business

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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If You Are Looking for a Good Business Partner Then Pay Attention to What They Do, Not What They Say

Running a business is probably one of the most challenging, while equally rewarding endeavors that only the brave embark on. Some go at it alone, while others choose a business partner because sometimes 1 + 1 = 3 or 5 or 10. However, before choosing a partner you must minimize the risk of choosing the wrong partner by paying attention at what they do or have done, not just what they say.

Look at their past: No one is perfect, but generally, when a person is not able to overcome some of their difficulties, then there is a high probability that they will not magically fix their problems when you are their partner. Rather they will bring these issues into your business and wreak havoc. One time events or actions may not be too meaningful, but repeated patterns are a very bad sign.

Specific examples:

Tax problems: It is not uncommon for business owners to have a tax problem at one time or another due to the complexity and burden of an ever increasing number of taxes, fees, penalties, etc. that they need to be aware of. However, if there is a history of not filing tax returns, especially willfully, or not paying their taxes then watch out.

Health, mental, and addictions: The number of times that I speak to people regarding mental issues or addictions is so high that it doesn’t seem real and seems to be on the rise. Just because someone has a mental illness, doesn’t mean that they will make a bad business partner, unless it is not under control and has been for some time. The same goes for addictions, which can include gambling, spending, drugs, alcohol, and everything else. If the addiction was in the way past and has been overcome, then that is a plus. If it constantly resurfaces or is currently happening then that is a sign that it has not been defeated. Unfortunately, it is hard to know these things, especially if you only know a potential business partner casually. Although, thorough background checks and taking a look at the last year or so of bank statements may shed some truth.

Half truths or lies: Maybe your potential business partner ran a business in the past and it didn’t work out, which is not that uncommon. They may have the issues above, they may not be so good at running a business, or maybe there is another reason. One way to find out is to ask a lot of questions and then try to verify their answers with some research and legwork. For example, they may say that their landlord kicked them out of the building because the building was sold. Well, you can easily find out if the building was sold, speak directly to the old and new landlord, and look at their bank statements to see if they were actually paying their rent. Another example is to ask if they ever filed bankruptcy and then look into the public records to see if this is the truth and/or to have them run a credit report in front of you.

These are all of the bad things to look out for, but what are the good things to look out for? The answer is to look for the exact opposite. As I tell my children often: seek truth.

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Want a Better Business? Focus on Recurring Revenues!

There are more ways to make money in business that can be listed. However, one mostly overlooked business model by a majority of small businesses is the recurring revenue model. Larger businesses already know this and are taking advantage of the benefits. Here are some pros and cons and how to implement the recurring business model:

Pros: Recurring revenues, specifically monthly recurring revenues, provide a steady stream of predictable cash flow. Since you can easily predict your income you can plan ahead for the amount of expenses needed to support your revenues, such as employees, technology, supplies, inventory, etc. This will in turn significantly lower your expenses and help to increase your profit margin. Additionally, a business with recurring revenues has a much higher value than one-shot deals. Think homebuilder (one-shot) vs. a subscription service like Netflix (monthly revenues).

Cons: Many small business owners love the large payments that they receive when they land a one-time or short-term project, which do not exist with the recurring revenue model for the most part. It can take time to build a recurring revenue business, but an existing business should realistically be able to see a massive change with a one year period.

How to Implement: Take a look at the services and/or products that you provide, and determine which ones can be modified to fit the recurring revenue model. For example, a marketing company that helps clients with social media can develop a package to perform certain tasks each month in exchange for a recurring monthly fee.  Virtually any business can turn at least a portion of their business into recurring revenues

The recurring business model is not costly or difficult to implement, but rather a low-risk, high-reward activity. It takes courage and openness to change your business, but it will be worth it.

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Small Business, Large Profits

All small business owners want to increase sales, open new locations, obtain more customers, add employees and grow, grow, and grow some more. It sounds good, but is it really necessary? Is there an alternative?

Necessity: It is necessary to grow your business as the alternative isn’t too appealing. You have financial obligations and people that depend upon you, such as family, employees, and customers. So, yes, it is necessary, however, here is a different view on growth.

Focus on profitability: If you double your profit margin then this has the same impact as doubling the sales of your business. Even if you increase the profit margin by several percentage points then it has the same impact as increasing sales. It sounds too easy, but here are some ways to do this:

  1. Decrease the number of services/products. Spreading yourself too thin usually decreases your profitability because it is hard to do everything well.
  2. Service the proper clients by targeting a more defined niche.
  3. Use marketing methods that only target the customers that you want to serve.
  4. Plan ahead for large purchases or investments, including space requirements, people, vendors, equipment, and technology.
  5. Price your products and services properly.

The interesting fact is that when you are more profitable, then each additional dollar of business is worth more to you, which makes it easier to actually grow further.

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