Technology

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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Help Your Employees Succeed in 5 Steps

One of the common topics that I discuss when advising business owners is that of employees. From finding employees, keeping employees, and sometimes letting employees go. Dealing with employees can be difficult because we are people with emotions, problems, families, health issues, and also have lives outside of work. As a business owner and manager, here are 5 steps to make sure that your employees succeed:

#1 First things first: Slow down the hiring process to make sure the position and the potential employee are a good match before even starting. This can include multiple interviews, interviews with your other employees or managers (if you are a solopreneur, then the other interviewer can even be your wife or someone that you trust greatly), asking the right questions to gauge ethics and personality, and tests. A test can include a short demonstration of skills and knowledge.

#2 Initial set-up: It seems so simple, but is your employee ready to start working on their first day? Do they have the proper technology, equipment, uniforms, or even completed payroll information all ready before starting? Don’t waste their time because ultimately you are wasting your time and money and also do not appear to be organized.

#3 Training: Even if you hire experienced employees, they will still need to be trained with how you operate. Take the time to train so that they will perform well and feel good about their job.

#4 Set expectations: Let your employees know what you expect them to work on today, tomorrow, this week, and in the future. Also, set expectations for hours worked, time off, busy times during the year, and the like.

#5 Support: Employees will experience sickness, need to attend to family matters, and go through stressful times. Support them during their time of need to help them throughout any ordeals they may have. If you need support, then good employees will support you too.

There are many more ways, but this is a good start. Remember, success is not accomplished by itself.

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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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You Get What You Pay For

I like a good deal when I see one, but be careful about going for the “cheap” price. Generally, you get what you pay for and many times it ends up costing you more and you either don’t realize this or realize it once it’s too late. Even commodity type services and products are not really commodities and here are a few examples:

Service providers: The pricing of service providers varies drastically, and includes virtually all services from home maintenance/contractors to professional service providers. Maybe you can find a good deal because the provider is newer in business and is under charging on purpose or is doing so out of poor business practices. However, a “cheap” service provider, especially one that you use repeatedly, will find it hard to provide quality service to you over time. This can be due to a high demand because of low prices, not being able to afford good, competent employees, and not having additional funds to invest in their business.

Products: If you are able to get the same product or software when it is on sale, then that is plain smart. However, when comparing two products, make sure that you understand why one is cheaper than the other. Reasons for a lower price can be because the product uses poor materials, is manufactured poorly, or does not contain a lot of features. The opposite can be true for a more expensive product, which is why you need to make sure that you purchase wisely.

Cost/benefit analysis: When making a purchase for your business, especially a large or important purchase, then weigh the cost/benefit. For example, a consultant may cost you $5,000, but you may expect that his advice will return $50,000 of profit. Alternatively, a software provider may cost you $10,000, but will save you $20,000 of expenses, including salaries. The examples are endless, and it is important to think of each expense as an investment in your business.

Don’t be fixated on price, but make sure that you understand what you are getting for the price you pay. A funny expression is, “If you pay peanuts, then you get monkeys!”

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What is a Growing Business Doing Differently than a Struggling One?

There are major differences between the actions of a business owner with a growing business versus that of a struggling business. There seems to be a recurring theme for growing and struggling that closely mimics those who are fit and healthy versus those who struggle with their weight.  The accumulation of certain actions will greatly impact the outcome as follows:

Successful Businesses:

Hire smart and delegate: Business owners who are willing to take on additional employees will find that they are better able to increase sales due to additional capacity. They also do not over do it by hiring too many employees at once compared to needs, which ends up causing cash flow issues.

Invest in infrastructure: This not only includes the physical infrastructure, such as buildings, but also technology and equipment. Have you noticed that franchised restaurants update their locations quite often and do not hesitate to invest in technology and equipment?

Are reluctant to use debt: Debt can easily overwhelm your business even if you are growing rapidly. Although debt can be useful if used for the right reasons, it must be used sparingly and wisely to avoid pitfalls. As a business matures, then the goal should be to rely less on debt to support business operations. Why do you think the interest rates and payment terms are much different with traditional financing versus non-traditional loans, such as merchant loans or hard-money loans?

Seek advice: There are different ways of learning and some are more efficient and effective than others. One way to shortcut your success is to seek the advice of those who know more than you and then implement their suggestions. It sounds easy, but our pride tends to get in the way.

Struggling Businesses:

Are obsessed with cutting expenses: This may come as a surprise, but many struggling business owners are obsessed with cutting expenses. My only guess is that they do not see the link between smart spending to support profitable business operations. They are also penny wise and pound foolish and spend enormous amounts of time trying to save a few bucks, which ends up costing more.

Think that debt is THE answer: Debt may be a part of the solution, but it is not the answer to all of your business problems. Examples of problems that debt will not solve are: a lack of sales, overly burdensome expense structure, too many employees for the size of the business, and bad customer service.

Have an excuse and don’t listen to reason or reality: The economy is by far the most common excuse, along with “nobody buys this anymore” or “no one has time to do that anymore.” They may be right to an extent, but what about when the economy has turned around? If your customers have changed their buying trends, then why don’t you adjust your strategy as well? If you don’t change then you will prove yourself to be correct, but at a major cost to your business.

The probability of becoming a growing business will increase if you take the actions of growing business, while the odds of struggling will increase if you take the actions of a struggling business.

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5 Traps to Avoid When Growing Your Business Rapidly

Growing your business, especially growing rapidly, can be a really great accomplishment, but there are dangers when growing too quickly. Here are several traps to avoid to ensure successful growth:

Cash flow: Quite often, a small business will have cash flow issues when growing too rapidly. This is due to a delay of getting paid, while expenses need to be paid for upfront or before getting paid. There are 3 solutions that can help depending upon your situation. The first is to see if you can obtain terms with your suppliers to delay expenditures, second is to obtain a line of credit to support your receivables, and third, which tends to be the hardest, is to build up a cash cushion first.

Finances: As you grow your business, the financial aspect becomes even more crucial to your success. This entails a focus on investing in more robust accounting software, accounting staff and/or accounting services, streamlined processes and procedures, and internal controls, to name a few.

Employees and management structure: Unless you enjoy working 24/7, you need capable managers to manage your employees (you have been hiring more employees, right?). It is easier to have a few people reporting directly to you then several dozen. Also, make sure to acknowledge and reward the loyal employees that helped you to obtain your success.

Personal time and wellness: It is very easy to put in excessive hours to handle the massive growth of your business. There will be times when you need to work extra, but if this becomes the norm then it is easy for your personal relationships to suffer, along with a decline of healthy habits.

Infrastructure and organization: This applies not only to the physical nature of your business, but especially your operations. Have you outgrown the physical space that you occupy? Are you using equipment, technology, or IT that is not keeping up? Are your vendors and advisors able to handle the growth of your business? What about marketing and marketing staff? These are all areas to consider; otherwise, they will act as barriers to your growth.

Growth needs to be profitable, stable, and smart; otherwise, your results can easily go in the opposite direction that you intended. Think long-term, strategically, and surround yourself with the appropriate advisors to help you along your journey.

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5 Ways Your Calendar Will Help You to Work Less Hours

Are you using your calendar as a tool to be as productive as possible? Most people do not use their calendar in a way to maximize its effectiveness, but if used properly, it can help you to reduce the amount of hours you work. Here are 5 ways your calendar can help you to work less:

Scheduled tasks get done: When a task is scheduled there is a high probability that it will get worked on. Have you ever had the feeling that you did not get anything accomplished on a particular day? The main cause is most likely due to not having tasks scheduled.

Allocation of time: How much time should you allocate for a specific task or meeting? By allocating specific time slots and durations, this will help to alleviate the open-endedness of meetings and tasks. Parkinson’s Law states “Work expands to fill the time available for its completion.”

Batching of activities: Similar activities may benefit by scheduling them close together or within the same day(s). For example, new clients or patients may need a much longer time slot for an appointment, which can all be scheduled on a specific day.

Schedule key tasks early on: Important, but usually not urgent tasks, should be scheduled first thing in the morning or early in the week. There is a constant pull for your time and if you do not focus on important items first, then you may never get to them.

Long-term planning: A calendar can include tasks that are several weeks or months in the future. This can include both tasks and meetings. If you can plan your vacation months in advance, which is very important, then you can and should plan business tasks well in advance also.

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When Should Your Parents Stop Being Involved in Your Financial Affairs?

Our parents raised us and shaped who we are today, and there is probably nothing that we can do in comparison to what our parents did for us, except for perhaps raise our own children well. But, when should our parents stop taking charge of our finances, career and/or business?

It is a good for us to always seek counsel from our parents, especially on matters that they may have more experience with or needed expertise. Even when we are in our fifties it is wise to communicate financial issues with a knowledgeable parent. However, make sure to separate having trust in someone versus their ability to competently advise you.

Once you are in the workforce and are an adult, then you need to deal with your employer directly. Several examples have been shared with me regarding parents contacting their adult child’s previous employer over payroll issues. Even worse is that in those situations the adult child was a professional that advises others! Again, feel free to seek the advice of your parents, but do not have them act as your “proxy.” I can just picture this now, “This is Mr. Smith, and I am calling to let you know that Timmy will not be at work today because he is under the weather. Please cancel his meetings with the executive vice-presidents of Fortune 500 Co.”

Sometimes you may own and operate a business and employ one of your parents, which does happen occasionally. Your parent may be able to give you insight that you are not seeing regarding employees, customers, or finances. However, unless you hired your parent as a strategic advisor because they have developed successful companies in the past, or the CEO, which small business owners actually are, then your parent should not be actively deciding the direction of the company or connections with key people.

Anecdotally, it seems that adults who enforce boundaries with their parents make better financial decisions, are more successful, and have more confidence.  I’ll let the psychologists further elaborate on this topic.

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Will Outsourcing Create Higher Profits?

When we think of outsourcing, we immediately think of manufacturing goods overseas or customer service reps with thick accents reading from a script. Even with all of the negative images of outsourcing, should you still outsource parts of your business or even vital functions? Here are some pros and cons:

Pros of Outsourcing:

Potentially lower costs and better service: Most small businesses do not have the need or resources to have an in house bookkeeper, biller, receptionist, administrative assistant, IT professional, or even your business operations. When outsourcing these roles you can generally get a high level of expertise without the cost of having a full-time or even part time employee. There are probably many businesses that you interact with that outsource some or all of their operations that you are not even aware. Examples include: dry cleaners outsourcing all or some of their operations, restaurants outsourcing their desserts, professional services firms outsourcing to other firms or overseas, and online retailers outsourcing their distribution and fulfillment centers to Amazon. Even your local ice-cream shop probably doesn’t make its own ice-cream.

Continuity: If you choose a good outsourcing partner then you do not have to worry about staffing issues or purchasing and repairing equipment. This helps to ensure that your business operations do not experience major hiccups.

Cons of Outsourcing:

Ironically, some of the reasons for outsourcing can also be the same reasons for not outsourcing.

Potentially higher costs and worse service: An outsourcing partner may actually cost you more than having the task or operations in house, and a cost-benefit analysis should be prepared to see if it makes sense to outsource. Other outsourcing factors to consider are the quality of the task or operations being performed, lack of knowledge of your particular business, and a lack of customers knowing and interacting with your staff.

Continuity: What if a major outsourcing partner makes a change to their policies that adversely affects your business so that you cannot rely on them anymore? If you don’t have another alternative then you may not actually be in business anymore. Also, company culture plays a large role in the success of your business, which is generally lacking from your outsourcing partner.

Outsourcing may be beneficial to the growth of your business after carefully weighing the pros and cons. Sometimes outsourcing may just be a temporary solution until you have the capability to perform the outsourced function in house.

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