Archive for the ‘small business profitability’ Category

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Consumers are increasingly using mobile devices to buy

In mid 2015 Google announced that mobile-friendly websites will be rewarded with higher rankings on searches done using mobile devices. Ranking higher definitely means more exposure for your small business.

The latest consumer statistics show that Smartphones and emerging mobile devices e.g. Smartwatches are increasingly becoming more popular for purposes of searching the internet. Clearly, more mobile visitors are what entrepreneurs need in order to boost sales volumes. Accordingly, it’s well worth knowing just how to go about doing this…the infographic below will help you do exactly that.

How to Get More Sales From Your Mobile Visitors
Courtesy of: Quick Sprout

While it’s good to know that having a mobile-friendly website will help to enhance the success of your small business, it’s definitely worth appreciating the fact that you also need to work smart. You see, spending more of your time working doesn’t always mean you’ll be successful.

The key to being a successful person is not working more, but working less and working smarter. If you want to be successful, get more done, and work less, take some time to learn from these 7 practices of successful people.

How Successful People Work Less and Get More Done

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Eye-tracking research done with regard to consumers shopping behaviors indicates that most purchasing decisions are unthinking and instinctive; color, shape, and location familiarity are the main motivations behind most people’s decisions to buy. With the average supermarket in the U.S. carrying approximately 42,000 different items, the need to make your product stand out cannot be overstated. Accordingly, your choice of packaging design must be able to market your product effectively and thereby guarantee healthy sales volumes…(Read the entire post here)

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It’s just not worth calling yourself an entrepreneur if you can’t think through the relationship between revenues and profits. Willful ignorance on the part of lots of small business owners might just be the reason why they are caught up in this quandary. Entrepreneurs should ideally be concerned about how healthy their profit margins are because this will…(Read the entire post here)

There's a lot to think about before starting a business. Success will require entrepreneurial prudence.

There’s a lot to think about before starting a business. Success will require entrepreneurial prudence.

In the planning and starting-up of a business enterprise a novice entrepreneur will certainly have to contend with multiple tasks and problems.

With respect to these realities it is worth appreciating the usefulness of having a checklist in helping the individual to cover most, if not all, of the variables that are involved in starting a business. With such a checklist you will be able to address two main concerns i.e.

  • Evaluating your preparedness in terms of starting the planned venture and
  • Ensuring that you get off to a great start once you launch the business

The following are some of the most crucial questions that you must find answers to as a prospective entrepreneur:

1. How is your reaction to business opportunities like?

Successful entrepreneurs are known to react quickly to seize business opportunities whenever they arise. These reactions require a good measure of instinct since pursuing such opportunities does entail some form of risk-taking.

Like successful hunters, successful entrepreneurs make the most of opportunity...

Like successful hunters, successful entrepreneurs make the most of opportunity…

Poor business people, on the other hand, are known for their procrastination which results in missed opportunities and general poor business performance.

In this regard, would you describe yourself as proactive or reactive?

2. How good is your management of energy and time?

The old adage “Time is money” holds true for any entrepreneurship activity. Ideally, you should be one who is willing to commit energy and time to activities that will profit your business venture.

Building your business successfully will require lots of time and effort - it's going to be hard work...

Building your business successfully will require lots of time and effort – it’s going to be hard work…

The start-up stage is extremely crucial. Creating a successful business from the ground up will require 101% of your involvement, no compromise.

Are you ready for self-sacrifice?

3. How prepared are you in terms of saving money, making business contacts, and learning / training about your prospective business engagement?

Most of the successful entrepreneurs we know are people who had taken time to get prepared financially, mentally, and emotionally, for the task ahead. Prior to starting a business you must fully understand what the decision implies – it is a process that will require you to be wholly committed to the cause.

Start from the bottom and build upwards with the work-ethic of termites...

Entrepreneurs start from the bottom and build upwards with the work-ethic of termites…

Think about how termites build their nests. Individual grains of earth are gradually pieced together and the result is an imposing structure so rigid and strong. Likewise, you will need to prepare a solid foundation upon which to grow.

4. How well or how badly do you take discouragement or failure?

Successful entrepreneurs are those who have thoroughly understood that both discouragement and failures are realities in the business world. They are however pragmatic and work hard to make their business ventures successful. While being persistent in their efforts they also don’t over commit themselves and their resources to an extent that initial failures will ground them for good.

You might be tempted to quit - but this shouldn't be an option for you...

You might be tempted to quit – but this shouldn’t be an option for you…

Are you ready to be persistent or will you quit as soon as things start going wrong? What will you do if customers don’t show up as anticipated?

5. Do you have a competent adviser or team of advisers?

Prudent entrepreneurs seek the advice of seasoned business people in different lines of enterprise. They do so in order to have their ideas vetted before they embark on them. Doing so has spared many novice entrepreneurs undue financial and psychological hurt.

Having a good advice and support team is definitely vital in the early stages...

Having a good advice and support team is definitely vital in the early stages…

There’s no substitute for experience, and a problem shared is a problem solved.

Do you have a group of persons that you can consult with moving forward?

6. Have you established that the demand for your products and services actually exists?

This holds more so for innovative ideas. Talking to people about the idea may give some form of encouragement but the crucial consideration is ideally whether the intended product or service will actually be bought and become profitable.

Eureka! But is there market demand for your product?

Eureka! But is there market demand for your product?

Have you studied the marketplace and confirmed that there’s indeed a demand for what you plan to start selling? What similar solutions already exist? How does your solution stand out from the rest?

7. Have you established the financial implications required in starting up?

It is important to have a clear picture of what your business’ start-up costs are. Additionally, you’ll need to factor in money estimates that will help the business run well for at least six months after its inception.

Starting, running and sustaining your business will need money...

Starting, running and sustaining your business will need money…

8. Do you have enough to go on for at least a year?

Apart from the start-up and operating costs highlighted in point 7 above you must have a sufficient income or savings to maintain your upkeep for at least a year. This is so whether or not you have a family to support. These monies should be sufficient until a point where the business venture starts earning you a good income.

9. Do you have any external sources of funding in mind?

Sometimes it so happens that individual savings are exhausted before a business takes off. It is therefore prudent that you have reliable sources of potential financing backup in case such a scenario arises. How well prepared are you for such an eventuality?

10. What form of business organization do you have in mind?

There are quite a number of business forms that you can create including a sole proprietorship or a partnership.

Will yours be a sole-proprietorship where everything depends on you?

Will yours be a sole-proprietorship where everything depends on you?

All these forms have different implications and you are well advised to clearly understand these before you settle for any. A lawyer’s advice may come in handy here.

11. How do you plan to maintain your records?

Successful entrepreneurs have an efficient system of knowing what their incomes and expenses are, and how much their businesses owe or are owed. Such a system need not be complicated in design – it just has to serve the purpose.

Proper record-keeping will ensure that information about your business is always readily accessible...

Proper record-keeping will ensure that information about your business is always readily accessible…

Record keeping is an integral part of any successful business. Effective accounting will only become possible if there are accurate records to start with.

Is the record-keeping system you have in mind going to be appropriate for your type of business?

12. Will the venture need personnel?

Entrepreneurs whose businesses have to hire personnel understand the importance of having a skilled team. Prior to establishing your business you must first ascertain that the kind of people you need exist and that you can afford to pay them.

What type and number of employees will your business require?

What type and number of employees will your business require?

Where will you find the sort of personnel you require? Will you need full-time employees or will freelancers be appropriate?

13. How will your pricing be organized?

It needs to be clear from the onset that a correct pricing of your products and services is of the essence. Basically, successful entrepreneurs set prices that will help them cover all their production expenses as well as earn them a viable profit.

Product price has to reflect the production costs incurred and the expected profit margin

Product price has to reflect the production costs incurred and the expected profit margin

What considerations have you weighed in arriving at your proposed price? Will the revenues you’ll earn as a result of selling at this price be adequate to sustain the business?

14. How soon can the initial investment be recouped?

One aspect of successful businesses is such that they are able to recover their costs of investment in a reasonable time-frame. Such costs include items like machines and equipment, any construction and design work, etc., and they are recovered from the profits the business earns.

From your own estimations, how soon do you think this will take?

15. Does your business satisfy the legal requirements?

Successful entrepreneurs make a thorough background research into all legal aspects that are required for their ventures to operate within the law. You should therefore identify all the permits and licenses that you should secure before starting off.

Eventually, running an unlawful or illegal business is not worth the entrepreneurial effort...

Eventually, running an unlawful or illegal business is not worth the entrepreneurial effort…

Will you be operating within the law when you open your doors for business?

This checklist is neither conclusive nor does it suffice for every type of business. It however offers a general idea of what prospective entrepreneurs must bear in mind if they intend to be successful at the nascent stage of their business ventures.

A business that offers diverse products/services is almost always doing business

A business that offers diverse products/services is almost always doing business

After successfully steering your small business from existence and through survival, you are now at the success stage. It is now beyond doubt that your business idea was a winner right from inception –the naysayers are now eating lots of humble pie.

You are now thinking about the next stage of growth for your business enterprise and are considering two options:

  1. Whether you should grow the current business to the next level OR
  2. Whether you should venture out in a new direction while using the current business as your support.

If no.2 is what’s on your mind then you are basically planning to diversify your business.

Business diversification does make a lot of sense. After all, we all concur with the old adage “Don’t put all your eggs in one basket”.

Like for many other critical business decisions, you need to approach and implement diversification from an informed point of view. Whatever the proposed implementation will involve, there is a single rule: Your core business should remain as it is.

Why does diversification make so much business sense today?

The need to always expect the unexpected can hardly be overstated.

However much your business may be thriving currently, there is always need to ask “what if”.

Business diversification will in this context help you to:

1. Avoid becoming too dependent on a single customer

There are many small (and large) businesses whose entire operations are based on serving a single very profitable customer. Things are typically very smooth for as long as this symbiotic business relationship exists, so much so that these business hardly see the need to source for other clients.

What will you do if your only client is suddenly no longer available for business?

What will you do if your only client is suddenly no longer available for business?

If your business fits this description you need to start imagining what would happen if for some reason your client is no longer available for business. You would definitely need to find other clients, the failure of which would likely compel you to wind down your operations.

Start making hay while the sun shines. Seek out alternative clients or make sure that substantial sums of your income are being saved for the proverbial rainy day.

2. Avoid becoming too dependent on a single supplier

Similar to having a single customer, there are many positives that come with having a single supplier, more so when the business relationship is mutually beneficial. Likewise, the negatives of such a relationship can have a crippling effect on your business.

What will happen if the only source of your raw material is shut down?

What will happen if the only source of your raw material is shut down?

What happens if your supplier can no longer provide the raw material you need for production? In case you can’t find an alternative supplier you’ll have no choice but to halt operations and think about introducing a new product altogether.

3. Ensure you have multiple revenue streams

Ideally, if ¾ of your current business revenue is generated by a single product/service, you should start thinking about additional revenue streams.

Why, you ask?

Well, if your cash cow takes a hit, your revenues will most likely dip severely, at least in the short-term. In the worst case scenario you may have to start an entirely new business.

Multiple sources of income will add more stability to your business...

Multiple sources of income will add more stability to your business…

Diversification in this case can be done through the introduction of new products/services that are complementary to your cash cow. For example, if you run a bread bakery, you may want to introduce alternatives like cakes, cupcakes, buns, donuts, etc.

Doing this will also help you to have an extra edge on the competition.

4. Avoid depending on a single distribution channel

If your business has just a single way of getting things to the marketplace, or a single way of making sales, you need to start thinking fast. What will happen if your current distributor is suddenly acquired? What if your door-to-door sales technique is blacklisted by the government in the wake of terror threats?

What if the authorities start enforcing this ban strictly?

What if the authorities start enforcing this ban strictly?

In both scenarios it is likely that a completely new approach will have to be thought up and implemented. Knowing just how much time such new approaches may require before becoming effective (if ever) these are scenarios you don’t want for your small business.

What are the motivations for small business diversification?

5. The need to reduce financial risk

Some of these will most likely break or crack...

Some of these will most likely break or crack…

Many business owners resort to diversification in order to secure their financial assets.

Borrowing from “Don’t put all your eggs in one basket” you may find it prudent to put your money into different investments. This is done in the hope that should some investments flop, others will thrive.

6. The need to harness new market opportunities 

If your idea feels viable then go ahead and test it...who knows what may come of it?

If your idea feels viable then go ahead and test it…who knows what may come of it?

Every once in a while you may discover a market opportunity that you feel is potentially profitable and therefore worth exploring. Whether or not this proves worthwhile, your focus should always be on your core business. Ensure that the distractions of your new pursuit won’t result in the demise of your primary source of revenue.

7. To create more appeal amongst current and potential customers

Business diversification results in customer base diversification.

Introducing new products/services into your business portfolio will firstly allow you to earn more revenue from additional sales to your current clientele. Secondly, the new products/services will help you to break into a new market segment thus adding to your overall customer base.

Expanding on an original idea will most likely make your business more relevant to your target market...

Expanding on an original idea will most likely make your business more relevant to your target market…

There is immense risk in undertaking such diversification; a sober-minded approach is required considering that a new product/service may either do well or flop. In case it flops you will have to contend with the effects of losing substantial cash flow.

8. To improve your business’ profile and appeal for potential buyers

A diversified business makes for a more valuable proposition for potential buyers

A diversified business makes for a more valuable proposition for potential buyers

Perhaps you are considering selling off your business at some point in the future. Businesses that have diversified portfolios tend to have an edge with regards to potential buyers. Such buyers would love to know that their financial risk will be spread out across multiple market segments. You will therefore have additional bargaining clout when a buyout arrangement materializes.

What should you consider before embarking on business diversification?

9. Ensure that your new product/service has a value proposition for the customer

How about this for a new business idea?

How about this for a new business idea?

Your diversification efforts are guaranteed to achieve success if customers perceive the new product/service you are offering to be relevant and valuable. Creating a new product/service that customers need to use very regularly is a good way to approach diversification.

10. Have expertise in your proposed area of diversification

Success will also be guaranteed if you have the expertise and know-how required for providing the new product/service. Ensure that the relevant systems and personnel required to deliver your new product/service to customers are in place.

Your new business direction should also be a fit with your overall business model thereby ensuring that you won’t be entering into completely uncharted territory. This way it will be easier for you to penetrate and expand within the new market segment.

Diversification tends to be more successful if the entrepreneur is knowledgeable about the proposed idea...

Diversification tends to be more successful if the entrepreneur is knowledgeable about the proposed idea…

11. Leverage on your business’ strengths

If you are thinking about diversification it means that you already have a successful business model in place. Using this as the scaffolding for your next stage of business growth will make it easier to explore and implement the new ideas you have in mind. Of course you must be thoroughly knowledgeable about the ins and outs of the proposed business field.

12. Find the right people for the job

You must ensure that you have a competent team in place before you implement the proposed transition. You’ll most likely be required to hire personnel that have the required skills, as well as train the current team to ensure that everyone is on board with the new direction the business will be taking.

Introducing a new offering may require you to engage a skilled team - ensure that everyone is competent

Introducing a new offering may require you to engage a skilled team – ensure that everyone is competent

Creating passion about the new direction amongst your employees is guaranteed to make implementation far much easier and more successful.

What types of diversification can you consider for your current product/service?

13. Adaptation

This will involve tweaking and/or adjusting your product/service so that it can become useful to a new type of clients.

The same product or service can be adapted to suit new and different types of clients

The same product or service can be adapted to suit new and different types of clients

For example, if you create top-notch premium-priced anti-virus software you may think of introducing two new versions of the software, say basic and advanced, that will cost cheaper and attract two new categories of consumers. This is an example of a diversified sales strategy.

14. Introducing complementary products/services

Here you will be introducing a new line of product/service that is related to what you offer, but that your customers currently have to purchase from a different vendor or competitor.

For example, if you manufacture pencils, you may decide to introduce erasers and pencil sharpeners. This is an example of related and/or concentric diversification.

You can diversify your business by offering a portfolio of related products or services...

You can diversify your business by offering a portfolio of related products or services…

Some of these approaches may require you to purchase a company that produces the sort of product/service you wish to introduce. This typically results in a diversified business portfolio and the elimination of a potential competitor from the market.

15. Introducing an integrated product/service lineup

Quite similar to the previous strategy, this is about finding out what more your business can offer the market with regards to its current offerings. The pencil manufacturer can think about adding color pencils, crayons, ballpoint pens and fountain pens to its product portfolio. This is an example of horizontal diversification.

...or by offering an integrated portfolio of products or services

…or by offering an integrated portfolio of products or services

16. Strategic partnerships

It may be the case that there are viable opportunities to be accrued by partnering with another company that is related to but not directly competing with your business. The pencil manufacturer can perhaps partner with a stationery manufacturer resulting in a win-win alliance.

This is an example of unrelated and/or conglomerate diversification.

17. Anticipating future market requirements

The last thing you would want for your business is to be rendered obscure as a result of failing to keep up with industry advancements. As a proactive business owner you always want to be among the ‘early adopters’ as this will allow you to earn significant returns on investment before the rest of the market catches up.

18. Launching new stores

This is the conventional way of reaching more of your target customers. You can invest in opening a new store/s in another town(s) or state(s). This is described as geographical diversification.

It doesn’t have to stop there. Venturing to neighboring countries and other continents is a possibility you can pursue in future.

Establishing new stores and venturing into e-commerce is an effective way to reach more of your target customers

Establishing new stores and venturing into e-commerce is an effective way to reach more of your target customers

19. Embracing e-commerce

The online marketplace is where the big players are doing splendid business. Make a point of taking your product/service online if you aren’t there yet.

Considering that people are increasingly embracing the conveniences of online shopping, your business will definitely expand its reach by targeting a global audience. Again, considering how expansive the online marketplace is, who says you can’t open multiple stores? This is a good example of market diversification.

While you may as a small business owner feel the natural inclination to maintain your business’ current status quo (and enjoy the risk-free and safety advantages of doing so), it is worth appreciating that sudden events can result in the stalling or complete demise of your enterprise.

Business diversification is a proactive way to forestall such eventualities. It is also an effective way of growing your business and adding to your revenue.

In what ways have you diversified your operations? If you haven’t done this yet, what are some of the ideas you may consider implementing?

Making the sales process enjoyable will most likely draw even more prospects and customers to your business...

Making the sales process enjoyable will most likely draw even more prospects and customers to your business…

Just about everyone who has started a business is initially quite upbeat about finding customers, making sales and getting profits. This early gusto soon dwindles though when it becomes apparent that making substantial sales takes more than just being open for business.

Established businesses on the other hand are always looking to increase their sales volumes and therefore earn more profits.

As a business owner who is stuck with insufficient and/or mediocre sales volumes, it is perhaps time to take a step back and reflect about your approach to making sales. Are you really doing things right?

How about approaching salesmanship as an art form? This way you can perhaps start enjoying the process instead of merely thinking about it as something that needs to be done.

This shouldn’t be too hard.

In fact, all the suggestions here are nothing new. Implementing them with a new mindset however may be just what your business requires. Start enjoying the sales part of your business and let the enthusiasm rub off onto your customers and prospects.

1. Implement an effective pricing strategy

For most people, price comparison shopping is the only way to shop; it’s all about making smart purchases. If you are therefore selling your wares at astronomical prices as compared to your competitors, making decent sales is bound to be quite difficult.

Your price should make sense to prospects and make them willing to buy...

Your price should make sense to prospects and make them willing to buy…

You, in this regard, need to adopt an appropriate pricing strategy for your products and/or services. These two guidelines should be helpful:

  • Find out what your competitors are charging for their wares. If the quality of their products is similar to yours you may consider lowering your price slightly. If the pricing is influenced by product features, you can consider adding several more features to yours and then set your price slightly higher.
  • If you are convinced of your product/service’s superiority and that your high price is therefore justified, then by all means let customers and prospects know of the extra value they’ll get by using the same. Breathe life into your message!

2. Making the most of business upsells

Think about it.

You’ve most likely gone out to shop for something you really needed and ended up spending more than you had budgeted for simply because the sales guy convinced you that you needed one or two more things related to the original purchase. The ease with which you agreed to buy these extra things surprised you – especially because you consider yourself a responsible buyer.

Get your customers into the mood, give them hints, and make more sales...

Get your customers into the mood, give them hints, and make more sales…

This is the power of upselling. The sales guy simply got you into a buying mood, made the necessary suggestions, and you obliged.

How about you try this in your business?

Hint: First try it on regular customers; practice makes perfect.

3. Name your product/service appropriately

With effective branding you can make your product a household name...expect mega sales volumes once you get there!

With effective branding you can make your product a household name…expect mega sales volumes once you get there!

Effective naming of products or services typically takes into account several considerations:

  • Easy pronunciation
  • Ease of remembering
  • Simple association between the name and the product/service features and benefits

Nevertheless, there is nothing wrong with going for a unique product/service name. If this is how you opt to proceed just ensure that the name is easy to pronounce and write down. Coupled with effective branding, your product/service will very soon no longer be associated with outer space.

4. Embrace targeted content marketing

Dispatching your marketing contents all over the place simply because you have the budget for it is a haphazard and cost-ineffective tactic to gain more sales. Away with these hit and miss marketing tactics!

Targeted content marketing is about knowing your product and your ideal customers

Targeted content marketing is about knowing your product and your ideal customers

A statement I came across recently made me smile: “Wonder why there are no Lamborghini and Porsche ads on TV? Rich guys don’t watch TV!”

This is what targeted content marketing is all about. Don’t demean your product/service by marketing it to everyone; direct your messages to your customers and prospects.

This approach will deliver the following benefits (in addition to increased sales):

  • Lower marketing costs
  • Lower customer acquisition rates
  • Higher conversion rates
  • Higher customer satisfaction – which is very essential

5. Offering free samples

Giving out free samples is an effective way to increase prospective customers’ confidence in your product/service. After all, seeing is believing.

Offering free samples typically encourages prospects to buy...

Offering free samples typically encourages prospects to buy…

If you have a food catering business, for example, you can offer to treat some prospects to free delicious lunch. Practically convincing them of your culinary expertise will most likely see them hire your services.

6. Advertise your product/service effectively

Ads help to spread the word about products and/or services 24/7 and they’ll therefore greatly augment your marketing effort.

Well designed ads easily attract prospects and encourage repeat customers leading to increased sales

Well designed ads easily attract prospects and encourage repeat customers leading to increased sales

Effective advertising has everything to do with attracting prospects attention and describing what the benefits of using a product/service are.

In designing your ads therefore, ensure that they are so well designed that it’s impossible to ignore them. A creative graphic designer’s services will come in handy here.

Secondly, spell out your product/service’s benefits honestly – no hyping; undersell and over-deliver.

Thirdly, choose appropriate advertising mediums. Think about where the ad will be more effective – your target market’s behaviors and preferences will help you in this regard.

7. Introduce rewards programs

There are plenty of ideas to choose from for this increased sales strategy including basic ones like “buy 2 get 1 free” and more complex ones e.g. those where shoppers earn points which can be redeemed for certain products once they accumulate to a certain number.

"Buy 2 get 1 free" is a really effective way to attract customers and increase sales

“Buy 2 get 1 free” is a really effective way to attract customers and increase sales

In addition to marketing your products/services, these initiatives will actually help to increase sales, and additionally help to create customer loyalty.

8. Make the purchasing experience more convenient

How much effort do prospects have to put in before they can use your product/service? If transacting business with you borders on doing work then you can be sure that your sales volumes will be proportionally low.

Whether you have a physical or online store, you have to do all you can to reduce customer effort.

Go to your customers - most of the effort should be yours, not theirs.

Go to your customers – most of the effort should be yours, not theirs.

A brick-and-mortar store has to be conveniently located. Purchasing should be just as simple; customers shouldn’t have to shuffle from one office to the next to get clearance – a one-stop desk will make all the difference.

For an online store the concepts are really quite similar. All the links should be functional. Filling out forms should be easy. The shopping and shipping processes should be easily understood and doable. Any potentially troublesome processes should be made easy for customers e.g. through the use of screen shares on Google Hangouts.

9. Practice superb telephone etiquette and offer quality customer support

Placing your business’ telephone number on your product or ad implies that customers and prospects can reach you over the phone. It therefore makes no sense why no one at your end bothers to pick up the phone. You don’t pick up = Lost business.

Answering the phone promptly and correctly is good for business...

Answering the phone promptly and correctly is good for business…

Telephone etiquette is really a no-brainer; handle prospects poorly over the phone and say goodbye to a potential sale. It’s that simple.

You and the team should therefore style up with regards to telephone conversations, and more so when handling regular customers. Answer the phone graciously, strike up a brief conversation just to ease the tension, and then handle the business. Creating a cordial business relationship will go a long way in helping to foster customer loyalty, a win-win situation.

10. Tier your customers

It’s true that regular and new customers both bring revenue to the business by purchasing products and services. There is however need to show and treat regular customers in a manner that portrays your appreciation for them. It is really their continued support for your business that has enabled you to reach your present success.

Make esteemed clients feel appreciated; show them that you value their business

Make esteemed clients feel appreciated; show them that you value their business

Appreciation can be shown in a variety of ways, starting with the most basic e.g. greeting them by name and even ushering them into your office while other customers are served at the storefront. Appreciation can also extend to tangible benefits e.g. discounts, extended credit, free delivery, etc.

Why would such an esteemed client want to take his/her business elsewhere?

"You need to take your business' accounting issues very seriously!"

“You need to take your business’ accounting issues very seriously!”

For many small business owners, the sight or mention of anything to do with accounting is enough to instantly turn a smiling face into a contemplative one.

Is accounting one of the duller yet complex aspects of your business that you’d rather do without?

It is!?

I’m sorry, that won’t happen; can’t do, won’t do…perhaps in the next life.

Your business just can’t do without accounting.

This is the only way to keep your records accurate and complete; there are just too many numbers to memorize.

Effective accounting will help you to make considerable tax savings. Sound bookkeeping is the simplest way to assess and confirm your business’ cashflow, profitability and growth.

Additionally, why risk being yanked into a lawsuit for possible funds commingling?

Here are 11 accounting practices that will do a whole lot of good for your business:

1. Getting familiar with and using the three tools of measuring business financial health

Successful accounting is more or less pegged on understanding how the following financial documents work:

  1. The balance sheet – it’s used to tell the worth of a business
  2. The profit and loss statement – it’s used to confirm whether or not a business is profitable
  3. The cash flow statement – it’s used to anticipate a business’ future cash balances
A business' financial health is ordinarily confirmed by referring to three basic accounting documents...

Easily confirm your business’ financial health by maintaining accurate balance sheets, P&L statements and cash flow statements

With the help of these three documents you can make informed decisions about how best to use business credit and how best to commit funds to business operations. Understanding how these three documents work will also help you to make sense of other financial documents.

These three tools are indeed the basis of creating sound business plans. Many potential lenders scarcely have time for anything else; a quick glance at your financial statements is enough to make or break your attempts to secure funding.

Again, if you are considering the acquisition of a business, or to have yours acquired, it’s worth appreciating the fact that sound decision-making cannot be possible without a thorough evaluation of financial reports.

2. Hiring a reputable accountant and bookkeeper

You have three choices in selecting an accountant.

First, you can opt for an independent Certified Public Accountant (CPA) professional. Second, you can consider hiring an accounting firm; the scope of services will be wider but the fees much higher. Third, is hiring an EA i.e. Enrolled Agent. Your choice of EA must have passed an IRS-administered taxation test.

Reputable accountants and bookkeepers are typically well trained, experienced and competent

Reputable accountants and bookkeepers are typically well trained, experienced and competent

For lack of national certification standards like there are for accountants, using referrals is perhaps the best way to hire a competent bookkeeper.

There are different categories of bookkeepers. Basic ones handle tasks like receipts processing and bill payments. Full-service ones can make a summary of all your business’ bookkeeping activity which you then submit to your accountant to facilitate tax returns preparations.

NB: Accountants are well placed to recommend a good bookkeeper based on the quality of work submitted to them by various bookkeepers.

3. Identifying a good accounting software program  

Find and use accounting software that's appropriate for your business

Find and use accounting software that’s appropriate for your business

This is another consideration where your accountant’s advice will come in handy. Of course it’s very advisable to know what software different business owners in your industry niche use and how effective each is. Nevertheless, it’s quite impossible to overlook off-the-shelf solutions like Peachtree and QuickBooks. Ultimately, though, whatever you settle on must correspond to your business’ accounting requirements and budget.

4. Identifying a suitable accounting method 

You have two choices in as far as accounting methods are concerned:

a. Cash basis method – This is the simplest option. Basically, income is acknowledged upon receiving cash, while an expense is acknowledged after the bill is paid.

Your type of business will determine what accounting technique is most suitable

Your type of business will determine what accounting technique is most suitable

b. Accrual method – Here revenue is matched with expense without concern to when the cash may or may not be collected.

Simply put, if you on day X sell a product whose payment is due after 30 days, you will record that sale on day X – not 30 days afterwards when the cash is collected. Similarly, if your business incurs an expense on day X with payment due after 30 days, you will record the expense on day X – not 30 days afterwards when you make payment.

This is the method of accounting the IRS requires for businesses that deal with inventory and manufacturing.

5. Keeping business and personal accounts separate

Without exception, your personal and business records should be separately maintained. This is essentially done to ensure that only relevant records are used for the compilation of income tax.

6. Issues of tax liability

There are two issues that you and your accountant must sort out:

a. Income taxes – Sole proprietorship businesses report business activity on Schedule C of IRS form 1040. You, as a sole proprietor, are required to pay income tax on business income, as well as the social security tax levied on this income, and which is separately reported on the income tax return.

Evidently, considering that the social security tax is approximately 15% of net income, and that this is paid in addition to income tax, small business owners have no choice but to be hawkeyed about their financials.

This should be enough motivation to find a competent accountant capable of setting up estimated tax payments. These payments will help to make your final tax bills lighter as well as to avoid penalties for defaulting on tax payments.

You need an accountant who understands the intricacies of income and payroll taxes

You need an accountant who understands the intricacies of income and payroll taxes

b. Payroll taxes – If you have employees, you need to apply for the state and federal payroll numbers required for filing payroll tax returns. Your accountant will be better placed to handle this. The federal payroll number or Federal Employer Identification Number (FEIN) is obtained using form SS-4.

For every state, different local and state tax payments are required. Paying these taxes requires you to apply for a State Identification Number.

7. Consulting reputable sources of financial and technical assistance

Quite often pro-small business agencies and organizations provide financial and technical assistance to startup businesses. It’s worth finding an accountant who is quite conversant about some of these organizations. Examples include:

  • The Small Business Administration (SBA)
  • SBA-guaranteed loans via banks
  • Service Corps of Retired Executives (SCORE), a non-profit organization focused on helping small businesses to succeed.
  • Trade organizations
  • Tax incentives provided for hiring minority employees
  • Local community banks (with funding from the federal government)

8. Implementing effective internal controls for your business operations

“Internal controls” describes the objective required in the handling of funds, where money, be it cash, credit cards, or checks, is exchanged for goods and services. The purpose of this objective is to ensure that your business will receive all the income due to it without losing any of it through wastage, carelessness, employees’ dishonesty, fraud, etc.

With effective internal controls in place you won't have to worry about losing business revenue

With effective internal controls in place you won’t have to worry about losing business revenue

Effective internal controls must therefore be initiated and your accountant should identify appropriate controls suitable for your business. Some of the most common of these measures include damage control planning and inventory policies & controls. You also need appropriate controls for the procurement of goods and services, as well as controls to oversee the release of processed goods and services into the market.

Considering these requirements, it is clear that hiring an accountant who is conversant with your industry’s operations and procedures is well advised.

9. Prompt submission of quarterly returns

Quarterly returns must be promptly submitted to avoid penalties

Quarterly returns must be promptly submitted to avoid penalties

Basically, quarterly returns are payroll tax and sales tax returns. It is mandatory for small businesses to:

  • file quarterly payroll tax returns
  • send money withheld from employees’ checks to the federal government
  • send the employer’s share of social security taxes to the federal government
  • account for withheld state income taxes
  • account for state unemployment tax that employers pay to the state
  • pay sales tax (in states where this is applicable) depending on your sales volumes

Your accountant should from the start ensure that systems are in place to facilitate prompt payment of these taxes therefore avoiding penalization for late payment or non-payment.

While your business may routinely have to deal with being cash-strapped, holding off your obligation to pay some of these taxes is ill-advised considering the backlash that ensues when government agencies act to counter taxpayer delinquency.

10. Accurate bank account reconciliation 

Your bank account must be reconciled at least monthly upon receiving your bank statement. Reconciliation involves mathematically comparing your checkbook’s balance to your bank balance.

Ensure that your checkbook and bank balances are reconciled monthly

Ensure that your checkbook and bank balances are reconciled monthly

A difference in these two balances may result when checks you’ve written are yet to be cleared at the bank. In this case the checkbook balance will be lower than the bank balance since the bank is yet to make payments from the checks. In reconciling therefore, you will need to subtract the outstanding checks from your bank balance. If the two balances are now corresponding, you will have successfully reconciled your account.

Have your accountant explain this to you; you can save money by doing it personally.

11. Adopting a cost-effective employee benefits policy  

Seek professional accounting advice with regards to employees and payroll issues

Seek professional accounting advice with regards to employees and payroll issues

As your business hires more employees you will need to figure out the following:

  • The number of hours they will work
  • The holidays they are entitled to
  • The vacation policy you will adopt
  • The types of policies you will provide in case you choose to cover employee medical costs or medical insurance
  • The type of sick leave policy you’ll offer

These are certainly very weighty considerations and you need solid advice to make proper decisions. Your accountant and lawyer should get you started on the right track.

Adopting effective accounting practices is guaranteed to buoy your business’ chances of becoming successful. Considering the various financial requirements and engagements you must enter with the state and federal government, suppliers, clients and your employees, having a competent accountant by your side is imperative.

Do you have an accountant? If so, have the services you have received proven to be beneficial for your business?