Popular in Course
verified elite notetaker
Popular in Business
This 256 page Document was uploaded by an elite notetaker on Monday December 21, 2015. The Document belongs to a course at a university taught by a professor in Fall. Since its upload, it has received 7 views.
Reviews for business
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 12/21/15
PLUS BONUS TIPS 101 ways to BOOST your business Practical tips to help your business survive and prosper ANDREW GRIFFITHS 101 WAYS TO BOOST YOUR BUSINESS ALSO BY ANDREW GRIFFITHS 101 Ways to Market Your Business 101 Ways to Satisfy Your Customers 101 Ways to Advertise Your Business Secrets to Building a Winning Business COMING SOON 101 Ways to Balance Your Business and Your Life 101 Ways to Build a Network Marketing Business 101 W AYS TO BOOST BUSINESS ANDREW GRIFFITHS First published in 2002 under the title 101 Survival Tips For Your Business This revised edition published in 2006 Copyright © Andrew Griffiths 2006 All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without prior permission in writing from the publisher. The Australian Copyright Act 1968 (the Act) allows a maximum of one chapter or 10 per cent of this book, whichever is the greater, to be photocopied by any educational institution for its educational purposes provided that the educational institution (or body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL) under the Act. Allen & Unwin 83 Alexander Street Crows Nest NSW 2065 Australia Phone: (61 2) 8425 0100 Fax: (61 2) 9906 2218 Email: email@example.com Web: www.allenandunwin.com National Library of Australia Cataloguing-in-Publication entry: Griffiths, Andrew, 1966– . 101 ways to boost your business. ISBN 978 1 74175 006 5. ISBN 1 74175 006 7. 1. Success in business – Handbooks, manuals. 2. Industrial management – Handbooks, manuals, etc. I. Title. 658.155 Set in 12/14 pt Adobe Garamond by Midland Typesetters, Australia Printed in Australia by McPherson’s Printing Group 10 9 8 7 6 5 4 3 2 1 Contents Acknowledgments xi Introduction xiii Section 1: The future of small business 1 Section 2: Getting advice booster tips 6 #1 What type of help is available? 7 #2 Know when to look for help 9 #3 Embrace technology and save money 10 #4 You might be eligible for a grant 12 Section 3: Financial booster tips 14 #5 Don’t be undercapitalised—have enough money from the start 16 #6 Budgets and planning—welcome to reality (plan for the worst, not the best) 19 #7 Financing—it pays to shop around 22 #8 Keep your personal and business records separate 24 #9 Find and use a good accountant 26 #10 What’s the difference between an accountant and a financial planner? 28 #11 What to do if you get into financial trouble 30 #12 The real cost of expanding—can you afford it?32 #13 Beware of giving credit 34 #14 Chasing bad debts—is it worth it? 36 v 101 WAYS TO BOOST YOUR BUSINESS #15 Keep good records from the start 38 #16 Keeping costs down without losing customers 39 #17 How to know what to charge 40 #18 Don’t invest your superannuation in a business venture 42 #19 Beware the third-year boom and fourth-year bu44 Section 4: Business relationship booster tips 46 #20 Partnership pitfalls—how to avoid them 47 #21 Build a relationship with your suppliers 49 #22 Build a relationship with your landlord 51 #23 Build a relationship with your professional advisers 53 #24 Build a relationship with people in your indu54ry #25 Find a balance between work and home 55 #26 Use mediation to solve conflict 57 #27 Accept that others may not share your enthusiasm 59 Section 5: Staff booster tips 62 #28 Put the job description in writing 63 #29 Always check references 65 #30 A trial period protects both you and the new employee 66 #31 Train your staff (and yourself) properly 67 #32 Lead by example and your team will follow 69 #33 Communicate effectively with your staff 70 #34 Conduct performance reviews 72 #35 Be conscious of security issues—protect your business 74 #36 Dismiss staff who don’t work out 76 #37 Balance your staff numbers 78 Section 6: Customer service booster tips 80 #38 Build a relationship with your customers 81 #39 Learn to say ‘no’ 83 #40 Use simple market research to keep on track 85 vi CONTENTS #41 Continually ask your customers if they are hap87 #42 Deliver what you promise—if you can’t do this, get out of the game 89 #43 Be honest and upright in all your dealings 90 #44 The right and wrong way to handle a complaint 91 #45 Treat your customers with the respect that they deserve 94 #46 Learn to recognise when you need a break from your customers 95 Section 7: Advertising and marketing booster tips 97 #47 Develop your own marketing philosophy— what type of business are you? 99 #48 Do a course or read a marketing book 100 #49 Take small steps to market your business 101 #50 Start with looking the part—develop a strong corporate image 102 #51 Don’t be pressured into buying advertising 104 #52 Market your business to a simple plan 106 #53 Don’t lose touch with your customers 108 #54 Don’t stop marketing because business is booming 110 #55 If you haven’t got the time to market your business, find someone who has 111 #56 Talk to other people in business 112 #57 Find a business that you admire 113 Section 8: Internet booster tips 115 #58 Be realistic about the Internet 116 #59 A lousy website makes your business look lous119 #60 Make sure that you market your website 121 #61 The number one reason that businesses fail on the Internet 122 #62 Budget for the Internet to be an ongoing expense 124 #63 Beware of spam 125 vii 101 WAYS TO BOOST YOUR BUSINESS Section 9: Insurance booster tips 127 #64 What type of insurance should you have? 128 #65 How much insurance should you have? 129 #66 Always read the fine print 130 #67 Make sure that you meet your requirements as per the policy schedule 132 #68 Using an insurance broker 133 #69 Don’t just sign the renewal policy—always compare products and prices 135 #70 Prevention is better than cure 136 Section 10: Legal booster tips 138 #71 When to use a lawyer 139 #72 Choosing a lawyer 140 #73 Keeping legal costs down 141 #74 Make sure that everything is up-front 142 #75 Get a second opinion 143 #76 Even lawyers make mistakes—take control and ask questions 144 #77 The real cost of taking someone to court— is it worth it? 145 #78 Make sure that everything is in writing 147 Section 11: Personal booster tips 149 #79 Start your business feeling refreshed and hea151y #80 Don’t give up your hobbies when you start your business 152 #81 Try to separate work from home 153 #82 Maintaining your enthusiasm 155 #83 Learn to laugh and lighten up 156 #84 Learn to handle stress 157 #85 Listen to your instincts—they are normally right 158 #86 Take regular holidays, even though there is never a good time 160 #87 Develop your negotiating skills 162 viii CONTENTS #88 Be supportive of the community where you make your living 164 #89 Use photographs to record your progress 165 #90 Know when to call it a day 166 #91 Break the habit of doing things the way they’ve always been done 167 #92 Don’t be afraid to make changes (name, location, etc.) 169 #93 Keep copies of important documents 171 Section 12: Planning for the future booster tips 174 #94 Know exactly where you are going 175 #95 Know exactly how you are going to get there 176 #96 Stay aware of, and up-to-date with, what is happening in your industry 178 #97 Competition—you need to be better than the rest 180 #98 Always have a plan for when things go wrong 182 #99 Be aware of your business’s peaks and troughs 184 #100 Don’t just look at your business in terms of facts and figures 186 #101 Set your business up so that someone will want to buy it 188 Bonus section—20 more booster tips 191 #102 Don’t be afraid to charge what you’re worth 193 #103 Monopolies—the ultimate competition 195 #104 Learn to delegate 196 #105 Become a spokesperson 197 #106 Try to win an award for your business 198 #107 Don’t let a bad experience leave you feeling jaded 199 #108 Don’t lose a good customer over a few cents 201 #109 Enjoy the journey 203 #110 Constantly strive to boost your business 204 #111 Surround yourself with successful people 205 #112 Get to know your bank manager 206 #113 Make your business environmentally friendly 207 ix 101 WAYS TO BOOST YOUR BUSINESS #114 Make your business a good place to work 209 #115 Learn to manage your time 210 #116 Don’t be afraid to be unconventional 211 #117 Read as much as you can 212 #118 Persevere, persevere, persevere 213 #119 Be open to ideas, suggestions and recommendations 214 #120 Spend a few hours each week surfing the Internet 215 #121 Compile your own operations manual 216 Appendix: Blank forms that may come in handy 219 Credit request form (for your customers) 220 Goals and objectives form 222 Professional services checklist 224 Job description form (position description) 226 A checklist for employing staff 227 A step-by-step marketing plan 228 Insurance checklist 229 A stress checklist 230 A de-stress checklist 231 Developing an Internet plan 232 Recommended reading 233 About the author 234 x Acknowledgments The information contained in this book is based on my obser- vations of many successful businesses. I would like to express my thanks to those individuals who have given me their thoughts, views and suggestions. I would also like to thank the team at Allen & Unwin who have inspired me to keep writing. You are a dynamic team and quite simply some of the most professional and supportive people I have ever worked with. I consider myself very lucky to be writing for such an impressive publishing company. As with every project that I do, I have had enormous support from my family and friends. Their words of encouragement mean everything to me. Finally, a special thank you to all the readers who have pur- chased my books. I am constantly surprised by the number of letters, faxes and emails that I receive from readers around the world. To those people who take the time to pass on words of appreciation, thank you very much.Your kind words mean a lot. xi Introduction In the daily course of my work as a marketing consultant I spend a lot of time talking to successful business people. Without exception, these individuals have a wealth of knowledge and experience that they apply to their businesses and which makes them successful. We often laugh about how much easier things would have been if we could have applied what we know now to our early business ventures, but most of us have had to learn the hard way, which has often cost us a lot of money and heartache. Over almost 20 years in business I have heard the same comments time and time again. In recent years I have realised that all businesses seem to experience the same basic problems and that most of these problems could have been avoided with the help of some simple, practical advice. Hence, I have written this book. My first book, 101Ways to MarketYour Business, was written to help anyone who owns or operates a business to increase profitability by introducing some very simple marketing ideas. These ideas were developed around three key principles: that people trying to promote a business often lack the time to devote to marketing, lack the money to spend on marketing, and lack basic marketing knowledge. The book was written in very simple, jargon-free language, and the ideas suggested produce very tangible results. 101 Ways to Boost Your Business follows the same principles. It is written in short blocks that make it easy to find and quickly read information that is practical, relevant and realistic. xiii 101 WAYS TO BOOST YOUR BUSINESS It is not filled with hype, or with ideas that sound great but prove impossible to implement. By reading this book you will save yourself a lot of stress and money. Most people in business have to learn what to do the hard way. These mistakes may send them broke and cause myriad associated health and family problems. But this book is all about boosting your business.Today there is no point simply surviving. If you were happy to do that you would stay working for someone else. In reality, this book will show you how to make your business so much better than your competitors in every way. It will boost what you do and you will reap the rewards. Now that is what every business owner wants to hear. Who is this book written for? 101 Ways to Boost Your Business is written for the person who wants to make a difference. If you think you know everything there is to know about business, you probably wouldn’t be reading this book. If you are flicking through the pages because you are keen to try and find ways to be better at what you do and to increase your chances of building a booming business, then you are looking in the right place. 101Ways to BoostYour Business is written for anyone who has a key role within a business. It is for managers, owners and oper- ators, prospective business buyers, students studying business, marketing managers, operations managers and professional advisers. It crosses all boundaries and provides information about issues that any person involved in business for any length of time will encounter. It is written in a way that makes it universally applicable.The information contained in this book is as relevant to a bakery owner in Belgium as it is to a bookshop owner in Brisbane.The principles and tips discussed here are important to all busi- nesses, regardless of their type or geographical location. xiv INTRODUCTION The real value of 101 Ways to Boost Your Business As mentioned earlier, 101 Ways to Boost Your Business is a book based entirely upon experience. Many of the experiences are mine, a large number are those of people I have met and dealt with over the years and some are a combination of both. Many people take a lifetime in business to become aware of these booster tips. I wish that I had had access to a book such as this when I started my first business almost 20 years ago. Hopefully, you will read 101 Ways to Boost Your Business and avoid making the mistakes that I, and many other business operators, have made. This book provides you with the oppor- tunity to learn from the experiences of many successful business operators and entrepreneurs, and to dramatically boost your own chances of business survival and success. The advice and suggestions included in this book have been given freely by friends and business associates who, while suc- cessful now, had to learn their lessons the hard way. For me, a truly successful person is one who is willing to share the secrets of their success with others, giving freely of their time and advice and expecting nothing in return. How to get the most out of this book 101 Ways to Boost Your Business has been written in such a way that it can be opened at any page and the advice used immedi- ately.There are a total of 121 booster tips included, covering the areas that most commonly cause businesses to falter. Some of the tips may not be relevant to you at this moment in time, but if you pick up the book again in six months’ time, the tips that you glossed over on your first reading may now be relevant. For this reason, I recommend that you keep 101 Ways to Boost Your Business handy. Don’t put it away at the top of your bookcase: keep it in your briefcase, or in a drawer in your desk, or leave it xv 101 WAYS TO BOOST YOUR BUSINESS by the telephone or on your bedside table. Consider it as a constant source of inspiration and advice that is available to you 24 hours a day. Some people avoid reading the preliminary sections of books, preferring to get right into it. If that describes you, no problem; just start flicking through the pages and see which booster tips spark your interest. If you prefer to start at the beginning and read every page, then make yourself a cup of coffee, find a comfortable chair, and start reading. This is a practical book that needs to be referred to often. Cut out or photocopy the blank forms in the appendix to the book and fill them in, highlight sections of the text that you find relevant to your own situation, and write notes in the spaces provided at the end of each section. One last point before you get started Throughout this book you are going to read the word ‘boost’ a lot—pretty much on every page. To boost means to lift; to raise; to generally improve. Without a doubt that is the message behind this book. Every time you see the word ‘boost’, let it sink in and remember that boost equates to making your busi- ness better and that equates to success, profitability and an overwhelming sense of satisfaction. Love that word. xvi The future of small 1 business Small businesses form the backbone of many economies. As populations grow worldwide, so do the number of small busi- nesses starting up. Millions of people around the world continue to opt for running their own business instead of working for larger organisations. As a result, there is an incredible knowledge and skill base tied up in running these small businesses.There is thrives in this economic sector, the value of which is oftent underestimated. From my experience, small businesses generally offer far better levels of service than do their larger counterparts. This is due, in most instances, to the key personnel being involved at face, and the business is small enough to ensure that communi-to cation is open and continual. There is no doubt that there are many trials and tribulations when it comes to running your own business and, of course, there is the ever-present risk of financial failure. However, this career path, and for that I think they should be admired.ve The problem facing most small businesses is the ever- increasingcompetitionfromothersmallbusinesses.This dilemma 1 101 WAYS TO BOOST YOUR BUSINESS is here to stay; in fact, it will only increase. With the advent of the Internet and other new technologies, the competition that we all face now comes not only from the business up the road, but from businesses on the other side of the world. Small businesses need to be smart. They need to be built on solid foundations and to be proactive. They need continually to strive to provide exceptional levels of customer service and value for money. Consumers are better informed and more discerning than ever before, and are well aware that they have a lot of choice when it comes to deciding on where they will spend their hard-earned money. Business survival is about facing these ongoing challenges with a commitment to being the best at what you do. It is about treating consumers with the respect that they deserve, while standing out from the sea of other businesses that offer the same or similar services. It’s all about attitude From my experience, there are two very distinct types of busi- nesses and business operators. There are those people who are really unhappy doing what they do. Everyone else is to blame for the problems they experi- ence. The customers are an inconvenience, and are always causing problems. Advertising is just a waste of time and money. The accountants are no good, the staff are nothing but trouble, and the future always looks glum. These businesses struggle to survive. The other type of business that I have observed is run by positive and enthusiastic people. They take what they do seri- ously, they believe in offering excellent customer service and value for money, and they are continually looking for ways to make their business better. They don’t act like victims. If they face a setback, as we all do from time to time, they pick themselves up, dust themselves off and get on with it. They 2 THE FUTURE OF SMALL BUSINESS dwell on the positive, rather than the negative, aspects of the situation. These businesses have a far better chance of surviving and flourishing than the first type, due, I believe, to the attitude of the business operator. From my experience, there are more of the negative types of businesses than there are the positive ones. So, the first step to boosting your business is to ensure that you have the right attitude about running your business. If you already own or operate a business . . . People who have been running their own or someone else’s business for a long time are often set in their ways. They may have formed bad business habits and may regard ‘change’ as a dirty word. I doubt that this describes you, because if it did, it’s unlikely that you would have purchased this book. The greatest personality trait that any business person can have is an open mind. We live in an age where there is an over- abundance of information, a lot of it conflicting. The fact is that the amount of information available is only going to increase, so we need to be able to use this wealth of information for our own benefit. Successful business people have two striking characteristics: a very clear objective combined with an air of detachment about their business. I have run a number of businesses that were unprofitable because, while I had the clear objective, I didn’t have the air of detachment. The clear objective gives you the passion and the enthusiasm to keep going, but the detach- ment stops the business from taking over your life. It enables you to be somewhat clinical about what you are doing: if it’s not working, let it go. This book will provide you with direction and simple step- by-step blocks of information that may direct your passion and enthusiasm; however, learning to be detached is a much harder skill to master. A business is just a business. There is life before, during and after. If you are not enjoying, or worse still you hate, 3 101 WAYS TO BOOST YOUR BUSINESS what you are doing, maybe it’s time to cut your losses and make a break. Detachment lets you do this. If I had learned to let go at an earlier age, I would have saved myself a lot of grief. Now I find it easy. If it’s not working and I know that I have given it 100 per cent, I will simply cut my losses and move on. There will be other business opportunities that will come my way and, most importantly, I will have learned a few new lessons. The topics covered in this book Based on my own experiences and those of the people I have spoken to regarding their own business tips, 11 key categories were developed for101 Ways to Boost Your Business. They cover all of the areas that virtually any business will need to deal with at some stage in the history of their organisation. While some of the tips deal with very specific issues, such as ensuring that you have enough money to run your business, there are also more general tips on how to overcome the per- sonal pressures and strains of running your own business. Each type of booster tip is equally important. There are many ways to determine whether or not a business is successful, and a profit and loss statement is only one way. The topics covered include: • getting advice booster tips; • financial booster tips; • business relationship booster tips; • staff booster tips; • customer service booster tips; • advertising and marketing booster tips; • Internet booster tips; • insurance booster tips; • legal booster tips; 4 THE FUTURE OF SMALL BUSINESS • personal booster tips; and • planning for the future booster tips. The bonus section includes a further 20 booster tips that incor- porate all of the above topics. About the blank forms The blank forms in the appendix at the back of 101 Ways to BoostYour Business have been included to illustrate a number of booster tips. They can be photocopied and reused as necessary. Most are checklists that can be filed in the relevant places and used as needed. I have also included an outline of the information you need to develop your own simple marketing plan. This may sound like a complicated project, but in reality it is easy. Marketing plans evolve and need to be updated on a regular basis, but there is no doubt that having a simple marketing plan will be of significant benefit to your business. The blank forms include: • a credit request form (for your customers); • a goals and objectives form; • a professional services checklist; • a checklist for employing staff; • a job description form (position description); • a step-by-step marketing plan; • an insurance summary page; • a stress checklist; • a de-stress checklist; and • an outline for developing an Internet plan. There is also space to write notes at the end of each section on any action you need to take regarding specific booster tips. 5 Getting advice booster tips 2 We all need help and advice at some stage in our business career. Knowing when, and where, to get advice are the two main issues. suggested that could prove to be not only booster tips but also very financially rewarding. The ideas we’ll talk about in this section are: #1 What type of help is available? #3 Embrace technology and save money #4 You might be eligible for a grant 6 GETTING ADVICE BOOSTER TIPS 1 What type of help is available? There are so many organisations available to assist business oper- ators that it’s sometimes hard to know where to start looking. There are various government-run organisations, as well as many private enterprises, that offer thousands of products and services that could be of benefit to you. If you are planning on starting a business, do your homework now. Find out about these organisations and exactly what ser- vices they provide. Government-run organisations generally have the distinct advantage of offering their products and services for free or at fairly reasonable rates. Private enterprises tend to charge a little more, but from my experience they generally provide faster and more detailed services. This, of course, varies from area to area, and I have worked with many government- run organisations that are excellent. If you are not sure who to use, talk to other business people. If you already run your own business, it’s often very beneficial to visit your local business advisory board to find out exactly what services they offer. You may find that help is available for exactly the kind of problems you are experiencing. One thing is certain: whatever the problem you have, other busi- nesses have had similar problems and somewhere there will be help available. I also like to utilise a network of business associates. If I am experiencing a specific problem, I make a few calls to my circle and ask for their advice; they do likewise. We all talk to each other regularly, and we honour confidentiality when an associate tells us about a problem that they are experiencing. This mutual assistance works very well and can save you an enormous amount of time and money. Developing your own similar network can provide your business with a free pool of experience that is on tap for you to use whenever you need it. I think it is important to ensure that there is an equal amount of information exchanged, other- wise your associates may start to groan every time you call. If 7 101 WAYS TO BOOST YOUR BUSINESS someone gives me some great information that will save me money or time, I like to send them a small gift and a note expressing my thanks. There are also excellent books available that include lists of organisations and what services they provide.Talk to your local bookstore and they can generally point you in the right direc- tion. I use a reference book for writers that lists thousands of companies and government organisations that offer various products and services to writers. Individual industries normally have their own associations that are great sources of information. By being a member, you will have access to information that would normally be hard to find. The best thing about these organisations is that they already know and understand your business, and the odds are that your problems are shared by other businesses in the same industry. Of course, the Internet provides access to vast quantities of information, and I recommend that you spend some time searching for help online. Finding out what type of help is available takes only time. Increase your chances of boosting your business by being well informed about who to turn to for help when you need it. 8 GETTING ADVICE BOOSTER TIPS 2 Know when to look for help One of the most common characteristics of successful business people is that they are not afraid to ask questions or to seek help when they need it. We all need help in some form or another at some time. If you are having financial problems, talk to your account- ant. If you are having legal problems, talk to your lawyer. The longer you wait, the worse the problem will be. I have often spent many hours worrying about a specific problem when it could have been solved with a simple phone call. We might worry that our accountant or lawyer will think we are stupid if we ask a dumb question. Who cares? What is important is that the problem gets solved quickly and with the minimum of fuss. We have a client who specialises in handling companies’ affairs when they go broke. They often comment that if they had been called in earlier, nine times out of ten they could have helped the business to recover and prevented an enormous amount of stress and worry. Unfortunately, many people wait until the bank is ready to foreclose or the landlord has issued the eviction notice before looking for help. Just like an illness, most business problems can be cured if they are detected early and the proper treatment is imple- mented. If you want to boost your business, don’t wait until it is too late for anyone to help you. 9 101 WAYS TO BOOST YOUR BUSINESS 3 Embrace technology and save money I am often surprised by the number of business operators who don’t utilise technology.Technology, by definition, is an advance- ment or development that enables a task to be done better. If the task can be done better, it can generally be done quicker and hence more economically. Some people are scared of technology generally, which is understandable when you think about how fast it changes. There are others who fear the cost of technology, and those who simply don’t feel they have the time to find out about new tech- nologies. I encounter all of these types of business operators every day and, without exception, I can see ways in which they could not only save money, but also make more money in terms of more sales, simply by utilising technology. One example that comes to mind in our business is the invention of the digital camera. If a client needs a photograph quickly, we can send someone over with a digital camera who takes the photo, comes back to the office, downloads it and emails it to the customer (sometimes after touching it up a little to make it clearer and sharper).The whole process may take ten minutes. In the past we had to obtain the film, take the photo- graph, drop the film at the film processor’s and wait for it to be developed, scan the picture and then send it to the client. Obviously, the new method is much faster and more economi- cal for the client. Boosting your business is all about working smarter than your opposition. Spending money on technology is not only tax deductible, it’s also logical. What is the point of using an old printer that jams every time you try to print a document? You get frustrated and angry because you don’t want to spend the money on a new one, yet you will spend hours every day removing jammed paper from your old printer. Don’t forget that your time is valuable and is better spent focusing on running your business at its peak. 10 GETTING ADVICE BOOSTER TIPS In today’s business environment there are virtually no indus- tries that are exempt from enjoying new technology. The key is to find out about it, and there is no shortage of places to find information on new products and services that may help your business to run better. 11 101 WAYS TO BOOST YOUR BUSINESS 4 You might be eligible for a grant Many governments around the world offer incentives for people to run small businesses. These governments realise that small businesses play a major role in their economy (as they have done for thousands of years) by distributing products and services to the general public. They are also aware that small businesses provide jobs for millions of people, which in turn provides money to spend on goods and services, which keeps the economy turning. This means that by having lots of healthy small businesses operating, more people will be able to find work. If jobs are created, gov- ernments get re-elected and the cycle continues. Because of this motivation, you may find that your business is eligible for some kind of grant or special funding. Often government incentives relate to employing people, an expense that most businesses try to keep as low as possible. Recently, we employed a young receptionist who was part of a government training program.The conditions were that she work for our firm for one year, in return for which her wages were heavily subsidised and our business was given cash incentives throughout the year.We were required to assist with training, and the employee was expected to learn valuable business skills that she could use to further her career. We enjoyed lower wage costs and a motivated trainee who was keen to learn. There are many such schemes in place. Some are easy to find out about, while others need researching. My advice is to start looking for information on the Internet and then spread your search further afield from there. Talking to other business oper- ators is an excellent way to find out about government schemes, and a visit to your local small business advisory centre should also provide you with some leads. If you still hit dead ends, contact your local politician and ask them about any incentives in place to help your business. If there aren’t any, ask them why not. You may be entitled to receive some form of funding to help your business grow, and not even be aware of it. 12 GETTING ADVICE BOOSTER TIPS Notes .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. .............................................................................................. Booster Tips Action List Things to do Completed 1. ........................................................ ............................ 2. ........................................................ ............................ 3. ........................................................ ............................ 4. ........................................................ ............................ 5. ........................................................ ............................ 6. ........................................................ ............................ 7. ........................................................ ............................ 8. ........................................................ ............................ 9. ........................................................ ............................ 10. ........................................................ ............................ 13 Financial booster 3 tips Running a successful business really boils down to one critical point: making money. The booster tips in this section are aimed at identify- ing the areas where most of us make mistakes that can end up costing us money. We look at the reality of how much money you need to start or run a business, realistic budgets (not fairytales), keeping records (the bane of my life!), the importance of having a good accountant and how to find one, the cost of expanding, and knowing how much you should be charging for your goods and services. The section also discusses the pitfalls of expansion, how to know about it. This is an important section, because it’s the area where most businesses perish. The ideas we’ll talk about in this section are: #5 Don’t be undercapitalised—have enough money from the start #6 Budgets and planning—welcome to reality (plan for the worst, not the best) #7 Financing—it pays to shop around #8 Keep your personal and business records separate #9 Find and use a good accountant #10 What’s the difference between an accountant and a financial planner? 14 FINANCIAL BOOSTER TIPS #11 What to do if you get into financial trouble #12 The real cost of expanding—can you afford it? #13 Beware of giving credit #14 Chasing bad debts—is it worth it? #15 Keep good records from the start #16 Keeping costs down without losing customers #17 How to know what to charge #18 Don’t invest your superannuation in a business venture #19 Beware the third-year boom and fourth-year bust 15 101 WAYS TO BOOST YOUR BUSINESS 5 Don’t be undercapitalised—have enough money from the start I bought my first business for $22,500. The asking price was $25,000 and I negotiated the price down. The owner agreed to my offer, and I went to the bank and borrowed the money.The cheque was handed over and suddenly I was running my own dive shop. I have to say, I felt pretty pleased with myself! Unfortunately, I started making mistakes the minute I handed over the cheque. I borrowed just enough money to buy the business and not one cent more. I was immediately inundated with bills as a result of the sale. They included accountant’s fees, state taxes, legal fees, and so on, totalling about $5000, which, of course, I didn’t have. Also, I had pur- chased the dive shop at the beginning of winter—the quietest time of year for this kind of business. Some of the equipment was old and needed to be replaced, and the level of stock was very low. All in all, I had got off to a pretty bad start. In many ways the business never really recovered, because I was always seriously short of money. If I could turn back the clock and use the experience I now have, how would I have approached this same situation? First, I would have negotiated much harder on the sale price. The previous owner wasn’t making any money and, in hindsight, I probably could have bought the business for next to nothing. Second, I would have paid a mechanic or an engineer to check all of the equipment to determine whether it was in good condition and what would need to be replaced. Finally, I would have worked out how much it was going to cost me to operate the business for a full year, taking into consideration all the expenses, including my wages. Once this figure was determined, I would have added it to the negotiated cost of the business. To this I would have added the cost of replacing any equipment that wasn’t in good enough condition to last 12 months. Once a total figure had been determined, I would have added a 20 per cent contingency and the new total 16 FINANCIAL BOOSTER TIPS is how much money I would have tried to borrow from the bank. Obviously, I would be asking for a lot more money, but if I couldn’t get the total amount I would have to think long and hard about buying the business in the first place. Many people get caught up in the emotion of the moment when it comes to buying or starting a business. Their excite- ment about the new venture often overshadows their normally strong sense of reason. There is a lot to be said for having time to cool off and really consider the decision. There are two types of businesses in the world: those that have experienced a lack of money, and those that will experi- ence a lack of money. Nine times out of ten, a lack of money can be traced back to not having enough money from day one. I was in a position with my first business where I had to start making a profit from day one. Not just turning money over, but making a profit. This is very hard to do. When starting or buying a business, there are so many potential pitfalls that can affect income that there really are no certainties. If you are starting a business, you will need to be sure that there are people who are prepared to buy your products. It will takeyouawhiletoestablishyourowncustomersandtobuildthe business up to a level where you are covering costs.While you are building the business, you will still need to pay for all of your fixed expenses and this goes back to the amount of money you have available when starting your business (your start-up capital). If you are buying someone else’s business, you are buying a cash flow and existing customers (goodwill). Unfortunately, there is no guarantee that the customers will continue to use the business when you take it over. You need to allow for the fact that you may lose a certain proportion of these customers. I have seen this happen many times where a business is sold and the customers leave in droves. Often the new owner goes broke in a relatively short amount of time. This normally indicates that they didn’t allow for the possible exodus of customers and didn’t have sufficient capital behind them to cover these losses until they built up their own customers. 17 101 WAYS TO BOOST YOUR BUSINESS Owning and operating your own business can be incredibly rewarding. It’s certainly a lot more enjoyable if you can reduce your stress levels by having good financial planning and a real- istic approach to how much money it will take to get you to where you want to be. Ensuring that you have enough money to start or buy your business is essential. 18 FINANCIAL BOOSTER TIPS 6 Budgets and planning—welcome to reality (plan for the worst, not the best) In Booster Tip #5 we talked about the problem of not having enough money when you start your business. This booster tip looks at setting budgets that are realistic and honest. In business we all need to set budgets. We need to know exactly how much it will cost to run our business and thus how much money we will need to cover those costs. A common mistake in business is poor planning and unreal- istic expectations in terms of income and expenses. From my experience, the three most common errors are: • underestimating costs (expenses); • overestimating how much money will come in (income); and • failing to recognise that money will be slower coming in than expected. Obviously, the end result of these errors is a serious lack of cash (or a cash flow problem). This booster tip aims to encourage you to take a realistic approach to budgeting. Don’t plan for the best possible scenario, plan for the worst. If everything turns out better than expected, you will end up with more money in the bank—an end result that is easy to live with. When planning your expenses, take absolutely everything into consideration and then make an allowance for the out-of- the-ordinary or unexpected costs. A lot of expenses are easy to budget for because they come in month after month. Rent is a prime example—it’s easy to budget for because it’s roughly the same amount every month. Other expenses—such as bank fees, state and federal taxes, repairs to vehicles, breakdown of equipment, insurance, legal and accounting fees, and so on— are harder to plan for; however, allowance needs to be made for them. 19 101 WAYS TO BOOST YOUR BUSINESS As an example, let’s assume that it costs you $10,000 per month in simple fixed costs to open your business doors. This includes all the expenses that you can budget for. (Even the small bills that are only a few dollars a week add up and have an effect on your bottom line.) Now you need to allow for unexpected costs. I budget for extra costs of 20 per cent per month on out- of-the-ordinary costs, and generally this more than covers those extra costs. Once again, if there are no out-of-the-ordinary costs I come out in front. Based on this principle, the costs to operate your business are now $12,000 per month.This tells you exactly how much money you need to make each month to cover your costs. Overestimating the amount of income you can expect from your business is a very common mistake. We have to be opti- mistictorunabusiness,butthereisafinelinebetweenoptimism and naivety. As far as I am concerned, income isn’t guaranteed until the money is in the bank. I have been caught out many times by spending money that was definitely meant to come in, only to find that for some reason the project didn’t go ahead. We know how much money we need in order to operate, so we have an income target. When planning for income the same principle has to apply—be conservative, and underestimate rather than overestimate. If you are wrong, the worst that can happen is that you end up with more money in the bank than you anticipated. Only you can really set your budget for expected income. If your business has a history you can often plan fairly accurately based on previous years, but if you are starting a new business you sometimes have to make an edu- cated guess. Be very careful of making assumptions that cannot be backed up. I once worked with a company that started a new business in a shopping centre.They budgeted for 10 per cent of the people coming into the centre to visit their business. Obviously, this is a big assumption based on little apart from simple traffic flow. Other factors that influence this assumption relate to location, costs, competition, appeal of the business, staff, the fit-out of 20 FINANCIAL BOOSTER TIPS the shop, and so on. The business struggled for many years simply because the assumption that was made was wrong and overly positive. A common practice of good budget planners is to allow for both worst case and best case scenarios. Like income, cash flow needs to be planned, especially if your business works on customers being given accounts. Often a business can be trading very well, with ‘on the book profits’ looking fantastic, but in reality there is never any money in the bank. Cash flow problems can destroy a busi- ness quicker than anything else. When planning for cash flow always be conservative, allow for delays and the odd bad debt, and have a back-up plan just in case cash flow becomes tight. Most cash flow problems stem from being undercapitalised (Booster Tip #1) from the start. In closing, the most important point to be taken from this booster tip is that you need to be a realist when planning budgets. If you find this hard, seek advice from someone impartial, such as an accountant. Setting tight, conservative budgets is a trademark of successful businesses and it will certainly make running your business easier. 21 101 WAYS TO BOOST YOUR BUSINESS 7 Financing—it pays to shop around These days everyone wants to lend you money. If you have a reasonable credit rating, your letterbox will be filled with an abundance of amazing deals that will all put you further into debt. Financial institutions will treat you like you are the most important person in the world—until you sign on the dotted line. Then try being a week late with a car payment to find out what poor customer service is all about. The truth about finance is that everyone will give it to you when you don’t need it, but no one will give it to you when you do need it. That’s the harsh reality, and in many ways it’s understandable. Another reality is that if you don’t own pro- perty of some kind, you will pay through the nose for any finance because you are considered a higher-risk borrower. So, how does this affect you? First, try to avoid asking for credit when you are cash strapped or if you don’t own property. A few years ago I went to the bank to ask for a $5000 overdraft. I had trading figures for several years which were reasonably good, but at the time I didn’t own any property. The bank manager didn’t even read my application. He simply said that I would be better off using one of my credit cards to get a cash advance if I needed extra money. The problem with this was that my credit cards were all attracting 17 per cent interest and I didn’t want to pay that much, but I had no choice. There have been many instances during my business career when times were tough and I needed extra cash to keep paying the bills. Desperate for money, I have had to resort to borrow- ing from a financial institution of some sort at a ridiculous rate, and ended up regretting it for years. For instance, I purchased a secondhand car about five years ago. The dealer arranged the finance very quickly, and before I knew it I was signing a con- tract. I borrowed $24,000 at 17.5 per cent interest and ended up paying back a fortune. Not once did I think to shop around, or to ask the lender for a better rate. At the time, banks and credit unions were offering car loans for about 9 per cent 22 FINANCIAL BOOSTER TIPS interest! Over five years this oversight cost me a lot of money, and I certainly won’t be making the same mistake again. Often when we approach a finance company, we do so with our hat in our hand almost begging them for the money. The irony of this is that they know it, and they encourage this kind of behaviour since they make a lot of money out of us. You should therefore shop around when looking for any kind of finance. Feel free to negotiate on interest rates. Now that I am older and a little wiser, I know that most financial institutions have some room to move; even if they can’t budge on interest rates, they can waive fees and offer other incentives. Remember, you are the customer and they stand to make a lot of money out of you. 23 101 WAYS TO BOOST YOUR BUSINESS 8 Keep your personal and business records separate A common mistake, especially among first-time business oper- ators, is to fail to keep your personal records separate from your business records. There may be times when you pay a bill for the business with your own credit card or pay a personal bill, such as your electricity bill at home, with a company cheque. The problem with this is that it makes working out your tax return a lot more complicated, because you generally cannot claim personal expenses on your tax return. It also becomes a paperwork nightmare when you have to allocate where funds have come from or where they have gone to. Of course, I have been guilty of doing this in the past. With my first business, I didn’t even know that the two should be kept separate; I just assumed that all the receipts needed to be kept in the same shoebox. My first accountant was very patient. He had retired and I think that he felt sorry for me, so he very gently explained how the system worked and from that time on I have been reasonably good at it. Another problem with mixing your business records with your personal records is that you can end up paying either not enough tax or too much tax. Both are potential problems and, generally, taxation departments are not all that understanding about poor bookkeeping practices. At the end of the day, you should know the difference; ignorance isn’t an excuse. I know a lot of business operators who are always putting their hand in their pockets to buy things for the business. It might only be a few dollars at a time but it all adds up. To overcome this, you need to have some petty cash—say, a few hundred dollars—that you use for these smaller purchases. The key with petty cash is to keep receipts to ensure that when it’s all spent, the receipts equal the total amount. Then you write another cheque and start again. Over the years, I have lost literally thousands of dollars in unclaimed expenses simply because I couldn’t seem to get my head around the idea of petty cash. 24 FINANCIAL BOOSTER TIPS It makes life a lot easier if you can start your business by keeping your records separate. If you have been operating for a few years and the areas are still overlapping, just start working towards separating the two as soon as possible. Your accountant should be helping you with this, but if you are still unsure invest a little time and do a bookkeeping course. If this still doesn’t work, you need to employ someone to control your accounts who is ruthless and not intimidated by you being the boss. If you don’t have the receipt, you don’t get the money. No purchase order, no cheque. You get the message. 25 101 WAYS TO BOOST YOUR BUSINESS 9 Find and use a good accountant Having a good accountant is essential. Unfortunately, they are hard to find. The biggest complaint that I would make about accountants is that generally they aren’t interested in my busi- ness unless it’s making a lot of money. I agree that this is prob- ably the most interesting and appealing time from the accountant’s point of view, but I have been most in need of help and advice when things aren’t going quite so well. So, how do you find a good accountant? I took the follow- ing steps to find my current accountant, who is great. First, I picked up the Yellow Pages and picked out ten names that appealed to me for whatever reason (for example, I liked the colours in their advertisements). Then I rang ten business associates and asked them who they used and whether they would recommend them. Then I made appointments with the companies that matched. There were five firms in total that I was now considering. During the appointments with each accountant, I inter- viewed them. I wanted them to tell me why I should use them, and I asked for the names of several of their clients so that I could verify that they were as good as they said they were. I wasn’t rude or arrogant, but at the same time I wasn’t intimi- dated by them. I wanted someone who would guide me and help me to build up my business. I was honest in telling them about the positive and negative features of my business and what I needed. It is important that you have these points clear in your own mind. Two of the five firms refused to give me the names of people to verify their services, so they were out straight away. I rang each of the people whose names the three remaining firms had supplied, and I made my decision based on those people’s comments. I must be honest and say that an impor- tant feature that I was looking for was an accountant with whom I could communicate easily. We needed to connect. It’s perfectly acceptable to discuss costs with your prospective 26 FINANCIAL BOOSTER TIPS accountant. In fact you would be crazy not to ask what their hourly rate is and for an approximation on annual costs. This way, there are no surprises for you or them. A common busi- ness mistake is people not asking how much something will cost until after the work is done.Then they complain about the expense. Good communication should eliminate this particular hazard. Once you have decided upon an accountant, you need to start building a relationship. Don’t be embarrassed about the state of your financial records or the fact that your business might not be making a lot of money. Accountants are like doctors. They won’t tell anyone else, and they have generally seen it all before. Most importantly, you have to be completely honest with them. If your accountant submits your tax return based on the information that you have given them and it’s not true, you get into trouble, not them. So be open and tell it the way it is. If there are problems in the way you do things, your accountant should be working with you to help eliminate those problems. It may take a while, but as long as you are working together, virtually any problem can be overcome. A good accountant is a powerful weapon in the arsenal required to survive in business. I believe that an accountant can only be as good as their client. Be open to their ideas, be honest and take their advice—after all, that’s what you are paying them for. 27 101 WAYS TO BOOST YOUR BUSINESS 10 What’s the difference between an accountant and a financial planner? This is a question that doesn’t really have a clear answer. It’s important to know that these services exist, because you need to know which one you may need at any time. I use an accountant to make sure that all of my legal obliga- tions are met. These include lodging periodical tax returns, documenting minutes to annual meetings and ensuring that all company fees are paid on time. My accountant is also there to advise me on ways to reduce my taxation where possible. He helps to identify legal ways to save tax, and makes recommen- dations for protecting my assets and limiting my liabilities. He also helps with my overall business strategy and planning for the long-term future of the business and myself. I use a financial planner specifically to build my own wealth. My financial planner has arranged life insurance, superannu- ation, income protection policies and high-interest investments. His role is to take the money that I earn in my business and make it grow. Confusion stems from the fact that many accountants are also financial planners. I believe that the two roles go very much hand in hand, but I like to have advice from two sources. If your business is anything like mine, in the early days there is no money. Paying the accountant is hard enough, and the idea of using a financial planner isn’t even an option. As your busi- ness matures, you will find that you have some extra funds available and eventually there will be a time when you need to start thinking about what to do with this money. Whichever way you want to go, and in a perfect world you would probably use the services of both professionals from day one, remember that you want these people working for you to give you every possible advantage in achieving financial success in your business. When choosing a financial planner, adopt the same strategy as you would for finding any professional adviser. Ask friends 28 FINANCIAL BOOSTER TIPS and business associates for their recommendations. When meeting potential financial planners, ask for the names of several clients whom you could call to verify their abilities. If they aren’t prepared to do this, look somewhere else. 29 101 WAYS TO BOOST YOUR BUSINESS 11 What to do if you get into financial trouble There are two types of businesses: those that have been short of cash and those that will be short of cash. I have yet to meet a self-made business person who hasn’t had this problem at some time in their career. Ho
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'