Small Business Archives | Page 16 of 16

You Don’t have to Be in the Music Industry to Learn from its Current Changes

I came across a good article discussing the 10 Truths about the Modern Music Business. The remarkable fact about this article was that you don’t have to be in the music industry to appreciate the observations in the article. As I read the article, I substituted “business person” for “artist,” and “customer” for “fan.” In most cases, there was a direct relationship among industries.

Now, I am not saying that every point can relate to other industries, exactly, but let me give you an example. I told a client that when I Go-ogled his industry in the southern California area, his company did not materialize. In fact, I had to insert a very refined search term, and his city, just to find his company’s site. Ironically, his competitors appeared all over my results. His response, “Well, that is not the way my business works. Companies don’t Google to find my type of business.” I asked him, “Then why are you losing market share? Why are you struggling to bring in new business, where the same competitors seem to be growing?”

This article has some good points that businesses can take home like, the use of technology to stay in front of the field, and the need to communicate directly to your target prospect, and not rely on Yellow Pages, or some other platform to do it for you. New thinking is taking hold in the world of Strategic Planning. Will you be a leader and embrace them, or be left behind with only excuses?

Music App Swims in an (Apparent) Blue Ocean Strategy Looking for a Long Tail

You remember the music industry, don’t you? You know, the enterprise sunk by pirates on dry land? But, light shines brightest in the darkness. An article came across my computer that shows the ingenuity of these creative enterprises. The article is New iPone apps are changing how music is marketed and made. This is a good example of a strategist using the Blue Ocean Strategy to create a long tail. (See Chris Anderson’s video on the Long Tail and the music industry).

In the IPhone article, the creator of the BandApp has designed an app that helps bands to launch their own virtual record companies. The app “works as a record store, marketing department and cameraphone-wielding stalker combined.” The app seems to take out the middlemen between the band and the fans. This of course is creating a blue ocean strategic plan for both the bands and the app owner because the traditional record company cannot compete on this level. The record company can advertise more, create more tours, but ultimately there will be forced to confront this app (or some derivative of it) head on. There will be no avoiding it. The app is creating a blue ocean where there is no direct competition.

Likewise, the owners of BandApp also are looking for the long tail. “Equally, rather than trying to sign five bands in hope of selling a million records each like a record company, he can, without risk, “sign” 100,000 bands, even if they’re only likely to sell 50 records each.” What that means is instead of focusing on the big-selling bands in the top tier, they are focusing on all the rest of the bands regardless of popularity. On an X-Y axis, with the Y axis representing dollars, and x axis representing band ranking, the graph would look like a big mountain with an infinitely long tail. That tail gets smaller as it stretches to the right. This is the money-making arm of BandApp.

During times of economic gloom, strategist who find their blue ocean will more likely survive now, and maybe prosper when the economy improves. The long tail combines the strategy with the new viral markets.

Play by the Rules with S-Corporations

The use of S-corporations has been rising in recent years. However, the challenge is to operate them correctly so as to not create a fatal mistake invalidating your S-corp election, or other problems. Here are some areas to be careful

Make sure you give yourself an adequate salary. Many S-corp owners take only draws thinking that they can escape all Social Security and Medicare taxes. The IRS is very keen to this one. There has been some attempts to make all S-corp income subject to self-employment tax. This legislation would eliminate the need for reasonable salaries.
Be careful when you pay back your loans to the S-corporation. If you used those loans as part of your basis to take losses, you may have to recognize income on their repayment.
In order for an S-corporation to have a single class of stock, the economic interests must have the same rights to distributions. If partners are to receive disproportionate distributions, then maybe an LLC is your best choice for a tax vehicle.
When an S-corp shareholder leaves, be sure allocate the activity properly and provide all applicable elections.

If you have an S-corporation, consult your tax advisor when making decisions that may affect its status.

When it comes to your personal finances, are you a Stage 1 or a Stage 4 White Water rafter?

This economic meltdown has many people second-guessing the financial decisions made in the last 8 years.Where do you stand, and what can you do about it?

A couple of years ago we shot the Snake River rapids in the Grand Tetons. Like many rapids, the river offered its “flat” moments (stage 1), and churning moments (stage 4). One time we prepared ourselves for a level 4, and were hit by something unexpected, hail. In the middle of summer we turned a corner and were pelted by hail stones in the face during a storm.

I think many of us can relate to this in the current economic times. But, the extent of damage depended on whether you operate your business (and personal finances) in a stage 1 or stage 4 rapids

I found there are two main types of business and investment personalities: One type are those who lived during the depression, or learned by it. They are very conservative in what they do, and try not to be too speculative in whatever they do. The other type is the sprinter. Many of these sprinters profited handsomely in the past 8 years riding the leverage train of real estate.In their business and personal finances, they also seem to leverage heavily.

When I work with clients personal finance strategies, I keep these two polar positions in mind. If a client is younger, then they can obviously take more risks with their personal finances. However, when a client approaches middle age, I caution them that the downside is more severe if they do not meet their personal finance objectives. So, both in personal and business opportunities I recommend the following:

Always have a well thought-out strategy. What do you want to accomplish with your personal finances?
Don’t fool yourself with the possible outcomes. Look at worst case scenarios. Personal finances can be very emotional, and if you don’t drop the emotion in your thinking, it can hurt your final strategy.
Plan for both your intended outcome and your worst case scenarios. Just the other day, my 14 year old lost his English notebook with homework and school work. He thought he left it in the classroom, but wasn’t sure. I told him to not just think about what he would do if he found it, but what he would do if he didn’t. This took some of the stress off him since he had rationally thought about how he could replace the work while he was calmer. If he would think about this at the time he found out that the notebook was not in the classroom, then he would have beem more immotional and could have created a flawed strategy. Luckily, his notebook was there teh next day, and he received credit for all the work.
You may want to reduce your risk, just in case the worst case scenario occurs. Remember, water can both save you, and kill you depending on how much your drink. Don’t throw yourself completely into a personal financial position, whether it be real estate, stocks, or percious metals without thinking about the consequences of over investing in one product. Your personal finances can live or die depending on the magnitude of your decision.
Execute the plan and view it objectively. Too many business persons in this position extend their risk because they are looking for the “next big deal.” I find this rose-colored glasses approach a major cause of business failures.
If you are hurt by the resent economic melt-down, adjust your strategy towards a stage 1, but don’t circle the wagons. Keep a sharp lookout for business opportunities that may pay handsomely when the economy recovers. You may want to invest in social networking or search-engine optomization services in order to get your business a higher profile at a smaller price tag.

Always get professional help.

How to Hire Bookkeeping Services in Los Angeles

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Bookkeeping: The mere mention of the word can give business owners a headache. But it doesn’t have to be painful. In fact, if you follow these ten tips for hiring business bookkeeping services , you can reduce errors, increase productivity, and improve profitability.

1. Don’t Do It All Yourself!: Most small business owners hate the idea of handing over the bookkeeping reigns to someone else. They feel like they’re losing control. Does this sound like you? The truth is that having small business bookkeeping services in fast-moving Los Angeles actually frees you up to focus on your core business and serve your customers better.
2. Communicate: Communication is key when you hire a small business bookkeeping services in Los Angeles. Make sure you keep the firm up-to-date on all financial transactions—especially such things as new property purchases and employee bonuses that are often overlooked.
3. Save Receipts: This may sound like a no-brainer, but it’s easy to forget to keep receipts or even misplace them in the day-to-day hubbub of a busy office. It’s important to have the backup documentation for your deductions so tax time can be easier and more beneficial.
4. Track Expenses: As a small business owner, you may pay for expenses out-of-pocket. While this is not ideal, the real problem is forgetting to track these expenses and submitting them to the company to be reimbursed. A small business bookkeeping services in Los Angeles specializes in keeping you on track so you can reduce your tax liability.
5. Reconcile Properly: It’s a fundamental aspect of bookkeeping. The books and bank statements must be reconciled each and every month. This can be a time consuming process for a business owner, so again this is another task that can be managed by a small business bookkeeping services in Los Angeles.
6. Backup!: A paper trail is imperative. Documentation or verification should always be available. You don’t have to have all of it on-hand. Just sign-up with an automatic data back-up service to ensure everything on your system is backed-up on a daily basis.
7. Properly Classify Employees: Do you know who is an employee, who is a contractor, a consultant, a freelancer? It can get confusing. Make sure you hire a small business bookkeeping services in Los Angeles to help you classify each and every employee so you can get the biggest benefit at tax time, not to mention avoiding penalties for misclassification.
8. Know Your Petty Cash: How much money is in petty cash at any given time? Setup a system and make sure a petty cash slip is filled out whenever money is removed for any purpose. Something as simple as petty cash can really mess up a company’s bookkeeping.
9. Categorize Expenses: Are you using the right categories for expenses? Again, this can get confusing. Your small business bookkeeping services in Los Angeles can help you follow generally accepted accounting practices.
10. Deduct Appropriate Sales Tax: Many retail businesses make mistakes when deducting sales tax. This can actually be a huge problem if you have many total sales because it results in a higher total sales amount without lowering the taxes due. Of course, this can be easily corrected and regularly monitored by a small business bookkeeping services in Los Angeles so you can avoid any tax burden as a result of sales tax.

These may seem like second nature to some business owners, but keeping focused can keep your books clean.

Do You Know Your Company’s Risks? Are You Managing Them?

Leaders of small to medium-sized businesses usually have two things on their mind: What are my sales? And, do I have enough cash to make payroll? Don’t settle on a reactionary position in dealing with the risks that can have long-lasting effects.

Many businesses suffer, and fail because their leaders do not see the inherent risks that can negate the years of hard work it took to build the business.Here are some tips to managing the risks:

Look at your company from the 20,000 foot level: The first step to managing risks is to identify, on a broad level, your company environment. What is the established company culture that increases your risks? Why is the culture like this? What is the company philosophy? If you need a blueprint, use the COSO ERM (Enterprise Risk Management) framework as a guide.
Take your business apart: Look at your company by business unit or profit center. Use techniques like questionnaires, interviews, or my favorite, scenarios.
Access the Risks: Access the risks visually. I have found that flowcharts show the snags in operations that lead to inefficiency, misappropriation, and possible fraud.
Develop a plan and assign responsibilities: An ERM plan should tie into the company’s strategic plan. All cylinders should be firing sending the machine in the same direction.
Be proactive in your thinking: Don’t react to crises, but implement controls that can prevent, or at least detect a breach of company policies and procedures.
Communicate the plan: All department heads and executives should own the responsibility of implementing the plan and controls.
Use metrics to monitor: We create executive dashboards that monitor certain benchmarks, critical success factors, and accounting ratios that indicate the plan is in operation. This is essential, because an unmonitored plan is a dead plan.
Be flexible and alter the plan: Nothing is in stone. Businesses are not stagnant, so change the aspects of the plan that are not working.

Selling a Small Business?

So you want to sell your small business that you built from scratch! That’s great, but are you going to sleep at night? Here are a few tips you should consider when selling a small business:

Know what your small business is worth. Compare your small business to the industry, and the regional market share you possess. If you are the value of your small business, you will have a hard time selling it for what it is worth.
Make a liquidation plan of your small business. There are “asset sales” and “stock sales” of a small busines corporation. Find out the difference and consult a financial advisor about which would be better.
Value your small business by its individual assets, first. This valuation will help you understand your tax picture. You should know this before you sign the contract to sell, or maybe before you accept an offer.
Don’t warrant anything. Your small business financial statements are probably not audited, so don’t act like they are. If they are audited, let the CPA attest to its validity. Be careful of what assurances you make about your small business.
Have you considered the option of consulting to your small business after you sell it? This could build a comfort level in the buyer and intice them to make the deal.
Consult your financial advisor before making any decisions to sell your small business. It could be the difference between crafting a great deal, or life-long regret.

Some Tips on Moving from Employee to Small Business Owner

This economy has spurred many to open their own small business because their income decreased, their employer closed down, or they were laid off. Whatever the reason, here are some tips:

The first question I ask a married person starting their small business is, “What does your spouse do for a living?” The first 1 or 2 years of a new small business can be tough, and that second income can be the difference between you closing your doors, or seeing year 3. If your spouse can shoulder the major financial burden for a year, try reducing her salary tax withholdings. Your small business income will probably be lower than the previous year, creating a smaller tax liability.
Do you know what kind of legal structure you want? Sole proprietor, C Corporation, S Corporation, LLC? If you have a partner who is the money person, and have unequal distributions, an LLC may be your best structure for a new small business.
If you are a professional, what restrictions are there imposed by the licensing board on your choice of entity?
How is your overall personal debt? If it is high, you may want to pay it off before making the leap into a new small business. You will need cash for your small business. Cash is king.
How are you going to issue payroll? QuickBooks has a good payroll function for a small business, but complicated payroll issues can take a lot of your time.
In regards to payroll taxes, do not use the government as a bank. This is so common in small business. I have seen small businesses and medium-sized businesses pay the net payroll, but not the taxes withheld. Be very careful, because criminal penalties can arise if you spend the money.
Insurance? Don’t forget. You don’t want your small business to be the source of legal liability on your personal assets. It could mean the difference between you paying a deductible of $5,000 or losing your house. Make sure to consult an attorney on this point before starting your small business.
How are you planning to market your small business? This is a constant effort. Start by looking at other professional organizations that compliment your business. For example, I only go to CPA functions for continuing education. I prefer to meet at lawyer’s functions, contractors, entertainers, and other persons that I can introduce myself for additional business.
If you are hiring employees, check the workers comp rates. In manual labor small businesses, this seems to be a large chunk of the budget.
A few other tips are to budget your expenditures, create a web page, and match your costs to your job.

There are many things to consider.

Cash is King But a Profitable Return is still Relevant For a Small Business Health

Is your small business healthy? How do you know? Do you just look at one indicator, or several? Combining the historical Dupont Model and Mobley Matrix tools can open your eyes to the real health of your small business, especially when presented in a graphical format.

In 2004,I was part of a team that conducted a pre-published reviewed of Driving Your Company’s Value, Strategic Benchmarking for Value, by Mard, Dunne, Osborne, and Rigby. One approach used by these authors was combining the DuPont Model and the Mobley Index to gauge the health of a business.

The DuPont Model was created in 1919 by a finance executive at E.I. du Pont de Nemours & Company.It demonstrated that a company’s Return on Equity was actually a summary of the company’s profitability, turnover, and leverage.

The Mobley Matrix was created in the fifties by Lou Mobley, who became the founding director of the IBM Executive School. He discovered the relationship between cash flow and financial statements.

There is a correlation between the two tools displaying many metrics that gauge the health of your small business. These measures can open your eyes to operating cash problems, excessive debt, and many other hidden ailments.

However,this could be a little overwhelming to the small business owner who is an expert in his/her business and did not have time to go to business school. So, we place the model, and matrix, in an interactive graphical format. The measures are presented in a concise format for the owner to utilize.

Small business owners need to have a complete handle on their operations. Just knowing Sales and whether you have enough cash to make payroll is not enough. In fact, by time a small business owner discovers what was obvious from out tools, it is usually too late.