, but if not, then make changes.

There you have it. Simple ways of setting and achieving goals so you do not waste your time.

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10 Small Improvements That Have a Big Profit Impact

Improvements do not have to take an enormous effort to make a huge impact on your profits. Sometimes it’s the small things that add up over time. Here are 10 simple improvements that can have a significant impact on your profits:

  1. Schedule work better: Are you wasting time by scheduling work poorly? For example, do you allow enough time for you or your employees to complete a project within the scheduled time? If not, then there will be too much stopping and starting which kills efficiency. Another scheduling challenge is to make sure that you do not have too little or too many staff members scheduled at the same time.
  2. Set aside time for high value activities: High value activities are not usually urgent, which makes them get pushed to the side. In order to get these items done, you need to schedule this type of activity, even if just an hour or two a week.
  3. Look at your financials: Do you look at your financials or tax return just once a year or possibly not at all? For starters, you should review your financials at least once per month to see how you are doing versus the same time last year. Your financial statements are the measurement of your business’ results, and you need to know how you are doing to make better decisions.
  4. Consistency of pay: When possible, try to keep your pay and distributions consistent, unless paying yourself a bonus or bonus distributions. This makes it easier to manage your cashflow and reduces the temptation to take too much just because you had a good month.
  5. Work less: Working crazy hours will burn you out over time and is not sustainable. Try to consistently reduce your hours over time to give yourself a breather. If you become depressed or develop a health problem, then you will not be able to work at all.
  6. Acknowledge people: Show sincere appreciate, gratitude, and respect for your employees, customers, vendors, and especially your family for bearing with you during good times and bad.
  7. List your activities for a week: Over the next week, jot down everything that you do and how long each task takes. Then, ask yourself, “Should I be doing this, should someone else be doing this, and does this even need to be done?”
  8. Pay extra towards your debts: Even a small amount will add up to quickly pay off your debts. You will save interest and eventually increase your cash flow. You’ll also think twice before incurring more debts.
  9. Contact an old customer: Is there an old customer or client that you liked to work with and have not heard from in a while? Maybe there was a misunderstanding that you can easily resolve or maybe no reason at all and they just need to be asked to come back.
  10. Use a pricing worksheet: Instead of just winging it with your pricing, why not develop a pricing chart? It will take the guess work and emotions out of pricing, which ends up causing you to undercharge.

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Are You Too Financially Cautious?

Is it possible to be too financially cautious?  Cautious does not mean that you are just conservative or frugal with your money, but that you are too afraid to spend your money wisely. You may not even be aware that you are too cautious and here are some examples:

Hesitate to make the right investments: Aside from traditional investments, you may be too cautious to invest in your own education and knowledge, spend the money for new equipment and technology, marketing, or spending money on employees.

Too cautious about wasting money: If you are so concerned that you will waste your resources then you will end up spending too much time trying to save a nickel, but it ends up costing you a dollar. For example, you don’t want to spend the money to keep track of your finances in QuickBooks or even Quicken for personal use, but yet you incur hundreds of dollars of insufficient funds charges each month. I have seen clients spend approximately $10,000 for insufficient funds fees.

Not taking a loan when you should: I am not an advocate of borrowing money excessively or foolishly, nor do I think that borrowing should be avoided at all times, which some pundits advocate each position strongly for. However, sometimes you need to have a line of credit to smooth out some bumps or to take advantage of low-risk opportunities that arise. Alternatively, if you pay off all of your debts too quickly then you may not have any cash available.

Time versus money: Using your time productively strongly dictates your financial success. However, if you spend your time on $10 per hour activities that drive you crazy instead of paying someone to perform them, while you can be making $200 per hour, then that is a poor use of your time and financial resources.

Money before relationships: If you are too financially cautious then you will probably never want to get married, and if you do, then you will worry about not having enough money for your children and will probably not have any.

Another way of saying financially cautious is to be penny wise and pound foolish. Don’t try to save your pennies, but make dollars!

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5 Habits for a Healthy Business and 3 Unhealthy Habits to Avoid

Our habits are repeated actions that we take, and have a tremendous impact on our results. Healthy habits become ingrained within us and we continue to do them with little thought or resistance over time. What are some practical, easy habits to ensure a healthy business and also the habits to avoid?

Healthy Habits:

Schedule activities: If you want important things to get done, especially non-urgent, important items, then you need to schedule them. Whether you need to schedule an activity on a daily, weekly, or monthly basis, once it is on your calendar, then the likelihood of it being completed increases significantly. Examples include setting aside time for marketing, networking, reviewing finances, and reviewing processes.

Delegate often: Do you want to get more done? The key is to delegate, but not only to delegate, but to delegate the right things and delegate to the right people. Think before performing a task that needs to be done, especially a somewhat urgent task. This can be as simple as scheduling appointments, cleaning up a mess, or communicating simple issues.

Pause before spending: Virtually every single expense can be justified and rationalized for your business or for you personally. Before committing to spending money, first pause, think about it, and answer  the following questions: can the expense be delayed without their being a negative impact, are their other options, and what would happen if I do not incur this expense?

Consult advisors regularly: Everyone should have an advisor to consult with before making major decisions. High impact decisions can include: employee management issues, loans and finances, purchasing another business, opening another location, legal matters, etc.

Measure results: This can include reviewing your financial results, effectiveness of marketing campaigns, and employee productivity. Do not make assumptions, but keep track of important metrics and review your finances. Just because you are busy does not mean that you are profitable. Look at the numbers!

Unhealthy Habits:

Impulsive decision making: Almost all important business decisions can be pondered, and do not have to be made immediately. Take your time!

Following emotions and feelings: Don’t do things just be you feel like it or because you don’t feel like it. This can include being reactive to a customer that is upset or an employee that made a mistake. Although you may feel better at the moment, it doesn’t help long-term. The same goes for how you feel. I know that I feel like playing Cooking Fever on my phone for a few hours, but if do so, then only the virtual customers in the game will be fed, while my family will be starving.

Consulting with inept people: I know this may sound harsh, but seek the advice of people who are competent to give you advice and/or thoroughly know you and your situation.

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Try to Move the Needle Just a Little Bit

Do you want to make big massive changes? From growing your sales, increasing profits, working less hours to even losing weight, it seems daunting, but here’s how to get started:

Habits: When you want to change something drastically, it all starts with your habits. Incorporate new habits into your routine, and replace the old habits with these new habits. Doesn’t this sound so easy?!

Keep track: Keep track of your results to be able to measure your progress. For example, let’s say that you want to increase your sales by 20% compare to last year. First, monitor your results using financial software, such as QuickBooks, or even in Excel. If you do not measure your results, then you will not be able to determine if your actions are working.

Give it time: When making changes, you have to give it time to see those changes happen. It can be weeks, months, or sometimes years. As long as you are seeing the needle move in the right direction, then you know that it is working, no matter how small the positive results are.

Sustainability: If you make a monumental change then it may not be sustainable over the long haul. For example, if you decide to work less and cut your hours all at once, then you will quickly become overwhelmed and will go back to your old schedule. Look at the longer-term goal and then work backwards to figure out the proper actions and timeframes. For example, if you are currently working 50 hours per week and want to cut back to 40 hours, then give yourself a timeframe of one year. Next, shoot to reduce your workweek by approximately 1 hour per week for the first month, then 1 hour the next month and so on, until you have achieved a shorter work week. Then, figure out which actions you need to take to reduce your hours.

Change can be dramatic even if the results seem small in the beginning. Have the endurance, discipline, and willpower to continue your actions to achieve your long-term goals.

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Don’t Focus on the Wrong Things

What we focus on gets our time, energy, and attention, but how do we know what to focus on to amplify our financial results?

Reactive items: Sometimes there will be an event that needs to be dealt with immediately, but most of the time this is not the case. If you find that you are always being reactive then you are probably not focusing on actions that will produce the best results. Also, this means that you not operating your business in an organized manner, which tends to produce more reactive items.

Minor items that produce little to no value: An example is spending gobs of time and money trying to design and print your business cards. Your business card should be a representation of your business, but if you spend 15 hours trying to design them, then that is overkill. Cleaning excessively and making everything impeccably neat is another waste of time. Cleanliness and neatness are good, but don’t spend an hour each day cleaning your desk, car, or anything else. If you do, then you may have other issues that I am not qualified to fix!

Blaming others: Everyone likes to be right, right? But if you don’t know who is helping you and who is hurting you then how can you run your business profitably? Know who is your enemy and who is your friend. The people surrounding you include your employees, vendors, professionals, subcontractors, etc. They are usually working toward the greater good, but if you do not think so, then take an objective look at the situation, which is probably more positive then your emotions will lead you to believe, to determine if this is the case.

Tasks that can easily be delegated so you can make more money: There is a business owner that I often see cutting the grass, edging, and taking care of the landscaping of his business. It is understandable to do this for your home if you really enjoy this type of work and have the time to do so, but not for your business. Let’s calculate the lost income from this endeavor. Let’s say the landscaper cost an average of $50 a week plus some extras and snow plowing for a total of $3,500 per year total. Then, it takes you an average of 2 hours or more each week to do all the landscaping (don’t forget that you need to have all of the equipment, maintain the equipment, change your clothes before yardwork, shower, change your clothes after, and now you probably need a nap). This can easily equate to spending 5% or more of your time on landscaping work. What if that time was spent trying to grow and develop your business and was equivalent to $10k, $50k, $100k or more of income?

How we spend our time has the largest impact on the profitability of our business. All of the above also relate to letting your emotions rule your decision making versus being well though-out, which I have written about previously. Focus on the right things!

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The 3 Pillars

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A business has many moving parts that must all be coordinated to ensure smooth and profitable operations. Usually, there are aspects of a business that are either completely ignored or not given the time, energy and focus that they need. These moving parts can be broken down into 3 major areas: operations, marketing, and financial.

Operations: Most businesses focus all of their time and energy on the operations of their business, and with good reason. Without operations there would be no business. Aspects of operations that are usually overlooked are: developing and managing employees, delegation, scheduling, and technology. It’s easy to get lost in all of the details of delivering your product and service that improvements to your business get pushed aside for the sake of just getting through the day.

Marketing: Marketing is the promotion of your business and is the key to growth opportunities. This can include old-fashioned networking, social media and Internet marketing, and many other forms of getting the word out. There are even indirect ways of marketing your product or service based upon visual interactions and use of technology.

Financial: Financial matters are like a middle child that tends to get ignored. Anecdotally, I have yet to see a business that does not have either cash flow problems or tax issues if they ignore their finances. Practically speaking this is the least interesting aspect of running a business, which is probably why it is ignored. However, operations, marketing and financial are all thoroughly intertwined, and if you ignore the financial aspect of your business then it will negatively impact all of the others.

These three pillars create the foundation of a business, and by strengthening them you will create lasting success.

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Why Does a Fast Growing Company Bleed Cash?

The irony of growing a company quickly is that it tends to bleed cash, and a lot of it. Why is this so and what can you do to prevent a cash crunch to keep the momentum going?

A fast Growing company is likely to spend more money to feed the growth of the business then a mature, slow-growing business in such areas as marketing, employees, technology, equipment, improvements, rent, and so on. The key to not going broke is to manage the process to keep the cash inflows consistent and much greater than the cash outflows. For example:

Accounts receivable: Sales growth without receiving money coming in will be awfully painful. Make sure you have billing and collection procedures in place to keep the cash coming in timely.

Marketing: There are different thoughts on how much should be spent on marketing as a percentage of sales. However, instead of thinking about percentages, think about effectiveness of your marketing so that your cash is not wasted.

Improvements & equipment: Building out a new location can be very costly, but there are several ways to minimize the risk of setting up an additional location. First, make sure that your first location is profitable and producing excess cash flow, second, build up a cash cushion, and third, obtain favorable financing or use a combination of cash and financing.

Employees: As sales increase there is a temptation to quickly hire more employees, which is necessary. However, if you hire too quickly, then the productivity of each employee will be too low for you to make a profit. A good strategy is to create metrics, that if met, will let you know that it is time to hire another employee or employees.

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