Marketing

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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Should You Market to Existing Customers or Search for New Ones?

Much of the marketing advice today focuses on marketing to obtain new customers, which is full of excitement and challenges. While you should always be seeking new customers, what about your existing ones? What is most effective?

New customers: It is especially important to market to new customers when you are just starting up and also when trying to grow your business. The benefits are new customers to develop and grow your customer base, to replace ex-customers (there is always natural attrition that is not your fault), and increase cash flows.

There are also several downsides to marketing to new customers. The first downside is that it is much more expensive and time-consuming to obtain new customers. Some studies show that it is about five times more expensive to obtain a new customer than to retain an existing customer. Additionally, depending upon your business, a new customer may be less profitable than an existing customer, which means that your profits will not keep up with your sales growth.

Existing: There are two types of marketing that should be performed for your existing customers. The first should be to develop stronger relationships, loyalty, and ultimately higher customer retention. Unfortunately, many small businesses and professionals greatly lack a plan to keep in touch with their customers and wait until they are contacted by their customers for an urgent need. The second type of marketing should be to increase sales of existing products or services, and also to provide additional products and services to their existing customer base. Studies also show that existing customers are much more likely to purchase from you vs. new customers.

When I was in high school I learned this lesson from my dad after finding out that I needed to sell magazines as a fundraiser. He told me to go see the customers from my old paper route that I had several years back, which I reluctantly did even though I thought that he was wrong. It turns out that I was the one who was wrong and met the sales quota with very little effort.

Hybrid: The older and greyer I become I realize that most things in life are not either or, but are a combination of both. The wisest approach is to market to new customers, make efforts to retain your existing customers, and to offer new products or services to your existing customers.

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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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3 Ways to Turn Around a Struggling Business

After the Great Recession there are still some businesses that may be struggling and don’t know what to do about it. Here are a few ways to turn around a struggling business:

Upgrade: The rate of change nowadays seems to be accelerating at a pace that has not existed in the past. This includes technology, competition, lifestyles, behaviors, and preferences. Although business principals never change, everything else around us does. Questions to ask are:

  1. Is my service or product still relevant and in demand? A perfect example is Blockbuster and department stores.
  2. Are delivery methods of your product or service in sync with customer preferences, lifestyles, and behaviors? Another closely related question is, “How easy is it to do business with you?”
  3. Have demographics changed?

Your business may need to upgrade/change any of the following: location, technology, including website capabilities, payment processing, scheduling, and communications with customers, turnaround times, product and service offerings, the type of customer you are servicing, and so on.

Marketing: Marketing methods have changed dramatically over the last 10 years. Are you marketing your business to keep up with these changes? If you relied heavily on newspaper or phone book advertising in the past, then I would make a bet that it is not very effective anymore. Even businesses that serve very local customers need to have a strong Internet presence. The best products and services still need to get the word out. Rationally, they shouldn’t have to, but this is just not true.

Analyze and take action: Take a fresh look at your business and seriously consider hiring a consultant to point out your blind spots. Most likely you are not recognizing what needs to change or possibly you do but do not know how to go about making changes. The next step is to actually implement changes.

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Focus on These 3 Areas to Multiply Your Business Success

Having a business is not easy, and even successful business owners know this. But what is the secret to running a successful business and multiplying your results? You must focus on these 3 areas:

Operations: Operations is a very broad category, but it can be viewed as any activity that supports or creates and delivers the services or products that you are selling from start to finish.  Many small business owners are very good with providing their service or selling their product. However, there are usually great improvements that can be made with efficiencies, employees, and using time and resources wisely.

Marketing & Sales: Surprisingly, some small business owners perform almost no marketing activities, but are actually marketing their business by their reputation, the way they deliver their services, the characteristics of their products, and the overall customer experience. Virtually all must sell to some degree as many interactions are sales opportunities. Think of restaurants that try to “upsell” a larger size or additional items, such as much needed desserts! Smart marketing and effective sales can help you to multiply your revenues, and it does not have to be expensive.

Financial: This is all of the boring stuff, such as accounting systems, cash flow, internal controls (to ensure more reliable financials and to reduce fraud), and managing receivables and payables. I have yet to see a business that does not either have cash flow issues or tax issues if they ignore this part of their business. Finances are a crucial part of every business and are mistakenly ignored or paid very little attention to. With proper attention to finances, a business can easily become more profitable, have greater cash flow, pay less taxes and interest, reduce stress levels, and have a greater sense of control.

An interesting observation is that all three areas are very interdependent upon each other. An improvement in one are will help the others, but on the flip side, if one are is lacking, then the others will suffer as well. If you need help with any of these, then please let me know.

Increase Sales or Cut Expenses?

What should be the focus? Should we increase our sales or cut our expenses? All of the marketing and self-development gurus tend to focus on increasing our sales, but other financial experts want us to focus on cutting costs and debts. Who is right and what should we do? Let’s look at the pros and cons of each:

Cut your expenses and debt: Being aware of our expenses and cutting unnecessary expenses is a smart move, along with reducing debts. However, cutting expenses will only go so far because you need to incur expenses to support your business operations. Reducing debts is also a smart move, but this should not be done to the detriment of using up all of your cash, otherwise you will go right back to increasing your debts.

Increase your sales: Every business should look for ways to grow their sales, as a business tends to naturally deteriorate over time. An increase of sales can and should lead to an increase of profits, but not always. Many times, a business will increase sales activity, but their profits may actually decrease, stay flat, or only increase incrementally. The main reason for this is due to the fact that a business needs to spend money on marketing, people, technology, and infrastructure to be able to support higher sales.

The optimum solution: Instead of focusing on either or, you should focus on both to some degree, which is what the most successful companies do. Instead of just growing your sales haphazardly, you should focus on growing your sales profitably. To accomplish this you will need to perform some simple math to make sure that you are focusing on profitable services and products and delivering them in a profitable way as not every dollar of sales is equal. Better profitability will also allow a business to have excess cash to help pay down debts and not get into more debt. Without a focus on profitability, a fast growing company will tend to have cash flow issues, and companies that focus on cutting expenses tend to cut themselves into irrelevancy.

What I Learned as a Paperboy

When I was 11 years old up until age 13 I was a paperboy. As far as I know they don’t exist anymore in North Jersey, and I was one of the last paperboys to deliver The Record until they replaced us all with adults. It wasn’t until I owned my own CPA firm that I realized how many business lessons and good habits I learned during that time.

Customer Relationships: I had pretty good relationships with my customers even though most of them never met me before I delivered their newspapers. Most paperboys in my area delivered newspapers on the same two small streets where they lived. Mine was three and four blocks away, which seemed liked miles when you were a kid. Whether my customers liked their newspapers under their mat, on their mat, in their door, or in the railing – I delivered it according to their preference. I remember one customer that wanted their newspaper inside their front door and once I opened the door a cloud of cigarette smoke combined with warm air would come rushing towards me. Their house was so warm that there was condensation on their storm door.

Getting Paid: Most small business owners, and especially service-based businesses and professionals know how painful it can be to ask customers for money, especially when their account is overdue. Every Friday night I would make my rounds to my customers and collect what they owed and would hopefully receive a tip. If my memory is correct, Sunday only delivery was $1 and every day customers were $2. If I received more than $.50 in tips from a customer, then that was a big deal. The best time was during Christmas when the tips were much bigger and I earned more than the $25 weekly average. For the first Christmas, my customers didn’t know me too well, but I still made about $75 in extra tips, but during the next Christmas I made about $300!

Connecting with People: I really liked my customers and each was unique. I remember one family that was kind of quiet, but realized that they had lizards as pets. Once we started to talk more (I owned an iguana), the relationship changed. It’s not all about the money, and connecting with people gives your business much more meaning.

You Can’t do it Alone: The Sunday newspaper was a really large paper back then, almost like a large encyclopedia.  Since my route was several blocks away, and I could only fit a few of the Sunday papers in my newspaper bag, which was hung on my bike, I had the help of my mom on Sunday mornings. We would load up the newspapers in the back of her old Buick station wagon and I would deliver them right from the car and walk or run to each house. I am sure that my mom’s station wagon used up more gas than what I earned for the day. I think that I was half asleep, but my mom would encourage me to “speed it up.” We all need people to help us out and to encourage us.

Being a paperboy was such a rewarding experience, and I wonder how many of my old paper route customers are still living on those same streets. I’m sure most aren’t around anymore, but I will always remember them.

5 Simple Ways to Improve the Management of Your Business for Little to No Cost

The success of your business depends upon how well you manage it. From a start-up all the way to a billion dollar corporation, managing your business well will help to insure its success. Since most businesses are small businesses, here are some ways to help a small business owner.

Answer the Phone: When a customer or prospective customer calls, someone should be available to answer the phone. Struggling business owners tend to have calls go to voicemail where they lose thousands of dollars of potential sales each year by not taking the first step to speak to an interested potential customer or a repeat customer.

Follow-through: Smart business owners quickly follow-up with their customers when they need a service or product. Whether it is a price quote or to gather more information for what is needed, this is crucial. A customer should not have to throw themselves at you.

Don’t do it all yourself: See the first point. You need to delegate tasks, especially those that can be time-consuming and are easily outsourced.  A perfect example is payroll and administrative tasks. The cost of outsourcing payroll is fairly insignificant, but can free up valuable time. Other examples are answering the telephone, cleaning and maintenance, and running simple errands, such as ordering supplies and going to the post office.

Focus and time-management: You pay nothing for this, but yet it can cost you your business. You must focus on the important aspects of your business, with many of them not being urgent. Stop wasting time on non-valuable activities and spend your time doing what matters.

Marketing: Sometimes marketing can be very expensive, but it doesn’t have to be. It can actually be free or cost very little. Usually businesses stop marketing when they are busy, and then cut back on marketing when they are slow. These are both mistakes, as marketing should be done throughout the year, and be budgeted for.

These are just a few of the many ways to manage your business the way it should be managed. Manage it the right way and you will be rewarded.

Do You Watch Shark Tank?

 

12-01-15 shark-1384087-639x426You have probably heard of the show Shark Tank, which airs on ABC. The show is about entrepreneurs who pitch their products and ideas to a group of wealthy investors who are referred to as “sharks.” Hopefully, the sharks will bite and offer to invest some of their money in the fledgling businesses.

Many times the sharks pass up on investing in the new business, which is very eye-opening for the entrepreneurs. Other times, more than one shark wants to invest in the business because there is a lot of upside, and the risk seems worth it. There are some great business lessons to be learned by all of this.

Research the market: Are there enough people that are willing to buy your product? Even so, what price should you sell the product for and who is your target customer?

Business model: Is there enough profit to be made? Does it make sense to spend a lot of money for the return that is generated? Is it costly to acquire customers?

Careful with your funds: Some entrepreneurs invest so much money in their product that they are now broke. Worse yet is that the product may not even be viable. Even if the business is good, the entrepreneur is eager to sell and may end up taking a lowball offer just to recoup their own investment.

Lack of Experience:  When a product is good, the problem that entrepreneurs may have is usually manufacturing, distribution, and additional capital. Instead of selling a piece of your company, an alternative is to work with qualified professionals, such as consultants, attorneys, accountants, and competent employees.

Businesses are started every day. Some are successful, but unfortunately, many are not. The key to increasing your chance of success is to plan and be well thought-out. Just like preparing to take a test as a student, you have to study ahead of time to increase your chances of getting an “A.”