In Search Of the Right Bank for Your Business (From our March 2017 Newsletter)
Choosing a good banking institution and developing a good working relationship with a banking advisor is critical for any size, new and growing business. Your bank is your business's most important supplier.
- Shop around for a compatible bank. Find a banking advisor who is genuinely interested in your business, whether large or very small.
- Investigate the banks that are there solely there for helping businesses or business divisions of the larger banks.
- Be prepared with all the information the bank may need. Have a forward looking business plan, cash forecast, and keep it simple.
- Arrange for a line of credit before you need one. Do this up front in the growing and 'happy' stage, not in the panic stage. If you do not use it, great; it is there if you need it.
- For newer businesses, the bank may require a personal guarantee. Approach this in the early negotiations. You may want to negotiate the limit or as to when to eliminate it.
After your meeting with your banker, put down all that was discussed and what was agreed upon in writing and send this information to the banker.
The Power of Advertising
Most small businesses shy away from paid advertising for the obvious reason; it is just too expensive. However, it is a well-known fact that advertising brings in business. ‘Front of mind’ is a well heeded mantra. Even previously happy customers may, in time, forget about your operation. Depending on the industry and competition, a general thought is to spend 7% to 8% of gross revenue on advertising; no small amount for small businesses. The suggested percentage increases to 10% for larger businesses!! If wisely thought through, this can pay off. To the right demographic, in the right season and in the right venue you can reach many interested clients and customers.
Budget, however, is a very real and limiting factor.
Alternative ways of reaching out to the public is both paid and/or free advertising.
Some free advertising ideas are:
- Blogs on your website shared on your social media pages [Facebook, LinkedIn. Twitter]
- Facebook, Tweeting and Instagram [new ideas and products]
- Google front of line [may have some expense to it]
- Testimonials on your website
- Local newspapers [people still like to browse good stories in print]
- Radio and TV interviews [human interest stories especially those with ‘value added’ for the local community such as local charities]
- Your demographic and professional periodicals [may have an expense to it]
- Local businesses that may have synergy with yours and allow you to place flyers, pamphlets, cards, give talks, refer your business; a win-win situation for both
- Networking with and giving talks to business groups. Attend these as a participant regularly. [MEEtups, Chamber of Commerce and Board of Trade]
Do not be afraid of trying free sources. Many of these are looking for a story of interest. Make yours a good one.
Are you hiring a Contactor/Employee?
"We often encounter situations where a Business owner advises us that all of the people working with them are......"Independent Contractors” rather than employees and as a result they cost the business significantly less than if they are employees. It is not always easy to tell if someone is an employee or independent contractor. The determination cannot be made by a single and universal test and certainly a person signing a document simply agreeing that they are an independent contractor is worthless in coming to such a determination.
Instead, one needs to look at the “total relationship” between the parties and ask whether the person who has been engaged to perform the work or services is really performing them as a part of his or her business not as an employee of yours. A central issue in these determinations is the amount of control the party for whom the work or services is being provided has over the other parties activities.
Generally, a true independent contractor will:
· Have control over the timing and performance of their work
· Own their tools or equipment required to perform the work (e.g. hammer, saw. uniform or a computer etc. )
· Have a chance of profit and a risk of loss (e.g. receive a fluctuating payment based on the work done...not a fixed payment per hour or day determined by the business owner at their sole discretion.
· Not work full-time for this one business
· Work for (or have the option of working for) more than one business or company
· Have authority to hire their own workers
· Have their own office or work space
· Not have vacation entitlements, car allowances, insurance benefits or other benefits from the other party )
· Not be required to report, at all times, to an organization or " boss " to show that they followed the organization's instructions
Please keep in mind that not each and every item listed above must apply to the working relationship, but it is critical that the person is not dependent on the owner or manager of the business and as such is required follow the detailed instructions as if they are “employed “in the business.
There is also a question that arises when the owner etc. asks “what difference does it make if they are employees rather than independent contractors?"
The consequences can be expensive to the business owner.
If the determination (usually as a result of an audit by CRA, provincial labour authority etc.), is that the person is an employee, the business owner is liable for the payment of both the employer's portion of CPP and EI but also the employee's portion.
Next as an employer, one is required to calculate, deduct and remit income taxes to the government. Failure to do so makes the employer liable for these payments and they risk being fined for failing to do so.
Our advice to anyone asking this question is to seek independent and competent legal advice.
There will be a cost you to receive this advice but such costs are usually significantly less than those of audits, fines and other significant payments for failing to deduct various benefit premiums. "
Great MARKETING tips from Terry O’Reilly – Globe and Mail article
Ranging from creatively using humor, staying on message and aiming at the right audience , only some of the gems
Financial terms every business owner should know:
The following is a condensed version of a recent Globe and Mail article by Brenda Bouw on business terms owners should know.
This is the difference between revenue [sales] and costs to sell. The difference is the company’s profit. Revenues alone do not tell the whole story.
Fixed versus variable costs:
Fixed costs are those that remain the same month over month. These may include rent or lease on equipment. Variable costs may include salaries, price of products purchased.
These are fixed costs that add value to the business, such as computers and machinery. These costs need to be ‘capitalized’ or spread over the life of the asset. In other word, you don’t deduct them in one year.
These can be fully deducted in the same tax year; examples include legal fees, office supplies, consulting fee.
These include trademarks, brand names, patents, and copyrights. The worth of these intangibles are only the worth of their costs.
An intangible asset that determines the value of a company’s brand name, customer base and relations. This then is included into the sale factor of the business, along with tangible assets.
The acronym stands for earnings before interest, tax, depreciation and amortization. It is important for an investor or purchaser to understand where a company stands in terms of profitability.
Welcome to ASE – Doreen Levitz
One of our newer members makes her comments
“I would like to introduce myself as a new member of the ASE mentorship group. My name is Doreen Levitz. It is an honour to be involved with this board of experienced, successful and helpful business people.
Briefly, I come with over 35 years of ownership in businesses in the design and retail furniture area. I have been a nominee for the RBC Woman Entrepreneur Award 2008 and named one of the Profit 100 business magazine top female entrepreneurs 2011.
Owning a business can be a lonely endeavour and I learnt, in my career, the value of coaching, mentorship, and brainstorming. Having sold my operation to an equity company and retired 3 years ago, I see this as an excellent opportunity to pass on my experiences and advice and lend an ear to others in an ownership or managerial position.
Being part of groups such as ASE not only helped me through difficult issues but drove my business forward. “
People issues remain at heart of all businesses
Whether a corporate, retail or professional business, any employee based operation will, at various times, incur human resource (HR) issues.
As sure as you open a business, it's assured a situation will arise that needs to be handled with sensitivity and awareness. It is very critical in this age of changing labour laws and individual rights to be fully apprised of employee issues that can arise.
The best most loyal employee can become resentful whether by the business or by others working in the business. It is best to have access to resources as soon as a situation arises.
An HR consultant in house is obviously not for every business so consulting firms and/or HR lawyers should be in you call data base to be accessible at a moment’s notice.
Employee issues should be quickly dealt with.
Taking advantage of a group such as ASE, learning from business persons who have had similar business experiences is a wonderful benefit.
Business clients aften question – Should I take a Salary or declare Dividends?
Interesting article in the Globe
Pros and cons of running a business with your spouse/life partner
This is a recurring theme with many of our clients. Let us examine some of our discussions and advice.
Here are some cons:
· Spouse if working elsewhere may be entitled to ‘benefits’ from their employment and thus add value to the bottom line for the family income.
· Group thinking – You reinforce each other’s perspectives and insulate yourselves from alternate and varied thinking.
· Too much ‘shop talk’ at home can alienate your kids.
· Business adversity as well as jostle for ‘decision making’ can challenge personal relationships.
· Your staff may feel like ‘outsiders’ and often feel curtailed from being candid.
· Lack of diversification – All eggs in one basket – that of your business.
· Too much togetherness can strain your relationship (remember the saying ‘absence can make the heart grow fonder’)
Here are some pros:
· Better trust levels and greater privacy.
· Shared goals and perspectives.
· You can avoid that long and arduous process of finding the right fitting ‘partner’.
· It could strengthen your relationship as you endure your ‘ups and downs’ together.
While there are many success stories of family run businesses, running a business with your life partner is not for all.
Ideally you want to keep your duties and responsibilities separate and distinct both at home and at work.
Try keeping a balance by having different interests outside of work so both partners have other outlets, friends, interests and support structures.
The advice: Only you can decide if running a business with your spouse / life partner makes sense for you - Different strokes for different folks.
Interviewing and Reference Checks
One of the most important but difficult tasks involves interviewing potential candidates for a position in your business.
An item that requires significant thought and preparation that must be completed well before the first interview with any individual is preparing a detailed description of what duties you will want the successful person to do, what there hours of work will be and what skills and experience they must have to do the work required.
Next, think through the questions and areas that you will want to explore with each person that you will interview. These may vary from person to person depending on the background and experience of the individual.
It is also critical for you to feel comfortable with the individual throughout your conversation and afterward. Do not believe that you will be able to change or “mould “a person once they start to work with you. This seldom happens, so do not allow yourself to become fooled.
Also avoid rushing to offer anyone employment following your interview. Take a bit of time, after the interview, to evaluate your thoughts. Once you are comfortable in making an offer to a candidate, do so in writing and ensure you cover the job description, hours and location of work, salary, any review periods, probation status etc. Hopefully you will have explored much of this with the candidate in advance to ensure that there are no significant disconnects.
Any offer of employment should be made only after you have completed as detailed a reference check as possible. This must involve former employers, co-workers and anyone who can and will share there candid views of the individual's work experience and habits. Seek and offer complete confidentiality and if you encounter a comment that the previous employer will only “confirm “basic work dates a job title. Ask if this policy applies to all such enquiries and not just this person. If you cannot get a seemingly acceptable reference for an individual, contact the person and ask how they might assist you in doing so. You want to ensure that the starting point of the relationship will be a positive one.
Finally, recognize that interviewing and hiring is difficult. If you can ask someone that you know and trust to help in the process, do so, but always remember that you are the boss and you alone must make the final call. Good Luck!
SELLING YOUR BUSINESS
As stated in a recent article in the Toronto Star “An owner ought to be building it to be sold from the day a business is incorporated”. Planning for a sale should take at least 3 years of shaping the business to attract a buyer.
Examine possibilities of increasing revenue by raising prices and using incentives for volume purchases.
Reducing expenses add directly to the bottom line. To quote the Toronto Star article “Every dollar in operational savings translates into a multiple of dollars come sale time “. The most significant expenses are usually payroll and facilities. Is it possible to find cheaper space or if there is excess space is it possible to sublet? Can the number of employees be reduced? Can owners ‘salaries in excess of market be cut back and possibly be replaced by dividends?
Establishing systems that will enable the business to operate successfully without the involvement of the current owner is essential and management capable of taking the helm is the goal of good succession planning.
Keep up your business network contacts and be aware of where your industry is heading. Remember, the best time to sell is when the prospects for success are strong.
Effective communications for problem behavior
We have numerous clients struggling with how to address difficult employees.
Be direct; be firm; and always remain fair.
Here is an article from Globe and Mail that you may find helpful.
THE HUMAN ELEMENT IN A BUSINESS
The wrong mix of people talents can destroy a business, while the right mix can make an ordinary product or service a winner.
A staff overly concentrated in one or two disciplines can mitigate a balanced assessment of the marketplace.
Prima donnas who de-motivate other team members should be avoided or corrective action quickly taken.
Monetary and other incentives should be a key part of the remuneration system. A plan that is fair and changed as necessary to ensure such is critical.
Employees should be candidly told that they are a key element to the success of the business. Being specific with these comments adds substance to the communication.
Employees who resist coaching to correct a performance deficiency must be told that termination is a likely consequence--in the short term.
A motivated and capable employee team must be a prime objective for a successful business manager.
One of the key ingredients in growing a business is leadership. There are few businesses that can flourish solely on the back of one person which means success is to a large degree dependent on mobilizing others to help.
An interesting observation about leadership is that there is no “one route” to achieve the purpose. A leader must be committed and must be knowledgeable about the product or service for credibility. It helps for a leader to be fair to those around him/her and a true cheerleader but lots of leaders are somewhat introverted and stern in their approach, so even these actions do not seem to be the key.
My experience is that a true leader understands the key elements around how the business can grow and prosper………the big picture…….even if the entrepreneur is a technician with their head down most of the time dealing with the detail of the product or service. The understanding of what it takes in your business to achieve your growth goals allows the Leader to make sure that those key elements are receiving focus and are measured.
And they are willing to give others an opportunity to perform while providing recognition for the ensuing successes. Hiring competent people is just the first step. Inspiring them and recognizing them as they perform well are what create the feeling of teamwork and the teamwork creates the momentum in the business. Because the Leader knows the key elements for success in the business, the teamwork is productively focused on those elements. All great teams have good leaders. Conversely, without a leader, there is no team.
A leader is visible and consistent. A leader can emerge from almost anywhere as long as he/she is committed.
PRIMARY STEPS TO A GOOD ELEVATOR PITCH
Elevator pitch is an invitation to engage in areas of common interest, with the right target customer.
Elevator pitch is not meant to ‘close a sale’, merely to initiate a beneficial conversation.
It should be well practiced, brief and natural.
Once a right target customer is identified:-
These Five steps that may help you structure your brief interaction.
1. A leading conversation aiming for a meeting (not a sales pitch) – warm and human – use story telling
2. Highlight benefits (It’s not about you, but all about your customer) – Meet customer needs.
3. Differentiation (why you) (mention your unfair advantage in market place )
4. Ask for meeting (“What’s the best way to get onto your calendar?”)
5. Stop talking, when curiosity aroused and after client engaged, know when to move on.
When does your business really start making money?
WHAT IS THE BREAK-EVEN POINT OF MY BUSINESS?
WHY IS IT IMPORTANT?
HOW DO I DETERMINE IT?
Knowing the break-even point of your business will tell you the amount of sales required to become profitable. This article will help you determine your break-even point in 3 easy steps.
1. Determine the Margin per Unit sold.
2. Determine your Total Annual Expenses.
3. Divide Total Annual Expenses by Margin per Unit sold.
This is how it is done.
MARGIN PER UNIT SOLD
Margin per Unit Sold is: Unit Selling Price less all your Costs required getting the unit to your customer.
If you are in the business of selling your time, Margin per Unit is your hourly billing rate.
If your product is manufactured by you, or bought and sold by you, use a table similar to the one below to determine the Margin per Each Unit sold. The table below is just a guide. Only YOU know what your true product costs are. Make sure you include all of them. Be realistic.
Unit Selling Price
MARGIN PER EACH UNIT
List ALL of your expenses on an Excel spread sheet similar to the one below -- (DO NOT INCLUDE EXPENSES USED TO ARRIVE AT MARGIN PER UNIT SOLD). Insert the amount you will spend each month in the appropriate column. Don’t forget to include your own wages. Other examples are: insurance – all types, car or truck, bank charges, interest, office supplies, computer, legal, audit, postage, courier, loan payments, etc. This is not a complete list. Only YOU know what all your expenses are. To arrive at a meaningful break-even point, you must include all applicable expenses.
BREAK EVEN POINT
Divide the total ANNUAL EXPENSE by the MARGIN PER UNIT. The answer is the number of units you must sell to break even.
Total Annual Expenses $40,450
Margin per Unit $38
Unit Sales required per year 1,064.5 units
To break even you must sell 1,064.5 units per year.
Hopefully you find this helpful..
THE NEED FOR A BUSINESS SUCCESSION PLAN
All businesses need a personal succession plan. This plan will help the CEO to transform the business for a leadership change.
I suggest there are three key components:
Judgement - The current leader will have to exercise their judgement to make an informed decision. The judgement will play a major role in assessing the internal and external business environment.
Strategy–The plan or framework for pursuing long term results. It will help with decisions regarding the sale of the business, shut down, passing business to family member etc.
Tactics– The specific steps and actions to meet your strategic plan.
· Do I have enough cash to support my needs
· How will I spend my time?
· What is the most tax effective method to handle the decision?
· What kind of coaching does the new leader need?
· Is the current leader the best coach?
· How to minimise the business risks?
· How long do I need to plan ahead?
· What if the new leader fails?
If your time frame is five years or less, start now, set a time line for completion, and be realistic.
When selling products overseas, one should never give credit terms unless E.D.C. coverage has been obtained. E.D.C. is Export Development Canada, a Crown corporation which helps Canadian companies do business in foreign countries. Of course, the volume has to justify the expense of the insurance. If not, a Confirmed Irrevocable Letter of Credit is advisable or payment in advance. Terms should always be F.O.B. shipping point (Free on Board) and not C.I.F (Cost, Insurance and Freight.)
To avoid currency fluctuation, prices should always be quoted in Canadian dollars and payment should always be in Canadian dollars.
Social Media for Business
A lot of business people see Social Media as a new-age fad that their kids use to post selfies and cat videos. It’s true that Facebook got its start with college students but we would propose that it’s a vital part of every business wanting to succeed in the 21st century.
Today’s consumer has become disenchanted with experts - partly because they are seen to be in the employ of the products they endorse. Partly because we’ve lost respect for them. We’ve always valued the opinions of our friends, family and neighbors. Now businesses can harness the power of this influence through Social Media.
First you need to start by delivering a service or product that people value – hopefully, that’s what you already do. Next, you need to get people talking about it. Have them post a review of your business on your Facebook, website or other social media setting. Next, get the message out to prospective customers who are looking for a great product or service like yours. You can do this through e-mail, Twitter, cross-posting on other websites or entries on review websites like HomeStars.
Before you know it, your profile in your industry is growing and if you keep delighting your customers they’ll keep talking about you.
Would you drive a car without dials? - In Business, accounting information is Power, giving you time to pro act.
INFORMATION IS POWER
According to a recent article “You can’t control what you can’t see” referring to inadequate accounting information.
If your books are not accurate and up-to-date you are operating at a disadvantage. But beyond that you should make sure that the information is in a form that is most useful to you. Do you want to know sales by territory or by salesperson, expenses by department or location? You should instruct your accountant to set up the accounts and reports to give you that information.
Comparison with previous periods and with the budget will help keep you on track. Cash forecast is an important tool but must be measured against actual figures as you go through the forecast period to be really useful.
Get to know which information is important and use it to control your business.
Recently we had a very interesting meeting with a long-standing client who is experiencing tremendous growth and facing a number of decisions. They just landed an expansion of their core business based on the recommendation of a key supplier. We discussed how they can best take on this expanded business while maintaining their historic margins without over-taxing their management or their current resources – all looks well on that front. We emphasized the need to make sure the business expansion keeps to the plan they had established to develop this segment of the business.
Meanwhile a major opportunity is developing to expand into a new territory and become the sole source for a major new client. In this developing market, they have the opportunity to be a total solution provider including all facets of their business. We recommended a strategy that should allow the company to illustrate all of their strengths to land this new business.
The client committed to come back in a month’s time with an update on all of these initiatives and plans for the next quarter.
Is it always necessary to grow an already successful small business?
This is a great problem to have, when you are already profitable and feeling in control of your business. It was just such a ‘good problem’ facing one of our smaller owner operated business client.
It had been many years of effort, building a company and a solid reputation of fair price and great quality, not to mention excellent service and great client relations. 80% of his business was coming through referrals.
The challenge was this. The client had already experienced problems when in the past he tried to grow and delegate down. He loved to be ‘hands on’, being out there for his clients. According to him, his team never had such an attitude, desire or dedication. Too much of his time was going into training motivating and then having to go back and fix his employees work.
Most entrepreneurs go through such a phase. ‘Nobody can ever do it as well as they can’. Only some are able to transform their leadership to accommodate such transition allowing a move to a larger organizational platform. Such a transition to a larger platform can be very profitable, but comes with its obligations. Many small entrepreneurs on the other hand, are happier staying course and remaining in charge of their small, but profitable businesses.
There is no right or wrong answer to this dilemma.
‘Different strokes for different folks’
Every individual has different strengths and aspirations. Knowing our client and his temperament,
Our advice in this case – Stay your course, sleep well at night
Dealing with unexpected surge in business
Just left the CEO of an auto supplier client of ours and his business is jumping. Lots of dislocation in the industry but the first quarter resurgence has left our man with company doubling opportunity. We discussed strategies and resources required and came up with a three week check list to maximize our resources while providing a shot at all the new possible business out there. We will meet again in a month or so to review progress and establish next steps based on results.
THE PRICING CHALLENGE
Whether you are selling products or services setting the right price structure is crucial to maximizing profits. Set the price too high and the competition will grab the business, set the price too low and you leave potential profits on the table.
First, know the market by doing your research carefully. Competitive prices may be available on websites or your existing customers may share information with you. Be careful that you are not being given misleading information to induce you to reduce your price.
There are many components to pricing. There may be quantity discounts, favourable payment terms offered, bundling of different products and services, contract commitments etc.
And always remember it’s value that counts and that includes factors in addition to price. Quality of service, prompt attention to orders and requests for help, on-time delivery and follow-up all count to enhance value.
Building customer relationships will make you the go-to supplier and the more you are seen as the business partner and not just the supplier the more secure your position will be.