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What Keeps Business Owners Up at Night?

Aside from worrying about everything, there are really just a few timeless concerns of most business owners. If you don’t have at least one of these concerns then that is probably a concern. Here they are with a few solutions:

Employees: No matter how well you run your business, it will always be a challenge to manage employees. Common problems are: finding good employees, keeping good employees, and making sure that they are productive. There are several ways to address these concerns that are simple, but no way full-proof. The first step is to take your time hiring and to hire the right people from the beginning. Next, treat your employees well and fair. Lastly, spend the time to train your employees properly so they are productive. It sounds so simple, but maybe that is why it is so difficult.

Taxes: Who wants to overpay their taxes? Not only paying taxes, but staying compliant with all of the numerous tax filings can be a huge burden. Having a good accountant can help to alleviate this concern.

Growing: If you are not growing then your expenses will soon eat up a good portion of your profits. Growing sales is a major concern, however, the focus should be to grow your sales profitably. Aside from smart marketing, each new dollar of sales should be profitable to you, otherwise something is wrong.

Cash flow: Either not knowing where your cash is going or not having enough are both problems. Your accountant should help to explain where your cash is going and why there is a shortage. Common solutions are to improve your accounting systems and procedures, increase sales, implement better collection processes, increase your profit margins, and obtain a line of credit.

Too many hours: I don’t think that you are allowed to stop thinking about your business so technically you work 24 hours a day. How can you work less hours? There are dozens of ways, but a few easy to implement solutions are: better scheduling, delegation, and a commitment to work smarter, not harder.

There are a few other closely-related concerns, such as health insurance for employees, feeling burnt out, and the economy. Unfortunately, we cannot control the economy.

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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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The Secret Formula for Financial Happiness

Is there really a secret formula for financial happiness? If so, it would look like this:

Income = $100

Spending = $90

Result = Financial happiness

Alternatively:

Income = $100

Spending = $110

Result = Not too happy financially (at least not for long)

Simple, but true.

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4 Low Risk Ways of Starting Your Real Estate Empire

Real estate investing can be lucrative over the long haul, but most people never even get started except for owning their own home. How can you get starting without taking upon too much risk?

Don’t sell your home: It is very common for individuals to purchase their first home with little money down and then sell and move after a handful of years. Usually, there is some equity in the home, which is used as a down payment on a larger home. Aside from a large percentage of your equity being eaten up by selling costs, you now have another 30 year mortgage, most of the time. However, another option is to save up the funds for a down payment on a larger home and then rent out your original home. You still need to prepare the calculations to see if this makes economic sense, and if so, then now you are officially a landlord.

Buy the building: This option is for business owners only. Over time, if your business is growing profitably, then owning a building instead of renting could be a good option for you. There are several advantages to purchasing a building and renting to your business. First, if you occupy a majority of the building then you may be eligible for SBA funding, which generally requires a much lower down payment then traditional financing. Additionally, you know the tenant really well.

Partner up: I’m not a huge fan of partners for various reasons, however, you may have a family member or friend that you can partner with to combine resources that you would not have if purchasing a rental property alone.

Look farther away: The real estate market in North Jersey is very expensive compared to other parts of the State and the country in general. If you look a little farther away, then you may be able to find a real estate property for much less, and quite possibly a higher ratio of rental income received versus the price paid. This will make it easier to come up with a down payment.

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Is Cash Flow Going in the Wrong Direction?

Cash flow. It’s what keeps every business alive just like the blood flowing through your veins. The irony is that although it is extremely important, it is not managed properly by many businesses, even the successful ones. Here are reasons for common cash flow issues and how to fix them:

Problem: delays with receiving payments: Common reasons for not get paid timely include: slow invoicing/billing procedures, customers on long payment terms, not accepting electronic payments, and customers with cash flow issues.

Solutions: Do not delay with invoicing or processing payments from customers, especially as soon as a service has been rendered. When possible, shorten payment terms to get paid quicker and/or ask for payment up front. In some cases it is not possible for customers to pay quicker, and if so, then it may make sense to obtain a line of credit.

Problem: spending cash before a sale: This greatly applies to retailers that have to pay for inventory and then wait until it is sold to receive cash. It can also apply to paying for equipment, wages for employees, and various other expenses.

Solutions: For inventory-driven businesses, monitor your inventory to make sure it coincides with your sales cycle and that inventory is actually selling. Some retailers, specifically online retailers, may be able to have items shipped directly from the manufacturer or distributor once a sale is made, which lowers the amount of cash needed for inventory. Also, stretching out payment terms to vendors is helpful.

For service-based businesses, wages can be one of the largest expenses. Make sure that employees are working on a project that is planned as opposed to wasting valuable time on longer-term projects that cannot be taken to completion, thus not being able to be paid.

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Instead of Taking out More Debt, Do This Instead

One of the first ways most people try to cover a financial shortfall is to incur more debt. Whether this is to support a struggling business or even on a personal level. This may be a solution in some cases or may be used in conjunction with other financial methods. However, there is another solution that may work to solve your shortfall.

Reason for shortfall: Simply put, there will be a shortfall when your income is less than your expenses. Sometimes this is temporary or seasonal and you may be able to predict a shortfall based on business patterns.

The debt solution: Usually, most businesses turn to debt to smooth out the shortfalls. While this may be a viable solution, it should be well though-out and other options should be explored.

Alternative solutions: Aside from needing funds to support a large purchase, if your income is not enough to cover your expenses then instead of first choosing debt, here are a few other options:

Sales: Focus on increasing your sales. An increase in sales will help to increase your bottom line results. Will your expenses increase as a result? Most likely yes, but so should your profit. Aside from industries that have a poor cash conversion cycle, which is a topic all by itself, the additional business activity should help to offset your financial shortfalls.

Expenses: Small businesses should always be conscious of what they are spending their money on. Based on observation, small businesses do not usually spend their money excessively, but they may spend allocate it to areas of their business that do not generate a benefit, such as poorly spent advertising dollars.

Profitability by service/product/client: It may come as a surprise, but most likely there are several aspects of your business that are really not that profitable or may not be profitable at all. If that is the case, then by eliminating these activities your profits will increase as you can focus on increasing sales of higher profit services.

Don’t always go for the “easy” solution, but perhaps a simple, more sweat-producing, long-term solution to help the finances of your business.

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Use the Snowball Effect to Get Better Financial Results

According to the Cambridge Dictionary, a snowball effect is a situation in which something increases in size or importance at a faster and faster rate. It sounds too simple and general, but it is a useful principle that can be used to achieve significant results over time. Practical examples of this are as follows, along with how the opposite can also be true:

Savings/Investments: Do you find it hard to save or invest? Start with saving just the smallest amount possible and then build upon there. For example, if you start with a small percentage, such as 2% and increase it by 2% each year, then within 5 years you will be investing 10% of your income. If you are unable to save at all, then you need to either increase your income, decrease your expenses, or possibly do both.

Paying off debt: Want to pay off your personal and business debts quickly? Allocate a small percentage of your income towards paying off your balances, starting with the smallest balance first. Once you have paid off the smallest balance, then use those payments towards the next largest balance. If you start with the largest balance then you will lose the moment due to a lack of sense of achievement.

Increasing your income:  If you increase your income by 10% per year, then it will double in about 7 years and in approximately 5 years if you increase it by 15% per year. Even more modest increases can make an impact over time. Small actions, such as allocating a consistent amount of your time and resources to increase your business volume will add up significantly over time. For example, that one extra phone call (made or received), blog post, additional employee hired, etc. matters. For a multitude of tips, search prior blog posts.

Avoid this approach: Most people want instant results and because of this they either stop too soon or start too strong in an unsustainable manner. There is nothing wrong with strong approaches, but it must be sustainable over the long-term. All you have to do is apply this approach to weight loss and fitness and see how many of your friends and family start an exercise program and eat extremely healthy and then stop after a few months. It is hard to go from no exercise to spending an hour and a half 5 days a week exercising.

Over time your results will get better and better, but give it time to be productive. Think of your actions as planting a fruit tree, as it will take time to bear fruit.

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Do This to Avoid a Big Tax Surprise

If there is one recurring theme from this tax season that caused the biggest tax surprise it is this:

Double-check your withholdings: The withholding tables were revised and many taxpayers were under withheld, which caused them to owe taxes versus receiving a refund. The easiest way to correct this is to see how much you owed and then divide it by the number of paychecks left in the year. Then, either ask your employer to withhold this extra amount or complete a new Form W-4 to request this additional amount to be withheld from your paycheck.

Remember, a lower refund does not mean a lower tax liability. A refund is a function of your withholdings and estimated tax payments versus your tax liability.

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Business Lessons from a Paperboy

I was a paperboy when I was a kid and I also mowed some of my neighbors’ lawns. These are two activities that have become extinct in modern times. I was fortunate to learn some good business lessons from these entrepreneurial endeavors.

The value of money : If I worked not only hard, but did a good job then I made more money. I learned the value of money, how to save up for larger purchases, spending money wisely, and also saving for the future. Unfortunately, kids and adults nowadays tend to ignore these basic financial principals and choose impulsive, debt-incurring decisions.

Customers are interesting: Each customer is unique and interesting. Some more than others, but if you take the time to learn about your customers then you will find out about their lives, families, interests, personalities, and unique characteristics. Positive interactions create a wonderful experience and help to make your job or business responsibilities easier to handle, especially on a rainy day.

Responsibility: Take responsibility for your actions. There are many things that are out of your control, but many things that are. Be accountable to yourself and others even when it is the hard thing to do.

Sometimes bad stuff just happens: The owners of the newspaper I delivered newspaper for decided to replace us all with adults. I believe we had some notice of the transition, but we had no control. It was just like a corporate layoff or having your largest customer go bankrupt.

I could probably list another dozen or two lessons from my experience as a paperboy, which have stayed with me through all these years.

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