Small Business Profit Explosion

The #1 reason small businesses prosper

(Growing Your Business Series: Part 3) 

As I wrote in my last blog, one of the big advantages a CPA has working with small business owners is that we get to learn what makes them profitable and what makes them fail. 

In my last blog (The Top 25 causes of small business failure. http://bit.ly/xkoyMF ) I gave you the reasons small business fail. But, while avoiding these reasons for failure is important, it is just as important to understand how to succeed.

Moya K. Mason released a paper this month on What Causes Small Businesses to Prosper? (http://www.moyak.com/papers/small-business-success.html). In it, she writes, “What does matter, it turns out, is having a strong grasp of the business basics. Without exception, companies that outperformed their industry peers excelled at what we call the four primary management practices – strategy, execution, culture and structure.” My observation of small business owners who prosper agrees with her findings. To this I would add the following reasons that small business owners prosper: 

• They have or acquire a strong, working knowledge of business basics.
• They have a strategic profit plan.
• They build their strategic profit plan around a clear value propositions for the customer.
• They are committed to marketing and selling their product.
• They concentrate their sales efforts to a niche rather than trying to sell to every possible customer.
• They develop a way to make their product something their customer “must-have” rather than something that would be a “nice-to-have”.
• They continuously turn out innovative products and services rather than reacting for events.
• They deliver products and services that consistently meet and exceed customers’ expectations.
• They hold themselves and their people to a high level of performance.
• They empower their employees and managers to make independent decisions and to find ways to improve operations.
• They make it easy for their employees and customers to work with their organizations.
• They hold on to talented employees and actively work to develop more.
• They get a mentor on board.
• They practice the “Golden Rule” in all of their business and personal dealings.
• They develop a good accounting system that provides them with strong management reports.

We will be launching a series of free and low cost webinars to help the business owner acquire the business knowledge they need to prosper. Keep a look out for future emails from me introducing these webinars.  

Thank you for your continued support and let’s make this year our most profitable year ever!

 

Tax Tip of the Week: Short of cash for your IRA deposits – Get a loan from the IRS

Are you short of cash for an IRA contribution this year? The IRS may give you a “loan”.

Planning strategy: Use your federal income tax refund to fund your IRA contribution. Simply file your 2011 return early; claiming a deduction for the amount you intend to contribute (assuming you are allowed to make a deductible contribution). When you receive the refund, use it to help fund the IRA contribution you deducted on your return

Is it legal? Absolutely, the IRS approved this taxpayer-friendly technique years ago. (IRS Revenue Ruling 84-18) All you have to do is make the IRA deposit by the April 17 deadline.

The IRA contribution limit for the 2011 tax year is $5,000 ($6,000 if age 50 or older).                                                          

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

The top 25 causes of small business failure

(Growing Your Business Series: Part 2)

One of the big advantages a CPA has working with small business owners is that we get to learn what makes them profitable and what makes them fail – without losing any of our own funds. On top of that, we too are business owners who face many of the same kind of opportunities and challenges that all small business owner’s face.

So what have I learned? Well for starters, launching a small business is risky and the chances of building a successful business are small. According to the Small Business Administration (SBA), over 50% of small businesses fail in the first year and 95% are out of business in the first five years. Of the ones that survive past five years, less than 1% reaches a level that allows the business to survive the retirement or death of the founder.

The following are the top 25 reasons I have seen for small business failure:

1. Choosing a business in an industry that just isn’t very profitable.
2. Not having actual hands on experience in the industry before opening the new business.
3. Unwillingness by the owner to take responsibility for everything that is not working in their business.
4. Poor management skills by the owner.
5. Lack of necessary effort by the owner. They often don’t understand that they are not in a 9-5 job anymore.
6. Unwillingness of the owner to be a continuous, lifetime learner.
7. Failure to have a business and marketing plan.
8. Inadequate cash reserves.
9. Failure to truly understand their customers wants and needs. This also includes not understanding what triggers a customer to buy.
10. Lack of marketing & sales skills.
11. Failing to price your product or service correctly.
12. Failure to anticipate or react to changes in the marketplace, competition or technology.
13. An overdependence on a single (or a few) customers.
14. Uncontrolled growth.
15. The owner believing they can do everything themselves.
16. Poor customer service.
17. Unqualified or untrained employees.
18. Failure to seek outside professional help.
19. Employee fraud.
20. Poor location.
21. Poor inventory management.
22. Poor credit arrangements.
23. Absence of performance monitoring.
24. Over borrowing.
25. Failing to innovate and introduce new products or services.

A review of the list shows that the key reason for business failure is the inexperience and lack of business knowledge by the owner. We will be launching a series of free and low cost webinars to help the business owner acquire the business knowledge they need to succeed. Keep an eye out for future emails from me introducing these webinars.  

Thank you for your continued support and let’s make this year our most profitable year ever!

 

Marketing & Sales Tip of the Week – Marketing 5 P’s

Marketers try to simplify marketing down to the 4P’s.

In case you didn’t know the 4P’s they are Price, Place, Product and Promotion.  Every business owner has or should have all of these things when in business:

• A product to sell, at a certain price
• A place where they sell their product 
• And some type of promotion to get the customer’s attention.

Sounds easy, right?

I have always felt that marketers have left out a P – Psychology! Understanding your customer’s thought process when purchasing can really help you put a successful marketing plan together. The trick is to have all these P’s work together and communicate this with your customer.

I have seen business owner focus on just some of the P’s and expect to make tons of money. Marketing doesn’t work like that. Marketing is something that has to be researched, tested and modified in order to see results. Marketing also has to be consistent. You can’t expect to run ONE ad and expect customers to flood your store and phones; it takes time.

Once a business owner knows which products to offer, what to price their products, where to sell, what their customers want to hear and how to reach them; they will have very success marketing plans

Anyone can start a business; but, it takes a special type of person to understand how to run a successful business, and marketing plays a big role in success. 

 

Marketing Tip of the Week – Controlling What You Say

Just recently I’ve come to the realization that most businesses don’t create their own marketing material or copy. They rely on ad agencies or the mediums production department to create their ads.

In my opinion that is a big mistake. Don’t get me wrong, you can let them put the images and content together; but, you should be writing the content in your advertising. You are the one that knows your customers and what they want to hear. Just provide your account representative a few key phrases and focus points, and that should give them a good start in the right direction.

Many businesses make the mistake of creating ads that just concentrate on a sale item or the price. The customer needs to know why they need the item and why you’re the best place to buy it.

So take control of your ads! Make sure they don’t just sell the SALE and that they fit with your company’s goals.

 

Are You the Reason Your Business Isn’t Growing?

(Growing Your Business Series: Part 1)

The short answer is – yes. If your business is not growing the way you want it to it is almost always the business owner’s fault. The business, after all, is your creation. You decided what it looked like and how it would be run.

Many times, the business owner does not know the reason the business is not growing. But, frequently it is the business owner who deliberately is slowing down growth. Usually, this is due to the business owner not feeling comfortable that they have the people and resources to grow the business to the next level.

I have personally been in the same situation where I felt I had to do all the work myself. I didn’t feel I could trust my staff to do it right! They didn’t have my experience, judgment and ability to get the work done correct the first time – every time. And, since it wasn’t their business, they didn’t care about it the same way I did. This led me to believe that the only way things were going to get done right was if I was the one who was doing it!

If this sounds familiar you are not alone! This is one of the main complaints I have heard from business owners over the years. Here’s the catch though – if you want to have a growing business that provides quality to your customers every time, you have to create business systems that allows your business to function without you micro-managing every little detail. 

Over the last thirty plus years I have read numerous business books attacking this from many different directions. This business growth series is a brief outline of items I have “borrowed” from these books that has worked for me and many of my other clients and colleagues I have worked with.

In order to grow your business you must master the following areas:

1. Managing your-self
2. Organizing your business
3. Hiring the proper people for the job
4. Create a strong, vibrant workplace where people want to work.
5. Setting employee goals & performing well planned, organized employee performance reviews on a weekly basis.

I will get into each of these areas in more detail in upcoming weeks. But, in the meantime …… are you stunting your growth? If so, what are you going to do about it?

Thank you for your continued support and let’s make this year our most profitable year ever!

 

Tax Tip of the Week: Key Tax Breaks for iPads

The IRS has informally indicated that iPads and other tablets will be treated like cell-phones when employers provide them to employees. Thus, employees won’t be taxed on the value of personal use, as long as the devises are provided primarily for business reasons rather than in the form of compensations (SBTS, November 2011). Similarly, reimbursements made by employers to employees for personally owned iPads generally should not be subject to tax when used primarily for business.

                                                               

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Marketing Tip of the Week – Creating Emotions

You’ll be surprised on how much people’s emotions influence them when they are buying things. I have mentioned numerous times before, people are not just buying product they’re buying a solution or something that touches their emotional needs.

So, what I propose you do is explore your creative side and position your top selling items.  Write a sales pitch that gives your customer an emotional and visual sell. Show them how your product or service will make their lives just that much better.

I’ll even give you some examples:

Product: a Minivan

Pitch: Imagine you’ll finally have a family safe, reliable car that will fit everyone and keep all the kids entertained with the Blu-ray player in the back. All your kids can have their own personal space, which will eliminate a lot of arguments, you will have room to store your groceries and it can just make traveling a whole lot easier. Plus if you look at the numbers this minivan is more economical than an SUV. You can use that extra money to go out, plan a trip, and not having to worry about a high car payment. All of the features are designed to make your life easier. With the push of the remote you can open the sliding door so when your hands are full with a sleeping kid you won’t have to wake them up to put them into the car. We are even having great financing deals right now. If you like, after the test drive I can go over them with you.

Product: Cell Phone Case

Pitch: I was noticing that you don’t have a cell phone case for your phone. Right now we’re having a sale on our case for $9.99. It’s a lot cheaper than replacing your phone. We have heard so many horror stories from customers that have dropped their phones or have spilled drinks on them. They end up having to pay full price on a new phone or look on Craigslist or eBay to find an affordable phone.  And even then they spend a lot of money and the phone is used. They always buy a case now. What kind of phone do you have and I can check to see what we have.

You see, it can be that simple. Just create future scenarios that your customer will possibly face and show how your product will help them. You’re more likely to close a sale if there is that emotional link to the product and your customer.

 

Lessons Learned – Profits are all that matter!

The myth most business owners believe: The most important thing is to get the sale!

Why this myth causes a problem: It focuses on the wrong thing! The only thing that counts in a business is to make a profit. You didn’t start a business to make a sale and turn around and send all the cash out to vendors and employees. Most business owner’s started their business in order to at least be reasonably prosperous (some even wanted to be unreasonably prosperous).

Most business owners who have rapid increases in sales for the first time almost always run into cash flow problems. They have spent so much time focusing on increasing sales that they failed to have the financing and systems in place to support the increased costs in inventory and employees to deliver the product to the customer. The result is usually serious financial trouble and sometimes even bankruptcy.

The truth successful business owners learn the hard way! Successful business owners have learned that, in business, the only thing that matters is profits! A profitable business provides the means to support the business owner and their employees while also paying all vendors, bank loans, tax liabilities and investors.

 

Profits allow the company to have the strength to survive the tough times and to take advantage of good business opportunities when they appear.

 

The successful business owner starts every year by creating a profit plan. A sales and marketing plan that focuses on profitable sales is obviously a large part of that profit plan.

Lesson learned: Start each year by making a profit plan that maps out exactly how the business will hit the profit goal that the business owner has set. By focusing on what is really important in running a business you will greatly increases your odds of truly becoming successful.   

Thank you for your continued support and let’s make this year our most profitable year ever!

 

Tax Tip of the Week: IRS sets new 2012 retirement plan limits.

The IRS issued news Release-2001-103 (10/20/11) that announced the following Qualified Retirement plan limits for 2012:

Qualified Plan Provision                                                                                                                                                                                                                                                                                            2011                       2012

Maximum annual dollar limit for defined benefit plans                          $195,000              $200,000

Maximum dollar limit on additions to defined contribution plans        $ 49,000               $50,000

Maximum compensation taken into account from qualified plans      $245,000              $250,000

Dollar limit for defining “key employees” in top-heavy plans                $160,000              $165,000

Dollar limit for elective deferrals to 401(5)s                                             $16,500               $17,000

Dollar limit for catch-up contributions to 401(k)s                                    $5,500                 $5,500

Dollar limit for contributions to SIMPLEs                                                  $11,500                $11,500

Dollar limit for catch-up contributions to SIMPLEs                                  $2,500                  $2,500              

                                                               

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Marketing Tip of the Week – A Little Appreciation Goes a Long Way

I have met with different business owners and they always mention that they don’t know how to motivate their sales staff. They have trained their staff, but, their staff just doesn’t seem motivated to go the extra mile.

If you don’t have a structured commission plan (money is always a great motivator), there are other ways to motivate a sales staff.  One option is rewarding your sales staff for increased monthly sales. Take your staff out for dinner or have a party to congratulate them for their work. A little friendly competition also works well. Track each sales staff member and give prizes to your top sales person. Something as little as a $40 gift certificate and bragging rights can really boost your staff’s motivation. I have seen other business owners have daily and/or weekly sales meetings that go over sales strategies and praising of employees for on specific cases that they went above and beyond the call of duty.

Acts of gratitude shows your sales team that you appreciate their efforts and acknowledge their hard work. You will have to be consistent when it comes to these types of rewards; because as soon as you drop the ball, so will your staff! Also, you want to be clear on what you’re rewarding and how you will be measuring sales.  And remember, not everyone is meant for sales. If you see that someone is just not able to make the sales goals, you may want to talk to them and see if a sales job is the right fit for them. They may do better in another position in your company.

Be creative and think of things that would motivate you if you were in your staff’s shoes. 

 

Employers Must Get I-9 or Face Big Penalties

Employers can face huge penalties related to I-9 violations. All employers are required to complete an I-9 form for each new employee within the first three days they are hired. Enforcement activities and random audits are increasing and have already resulted in numerous local small businesses’ being hit with large fines. Some are even facing debarment from government contracts.

Penalties are imposed for:

• Improper completion, retention or failure to make the I-9 available for inspection with fines that range from $100 to $1,100 per each I-9.
• Knowingly hiring or continuing to employ unauthorized workers can result in fines of $250 to $11,000 per violation.
•  Firms who show a pattern of hiring unauthorized workers are liable for criminal penalties of as much as $3,000 per employee and may be subject to six months in prison.

Information regarding I-9 compliance and the E-verify system can be found on the Department of Homeland Security’s website at http://www.formi9.com.

Find details, plus a list of the top 10 do’s and don’ts of I-9 compliance at www.theHRSpecialist.com/ICE.

Thank you for your continued support and let's make this year our most profitable year ever!

 

Happy New Year!!!