business

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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Are You Thankful for What You Accomplished?

Happy Thanksgiving! We should always be thankful for everything in our lives, including people, things, and accomplishments. Sometimes we take our accomplishments for granted, and it is good to examine the past to see just how far you have come. Here are some examples:

New home: Whether you just purchased your first home or moved into a more accommodating new home, this is quite an accomplishment.

Paid down debts: Did you significantly reduce your debts or pay them off? For some, if your debt levels have stabilized, this too is an accomplishment.

Started a business: Taking the leap to start a new business is exhilarating and quite an accomplishment.

Expanded your business: Did you open another location, hire additional employees, or increase your sales a sizable amount compared to the prior year? These activities all take time and energy and are a huge accomplishment.

Charitable giving: Has your charitable giving increased compared to the year before? If so, then excellent, but if it hasn’t, maybe it has increased as a percentage of your income if your income went down.

Increased your savings: Even saving just 1% more of your income than you did the prior year will have an enormous impact on your finances if you continue to do this each year.

Worked less: Are you working just a few less hours than you used to? A few less hours each week can make a big difference in your life.

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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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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 One True Business Formula for Success

There are dozens of formulas and ratios that a business can use to determine success and profitability. However, there really is one that is most important and should be used repeatedly . . .

Sales – Expenses = Profit

Keep on repeating this formula over and over again and you will do just fine.

 

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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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Follow Your Emotions and Go Broke

According to dictionary.com, one definition of emotion is “an affective state of consciousness in which joy, sorrow, fear, hate, or the like, is experienced, as distinguished from cognitive and volitional states of consciousness.” Emotions can be complex and if you make business and financial decisions based solely on how you feel at the moment without considering facts then this can be a disaster. Here are a few examples and ways to prevent you from making decisions based upon emotions:

Investment decisions: When the stock market tanks and the economy is in a recession, you may be strongly tempted to sell all of your investments, which is most likely the worst decision ever. If you have a good financial advisor then hopefully they can temper your emotions.

Too excited over expected results: A perfect example is when a sales person tells you how much money you will make by placing an ad in their publication because thousands of people will see your ad. It may be true that thousands of people will see your ad, but if they aren’t your target market then your results will be dismal.

Conflicts with customers and employees: If you have a performance issue with an employee, first determine if this is a recurring problem before you pounce on them. Maybe the issue just needs a gentle correction versus more severe actions. What about a customer complaint? Even if you are right, try not to reactive emotionally so as not to let the situation escalate out of control.

There are several techniques that you can use to prevent poor, emotionally-based decisions:

Wait: Don’t be reactive to another person or situation. If the situation requires you to speak or deal with it immediately, then pause, even if just for a moment, before speaking. For other decisions, take a day or more to make a decision. The time spent making a decision should coincide with its importance.

Look at the facts: What you think is true based upon how you feel and what actually is the truth are two different things. Separate feelings from facts.

Seek advice: Speak to a trusted professional, friend, or colleague about your decision. Sometimes just speaking to a third party before making a decision can put things into perspective.

Don’t let your emotions get in the way of your decision making.

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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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The Instructions Said 20 – 25 Minutes

Recently, I purchased a bed from Wayfair that had to be assembled from four large boxes that it was delivered in. I waited until the weekend to assemble it and learned a few things:

After spending hours and hours assembling and completing the bed, I took a look at the assembly time to see if I was in line with how long it should take to assemble. Over the years I have, or at least I thought I have, become proficient with assembling toys, bikes, trampolines, furniture, and just about everything else. However, the instructions said that it should take 20 – 25 minutes for two people to assemble the bed. It took about that long just to take the pieces out of the box. This made me realize either: I assemble way too slowly (hope this isn’t true, but it is humbling), the time on the instructions apply to professionals who assemble beds on a daily basis, and most importantly, you can’t believe everything that you read.

To apply this in business (hopefully you are not putting together a bed when you should be working), are you spending the proper amount of time on the right activities and minimizing or eliminating tasks that you should not be doing? Are you seeking the help of professionals when necessary? Are you seeking the correct information to determine what you need to do to succeed?

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What is all the Hype About Generating Passive Income? Here are Four Examples

I’m sure that you have seen YouTube commercials about generating passive income while lounging in a pool with your collection of high-end sports cars collecting dust in your oversized garage. Is this really practical and can you really generate massive amounts of passive income? The answer is yes and no . . .

Passive income defined: Passive income is any income that is derived from sources that you do not actively participate in to generate that income. Examples can include rental real estate, businesses that you do not materially participate, and royalties.

Can you really do it?: Yes, you can do it, which is the simple answer. However, it is much more difficult than the commercials let in on. Here are several ways to generate passive income starting from the least amount of capital needed to the most:

Side business: Start a business on the side while you are either working as an employee or if you already have a business. In order to make your endeavor take as little time as possible, then your need to focus on a either a product or information based business, while skipping a service-based business. The reason for not choosing a service business is because it will most likely require much more of your time.

Existing business: No matter which business you are in, you can make your business less and less dependent upon you so that you are not required to materially participate in the day to day activities. However, this can take at least several years or more to make this happen, and you have to make sure that your sales can support the additional expenses. The approach must be methodical whereas each aspect of your responsibilities is either transferred to employees or outsourced. It is easier to do this if you have a business that is not very complex.

Real estate: Depending upon where you purchase real estate, this can take a lot of capital. However, if you choose a rental property wisely and continue to build your portfolio, then eventually your rental income can substitute your regular income over many years. A good place to start is to either purchase a building for your existing business or to rent your home if you plan on moving.

Investor/lender: Once you have a sizable amount of cash, then you can and should look for privately held businesses to provide capital for. This can be in the form of equity or debt. If you are very selective then you can build a great portfolio over time with returns that are much higher than traditional investments, although the risk will usually be much higher.

There you have it now go for it!

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