"In the bedlam of a startup, it's way too easy to receive a document and not do anything about it. It will save you (and your team) hundreds of hours in the future if you build a practice of saving documents in a central location for use in the future."
"I've had the same tax accountant for 15 years. From my experience, the key to finding the right accountant is to interview multiple firms and ask them key questions before selecting a winner. Make certain the accountant has experience working with entrepreneurs and small businesses. Ask for specific examples of how the accountant has helped other similar companies and ask for references."
"At the end of the year, a lot of individuals and businesses simply pack up all of their documents and hand it off to their accountant. Instead, take a few minutes to look over where you money is coming in and going out. This way you have an even better understanding of your finances and where to save money in the coming months. It's not just about making money; it's about managing it, too."
"Once you're at the point of filing, there's not much you can do to optimize your tax situation. As soon as this year's tax season is over, book an appointment with your CPA to talk about changes you can make in the current year. Being proactive makes a huge difference."
"Turn filing taxes into an opportunity to gain insight into your own business. Use it as a chance to review your numbers in a way that will help you learn and reevaluate. Filing taxes can actually be a learning experience if you approach it as something that can help you understand your business’ numbers and to see what is working and where there is room for improvement."
"If you're not working with an accountant that is familiar with all the deductions available, you may end up paying more than you need. It's important to work with an accountant who is up-to-date on all the new laws and deductions available. Make sure you take advantage of as many deductions as you can to reduce your tax bracket."
"As entrepreneurs, we create more work for our accountants by commingling business and personal funds. For instance, whenever we use credit cards and business banking accounts for personal expenses, it creates a potential issue with the IRS since certain personal expenses are not deductible for income tax purposes. Therefore, it's best to remove non-business stuff before filing your taxes."
"Have an easy way to save all your receipts, invoices, transactions, etc. so you and your accountant have one place to find everything. We use Dropbox (cloud storage) to save and share files. We have a rule: "If it's not in Dropbox, it doesn't exist." Setting up simple systems early will save you a world of pain come tax time."
"All business owners should have a working knowledge of basic tax law so that you can ensure your tax responsibilities are being managed properly. Not all accountants have the same philosophies when it comes to paying taxes; make sure you and your accountant are on the same page, and make sure you are educated on the topic. Failure to understand this important aspect of business can cost you."
The first order of the day was to examine the numbers. After reviewing the financial statements, I discovered that the CFO was paying himself dividends as the company was running at a loss. When confronted on this item, he declined our request to defer dividend payments until the company was in stronger financial health. It became clear to me that I had to fire the CFO.
Next, I had to shop around for a financing deal that would consolidate all of the company’s debts — instead of the high-interest line of credit the company was paying too much for. But getting a bank to take a chance on the business was no easy task. At the time, I was working full-time in procurement for IBM where I was responsible for negotiating vendor agreements to save the company money. That experience came in handy. I had to knock on many, many doors. And eventually, I found an institution that was willing to give my small business a shot.
After finances, I had to put in place new processes after discovering that the three main divisions of the company (sales, manufacturing and accounting) worked in silos. I eventually got involved in the business full-time and took over as CEO until the company was in stable financial standing. I later hired a general manager to run company operations. Turning the business around was a huge learning experience. Here are some of the lessons learned, which I hope help you manage your own business.
No matter how big or small your company is, make sure you understand your balance sheets. I recently graduated with an Executive MBA, but you don’t need to have an MBA to learn how to read financial statements. You can always take a course online to help you get a grasp on your numbers. Always get a second opinion on your financial situation — whether things are going well or not. After firing the CFO, I hired a small accounting firm that specializes in small business accounting. For a small monthly fee, they ended up doing a much better job than the CFO who was costing the company 300,000 a year.
When I was looking for a financing deal, I received one rejection letter after another. I met up with several bank representatives. Most were very helpful and gave me good advice but were not able to take on the risk and finance a small business. But I persisted. I kept reaching out, making appointments and showing up, until finally, a major bank agreed to give my business a chance. Without that financing deal, the company would not be in business today.
It was during those difficult times that I learned the valuable lesson of surrounding myself with a team that I can rely on. When I took over the company, I realized that the previous management had isolated its vendors, clients and employees. It’s amazing what can happen when you treat everyone as part of the same team, working towards the same goal. When the company was in financial trouble, I reached out to our vendors and asked for extended deadlines to make payments. To my surprise, many agreed to it. It was around that time that I developed my “Let’s Grow Together” philosophy. I’m a true believer in the strength and absolute necessity of teamwork as the foundation of success.
A version of this post originally appeared on Medium.
]]>But book publishers aren’t the only ones suffering from margin pressure. Yes, customers should always be in charge, but the digital age has made them all-powerful. No longer can businesses pretend they offer the best deal in town. Customers can now view a myriad of competitor sites and product reviews within minutes, leaving companies’ profit margins under intense pressure to secure the sale. But there are ways to squeeze a few more percentage points of margin from each product you offer:
When our profit margins were decreasing, one of the first things we did was identify all our small, additional expenses and take back control of spending for a brief period. This wasn’t about being controlling, but identifying areas where money was possibly being wasted — stationary, postage, travel, etc. All sound minor, but together can have a negative impact.
Within two months, our spending on these smaller budget lines had reduced by over 25 percent, and as a result, added a percentage point or two to our margins.
To do this, first look at the overall picture. Take your total monthly spend on each line item and compare it to your budget. Then, go through a fully itemized list of expenditure and mark what costs could have been reduced or not made at all. Once that’s done, calculate the difference. You may be surprised by the percentage your business could have saved.
Break down each part of the manufacturing process and related costs, and look to see where you can save. In some places, it’s worth getting quotes from competitors to move elsewhere or keep prices as competitive as possible with your current partner. Even if you have the best price, look at ways to cut costs. For instance, can savings be made by ordering in bulk? Is there anything that can be changed in the specification to reduce cost without compromising quality? Can the delivery costs be reduced if handled differently?
It’s easy to focus on the cost of producing your product (and how much you sell it for) while ignoring the other costs tied up in logistics, like shipping. It’s not the fault of your distributor, but rather that your logistics haven’t been properly thought through.
The key here is to separate production costs in your budget. If you lump the costs together, you’re likely going to miss out on savings. Break it down into separate lines — materials, shipping of materials, manufacturing, shipping of final product, storage of final product — and review each one.
We highlighted the cost of returning unsold stock and sending stock for smaller consignment orders that were increasing the percentage cost of sale each month.
If a large chain comes knocking on your door, it’s tempting to accept whatever deal they offer. But the key is to return to them with an argument rather than a begging bowl.
You may want to consider a varying price depending on the level of promotion included in the sale and offer them exclusivity, or by including added value, give them an advantage over a competitor in return for a better deal. You could even agree to some upfront spend in return for a lower trade price. They’re not going to give anything away for free, but if you can take back a few percentage points from all retail customers, the result will be a significant positive impact on your margin.
Think creatively about adding some higher-margin products into your selling schedule. These are products where the cost of sale is significantly lower, thereby creating a high-profit margin. Reducing manufacturing and shipping costs and repackaging a product where some or all of acquisition and production costs have been paid for leads to a range of higher-margin products.
There’s no one step that will double your margins overnight: It’s usually a process of shaving off percentage points. Margin saving is very often a sum of its parts and can turn a cost-burdened business into a profitable one.
]]>"After having a baby recently, I took a few months of maternity leave. This essentially put business development efforts on hold, and sales were sluggish for a couple of months. Upon my return, I picked up business development conversations immediately. Knowing the length of my sales cycle, I was able to predict when that effort would turn into new clients, which allowed me to be more patient."
"Our SEO agency grew organically for the first three years, and then we had to figure out business development after losing a large client due to circumstances outside our control. We focused on generating new business from SEO (search engine optimization), pay-per-click advertising, email marketing and social media. We have fully recovered and now have biz dev channels fueling ongoing company growth."
"My business is a tutoring company, so business is seasonal. Last year, my competitors created a huge advertising campaign that took business away from me, and I almost closed my business as a result. In response, I decided to move to a different niche that would allow me to avoid the big competitors yet gain a sizeable market share. I would suggest for businesses to find a niche."
"When you achieve a certain level of success and are poised for expansion, a natural reaction is to assume that success automatically begets more success and that you no longer need the 'old ways' that led you to where you are today. If you choose to re-invent, don't forget to revisit the path that got you here. Grow from what you know."
What every business needs to know is that understanding your costs has more to do with aligning your margins than it does with profit. In our company, understanding what it costs to bring a customer in the door ensures we can truly calculate the cost of a project. If we just calculate profits using the cost of the product or service, we’ll have a gap in our metrics. After all, we don’t want to spend more money bringing in a customer than we actually make on the sale.
If we could truly understand our buyers’ behaviors and predict the future, I think I could retire early. To correctly understand how much it costs to bring a customer in the door, we evaluated the following costs:
Lead generation: For us, leads come from three main sources, some with significant expenditures and some that don’t:
Other costs attributed to customer acquisition: After analyzing our leads, we had to break down the other obvious and not-so-obvious costs associated with sales.
After better understanding where our sales come from, we had to look at what people are buying to get an idea of how that much time the sales process for that product takes, and what it costs. Here’s how we broke it down:
Acquisition cost for consulting projects is comprised of:
The percentage is tied to the percentage of sales for that line of business.
So, you are probably wondering whether you should go through this process. Other than just wanting to know, you may want to determine the cost of customer acquisition if you are trying to bring on investors or are about to sell your business. Another reason companies may do this is to ensure they are getting the most bang for their marketing spend.
Figuring out the costs of acquiring customers is complicated and multi-faceted. Here are four steps to get you there:
I have to admit it: as an accountant, I really want to make sure my numbers are correct, we haven’t left out any expenses for a sale and that the percentages are exactly right. The CEO in me also needs to know this information to determine what costs can realistically be trimmed (assuming the acquisition cost is too high) or what processes should be adjusted. It also pushes me to think about growth: are there other marketing channels we need to pursue, or can we grow through more low-cost channels?
Figuring out how much it costs to get a new customer is a complex process, and every company will differ as to how it arrives at its own formula. However, coming up with that formula is very valuable, and I highly encourage businesses to truly take a look at their customer acquisition costs — it could just be the difference between growing a business, and going out of business.
]]>But today I want us to take a look at things a different way. Instead of trying to fix our relationship with money, why not look at things from money’s perspective? Because I guarantee that money itself is a lot less emotional and a lot more unbiased.
So let’s flip the table and talk about what money loves. Each “love” is unique. But more importantly, you can use each of those loves to your benefit in the long run.
What can you do in your life and business to create more clarity, especially as it relates to money? For example, could you sort out all of your different bank accounts so you know exactly where all of your money is at all times? This is freeing in and of itself, and it also gives you a sense of ease.
Beyond that, can you make it clearer how customers and clients can give you money? Are your products and services really clear and easy to sign up for, or do you make people jump through hoops to buy from you?
Do people know exactly what you do, or are they confused about your business? The more clearly you can explain how you can help people, the easier it is for people to take you up on it and hire or buy from you. Similarly, if you have a complicated payment process with five steps and plenty of hurdles, that keeps people and their money at bay.
I’m not sure exactly why this is true, but there’s something about money that loves to be in motion — and it feels like the faster, the better. If you’re speaking to an interested customer or client, give them everything they need to say yes right on the spot. Don’t say you’ll get back to them next week. Don’t let them sit on the fence.
Instead, give them all the clarity they need to say yes or no, and move on. When I was doing a lot of web design, I would speak to many interested potential clients on the phone. Every now and then, I’d speak to someone on a Friday afternoon and wait until Monday to get back to them. Those deals never worked out. Money has a sense of urgency built into it. It wants to make things happen. If you drag things out, slow things down, or wait to see how things will turn out, you’ll usually end up with no money exchanging hands.
That’s why online launches work: they have a built-in sense of urgency. It’s also why you don’t want people to be confused or to think things over for too long, because if someone is waffling, then they’re probably going to pass.
This follows from the previous point: There’s something powerful about money wanting to feel useful. If you’ve got money hidden under your bed and it doesn’t have a purpose, then this money feels like it’s not being used to its full extent. Now that doesn’t mean you can’t have savings. In fact, I do think money likes to be saved, but only if you’re saving it with a strong intention behind it — if you’ve earmarked it for something.
Think about it: Every time you’ve wanted to save money for something specific, you were able to do it. There was money there for it: whether it was buying a dress for that special occasion, saving for a down payment on a house, or investing in a program. That’s because you gave money a job, and even a steady accumulation was for a specific reason.
Money also loves to change hands (it loves to be spent). But just like saving, if you’re not being intentional about your spending, the money won’t be there for it when you want it. When you’re investing money in your business, it tends to come back to you. When you’re investing in yourself, it tends to come back. But when you allow money to leak out in less intentional ways, it will find its way into other people’s lives. The distinction is that money goes where it is told to go, but if you don’t care or don’t consciously consider where you want it to go, it will leak out unconsciously.
Bringing awareness to how you circulate your money is another part of the clarity piece, and it ensures you’re making money feel welcome to circulate back to you.
]]>"As you hire a professional HR manager or a VP of human resources, they will help you think through your compensation philosophies. It's important as a company scales to have clear guidelines (80th percentile, 90th percentile), to benchmark yourself to competitors and make adjustments. Don't wait until someone hands in a resignation to find out that you've been paying below market rate."
"We don't currently have a set compensation system for folks at different levels at our company. That's caused a lot of grief in negotiations, as I have had to make decisions on the fly without solid footing. More importantly, it can hurt morale as compensation numbers get shared -- and they always get shared. Communicate how your compensation plan works and give your team clear milestones to grow."
"Set salaries are outdated due to the changing employment environment. In a world where employees came to the office and performed specific tasks, it fit. With the changing workforce, set salaries are no longer appropriate. Find talent and compensate him or her slightly above market rates."
"I don’t have a set system for compensation/salaries -- everyone’s different and has different needs. Large companies typically have criteria for salaries -- years of experience, the department they’re in, the list goes on. I care more about the employee’s life situation. An employee who has children may need more tangible income, but it may be better to offer a young go-getter educational stipends."
"Earlier in the year we implemented a structure that showcased what set salaries were assigned per title. Every title has three tiers, and if an employee wishes to make more money in salary alone, he or she needs to move to the next title which has more responsibility and leadership aspects. This format keeps compensation chatter at a minimum."
"Having defined promotion timelines is very important, as that reduces confusion as to when someone is up for a raise or promotion review. Otherwise, each employee will be unsure when to discuss promotions and introverted employees will get the short end of the stick."
"I make sure to have a set system for commission structures for all employees. This eliminates internal turmoil between employees. In addition, it is easier for my sales employees to compare themselves to each other, pushing them to compete."
"Regardless of the position an employee has at your company, his compensation should be tied, in part, to his efforts -- whether through commission on sales, premiums tied to productivity, or bonuses for initiatives taken beyond job description responsibilities. Offering goal-based compensation gives employees the desire and the courage to exceed both your expectations and their own."
"It definitely depends on the stage of a company, but for startups I don't think you should. In early stages, this is a place where you can see an employee's motivation and in fact determine culture fit. If they're willing to forego higher salaries for stock because that's what you as the founder are doing, that means they're sticking around through the lows."
"We have multiple compensation models that we use. We never liked trying to fit everyone into the same compensation model. Nor do we support making it up as we go. By having multiple models, we provide ourselves with the flexibility to create the optimal arrangement for each person, while also ensuring we don't make silly mistakes by trying something new every time we hire."
"One critical component in your business is how you collect money from your customers. A large piece of that for, many companies, is credit card processing. As someone in the industry, I know how costly it can be to make a knee-jerk decision to set up what is quick and has a simple pricing model, rather than finding a reputable rep to save you on fees."
"Business coaching is a huge business and it's easy to get swept up into making a five-figure investment without considering what your business needs most. Be willing to take your time, really research a coach's reputation and get the right fit."
"Getting a cool office at the beginning might seem like a great idea. You can afford it this month, but can you really afford it for the next year or two? I have seen people who have glamorized the "startup lifestyle" and believe cool offices are a necessary part of it. That couldn't be further from the truth. You can change the world straight from your garage."
"What may seem like a simple legal question can result in a twenty page memo and a $3,000 invoice. Some attorneys are willing to offer project rates or a cost cap on a project to help you budget your legal expenses. It is worth asking your attorney if they would consider a project rate or cost cap fee arrangement. After all, if you don't ask, you don't get."
"All too often early-stage entrepreneurs are enticed by the glamour and recognition of articles, awards and credentials, and hire a pricey PR firm in excitement. However, it is critical to resist that urge and let your work be your calling card. If the energy and passion you put into your work shows then the awards and recognition will follow organically."
"A SaaS CRM is 40 dollars a month, hosting is 50 dollars a month, social media management might be 20. Keep track of these in a spreadsheet so you know when your recurring outlay is getting too high and what you can consolidate. If you don't, you'll quickly find yourself spending several hundred a month for a package of services, half of which you might not even really be using any longer."
"When you're first starting out, avoid unnecessarily inflating your employee head count. While it may be nice to have an office manager, an administrative assistant and a dedicated HR person, most of those tasks can either be outsourced or handled as shared responsibilities. Limit your overhead and operate lean because profitable businesses are ones with true staying power."
"Cellphones are expensive, but your employees need them to interact with customers. Make sure you get a corporate wireless plan. If you don’t qualify for one, then go with a less expensive prepaid plan."
It is common for small businesses to have cash flow problems for a variety of reasons. Many customers will see a bill from a small business as less of a priority than bills that are due to large corporations, so you may get pushed to the bottom of the payables list. However, if you are going to keep your business going strong for years to come, you need to get past this hurdle. You won’t stay in business for long without a strong cash flow, so review the steps I’ve learned from running my own small business to improve in this key area.
Tracking your cash flow and making key improvements is only possible when you have a clear picture of your whole financial situation.
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