Business Articles and Tips

RECORD KEEPING FOR YOUR OWN BUSINESS
Source:  AICPA, 360 Degrees of Financial Literacy

Keeping good business records will not only help you stay in business but may also help you increase profits. Your business records let you analyze where your business is and where it's going. They point out potential trouble spots and serve as a guide to where you want your business to be.

Your ideal office manager: criteria for record-keeping systems

Like a valued office manager, your record-keeping system should have good work habits. It should be simple to use. If it's too complicated, it might be neglected, defeating its purpose. It should reflect information accurately, completely, and consistently throughout all of its applications, and it should do so in a timely fashion; you don't want to base important business decisions on partial or outdated information. Finally, it should present results in an easily understandable manner. If you can't comprehend the data that your record-keeping system provides, you might ignore their implications.

Commercial record-keeping systems are available in both manual and computerized versions. Some are generic in format and applicable to many types of business. Others are designed for specific types of business operations (e.g., retail sales and manufacturing). Those available as software generally have the ability to summarize your business activity with appropriate periodic financial reports. Many websites allow you to see a demonstration version before you purchase the software.

You can decide whether to keep your own books or hire someone to do it for you. Your decision depends in part on how much time and ability you have for the task. You can hire a company that specializes in payroll services to handle the paperwork and withholdings for your employees. Most small-business advisors suggest that you have an accountant prepare your tax returns and year-end statements. In many cases, an accountant can also offer advice on various aspects of financial management, such as cash flow analysis, borrowing for the business, tax considerations, and suggestions for which software to buy for record keeping. Whichever way you go, you should stay involved in the record-keeping process. After all, it's your business, and you are responsible for its success or failure.

What your records should do for you

Like a medical diagnostic tool, your records help you assess the health of your business.

  • Bank statements measure cash on hand, and accounts receivable predict future income. Together, these records help determine cash flow requirements and may point to a need for short-term borrowing.
  • In addition to providing income tax information to your employees, payroll records help you determine the appropriateness of your pricing and customer billing policies.
  • If your business keeps merchandise on hand, your records help you manage the size of your inventory, thus avoiding the loss of profits from obsolescence, deterioration, or simply being out of stock.
  • Expense records help you plan to meet obligations in a timely fashion. They also help you assess whether the income generated supports the expense involved.
  • Statements of income, or profit and loss statements, help pinpoint unprofitable departments, products, or services, alerting you to make changes or eliminations if necessary.
  • The balance sheet captures the condition of your business at a given moment in time, allowing you to measure its reality against either your own budget projections or similar businesses.

Be prepared: the taxman cometh

One of the most important functions of business records is to prepare you (or your accountant) for filing tax returns for the business. Thus, you may want to set up a record-keeping system that captures information in a way that matches the demands of the IRS. As a sole proprietor, you want to familiarize yourself with the requirements for completing Form 1040, Schedule C. Here are some tax considerations to remember in relation to your record-keeping system design:

  • If the annual gross income of the business for the past three tax years is $1 million or less, you may use the cash method of accounting, and you won't be required to account for inventories
  • If you use the cash method of accounting and are required to determine inventory valuation, you must use the cost valuation method
  • The business-related portion of deductible car or truck expenses may be the actual expenses incurred (including gas, oil, tires, repairs, insurance, depreciation, and rent or lease payments), or you may elect to take the standard mileage rate.
  • Depreciation may be taken on passenger cars, property used for entertainment or recreational purposes (such as photographic or phonographic equipment), and cell phones and computers, among other items, as long as you bought the items only for use in your business
  • You may deduct any contributions to employee benefit plans (such as health insurance plans) or contributions to pension or profit-sharing plans that are for the benefit of employees
  • You may deduct sales taxes paid, real estate or personal property taxes on business assets, Social Security and Medicaid taxes paid to match required withholdings on employee wages, and federal unemployment taxes paid
  • Depending on whether you use your home or other real estate for business purposes, you may deduct some or all of any mortgage interest paid, as well as some or all of the maintenance and repair expenses associated with the property
  • You may deduct the cost of business supplies purchased during the tax year
  • You may deduct the cost of utilities associated with business use
  • You can deduct professional fees, such as those paid to your accountant
  • You may deduct 50 percent of meal and entertainment expenses directly associated with the conduct of your business

Remember to save any records and underlying documentation, such as invoices or receipts, relevant to your tax return for at least three years.

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Sample Records Retention Schedule

  • 7 yrs. - Accident Reports (settled cases)
  • 7 yrs. - Account payable ledgers and schedules
  • 7 yrs. - Accounts receivable ledgers and schedules
  • Permanently - Audit reports of accountants
  • 1 yr. - Bank reconciliation
  • Permanently - Capital stock and bond records; ledgers, transfer registers, stubs showing issues,
    record of interest coupons, options, etc.
  • Permanently - Cash books
  • Permanently - Charts of accounts
  • 7 yrs. - Checks (cancelled but see exception below)
  • Permanently - Checks (cancelled for important payments, i.e., taxes, purchases of property, special
    contracts, etc. checks should be filed with the paper pertaining to the underlying transaction)
  • 7 yrs. - Contracts and leases (expired)
  • Permanently - Contract and leases still in effect
  • 1 yr. - Correspondence (routine) with Customers or vendors
  • 3 yrs. - Correspondence (general)
  • Permanently - Correspondence (legal and important matters only)
  • Permanently - Deeds, mortgages, and bills of sale
  • Permanently - Depreciation schedules
  • 1 yr. - Duplicate deposit slips
  • 3 yrs. - Employee personnel records (after termination)
  • 3 yrs. - Employment application
  • 7 yrs. - Expenses analyses and expense distribution schedules
  • Permanently - Financial statement (end-of-year, other months optional)
  • Permanently - General and private ledgers (and end-of-year trial balances)
  • 3 yrs. - Insurance policies (expired)
  • Permanently - Insurance records, current accident reports, claims, policies etc.
  • 3 yrs. - Internal audit reports (in some situations, longer retention periods may be desirable)
  • 3 yrs. - Internal reports (miscellaneous)
  • 7 yrs. - Inventories of products, materials, and supplies
  • 7 yrs. - Invoices to customers
  • 7 yrs. - Invoices from vendors
  • Permanently - Journals
  • Permanently - Minute books of directors and stockholders, Including by-laws and charter
  • 7 yrs. - Notes receivable ledgers and schedules
  • 7 yrs. - Option records (expired)
  • 7 yrs. - Payroll records and summaries, including payments to pensioners
  • 3 yrs. - Petty cash vouchers
  • 3 yrs. - Physical inventory tags
  • 7 yrs. - Plant cost ledgers
  • Permanently - Property appraisals by outside appraisers
  • Permanently - Property records-including costs, depreciation reserves, end-of-year trial balances, depreciation schedules, blueprints and plans
  • 1 yr. - Purchase orders (except purchasing department copy)
  • 7 yrs. - Purchase orders (Purchasing department copy)
  • 1 yr. - Receiving sheets
  • 1 yr. - Requisitions
  • 7 yrs. - Sales records
  • 3 yrs. - Savings bond registration records of employees
  • 7 yrs. - Scrap and salvage records (inventories, sales, etc.)
  • 1 yr. - Stenographer’s notebooks
  • 7 yrs. - Stock and bond certificates (cancelled)
  • 1 yr. - Stockroom withdrawal forms
  • 7 yrs. - Subsidiary ledgers
  • Permanently - Tax returns and worksheets, revenue agents’ reports and other documents relating to determination of income tax liability
  • 7 yrs. - Time books
  • Permanently - Trade mark registrations
  • 7 yrs. - Voucher register and schedules
  • 7 yrs. - Voucher for payments to vendors, employees, etc. (includes allowances and reimbursement of employees, officers, etc., for travel and entertainment expenses)

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Writing a Business Plan
Source:  www.sba.gov

What goes in a business plan? The body can be divided into four distinct sections:

  1. Description of the business
  2. Marketing
  3. Finances
  4. Management

Addenda should include an executive summary, supporting documents, and financial projections.
Although there is no single formula for developing a business plan, some elements are common to all business plans. They are summarized in the following outline:

Elements of a Business Plan

  1. Cover sheet
  2. Statement of purpose
  3. Table of contents
  4. The Business
    A. Description of business
    B. Marketing
    C. Competition
    D. Operating procedures
    E. Personnel
    F. Business insurance
  5. Financial Data
    A. Loan applications
    B. Capital equipment and supply list
    C. Balance sheet
    D. Breakeven analysis
    E. Pro-forma income projections (profit & loss statements), Three-year summary, Detail by month, first year
    Detail by quarters, second and third years and assumptions upon which projections were based
    F. Pro-forma cash flow
  6. Supporting Documents
    Tax returns of principals for last three years Personal financial statement (all banks have these forms)
    For franchised businesses, a copy of franchise contract and all supporting documents provided by the franchisor
    Copy of proposed lease or purchase agreement for building space
    Copy of licenses and other legal documents
    Copy of resumes of all principals
    Copies of letters of intent from suppliers, etc.

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Financial Ratios
Source:  www.midstatescapital.com

Credit Ratios:

Current Ratio = Current Assets / Current Liabilities

Quick Ratio = Current Assets - Inventories / Current Liabilities

Cash Ratio = Current and near Cash Instruments / Current Liabilities

Debt to Equity Ratio = Total Liabilities - Total Shareholders Equity

Equity Ratio = Common Equity at Book Value / Tangible Assets - Accrued Payables

Coverage of Senior Charges = Pretax Income Available for Capital / Senior Charges

Cash Flow Coverage of Senior Charges = After Tax Operating Cash Flow + Rentals + After Tax Interest / Senior Charges

Total Debt Service Coverage = After Tax Operating Cash Flow + Rentals + After Tax Interest / Interest + Rent = Current Maturities on Term Debt

Defensive Intervals (days) = (Cash + Receivables) * 365 / Total Operating Expenses - Depreciation - Non-cash Charges

Other Credit Indicators:

Accounts Receivable Turnover = Sales / Accounts Receivable

Days Receivable Outstanding = Accounts Receivable / Previous Months Sales

Inventory Turnover = Cost of Goods Sold for the Year / Inventory

Days Inventory on Hand = Inventory / Average Daily Sales

Fixed Asset Financing = Liquidation Value of Fixed Assets / Long Term Debt

Profitability Ratios:

Return on Income = Net Income + Minority Interest + After Tax Interest / Tangible Assets - Short Term Accrued Payables

Capital Turnover = Sales / Tangible Assets - Accrued Payables

Earnings Margin = Net Income + After Tax Interest / Sales

Return on Capital Before Depreciation = Net Income + Depreciation + After Tax Interest / Tangible Assets - Accrued Payables

Return on Common Equity = Net Income - Preferred Dividend Requirements / Common Equity - Intangible Assets + Deferred Taxes

Growth Ratios:

Sales Growth = Sales in Final Period / Average Sales in Base Period

Earnings Growth = Net Income in Final Period / Average Net Income in Base Period

Working Capital Growth = Working Capital in Final Period / Average Working Capital in Base Period

Growth in Earnings Per Share = Earnings Per Share in Final Period / Average Earnings Per Share in Base Period

Real Estate Ratios:

Debt Coverage = Net Operating Income (NOI) / Years Debt Payments + Interest Expense

Cap Rate = Cash Flow After Debt Service - Improvements / Appraised Value of Project

Loan to Value = Total Senior Debt / Appraised Value of Project

Return on Invested Capital = NOI - Debt Service and Payments - Capital Improvements / Invested Cash

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6 Secrets of Successful Entrepreneurs
Source:  www.careers.msn.com

Every day, brave men and women set out to start their own businesses with the hopes of turning a passion into a successful career. However, not every start-up business succeeds. Although successful entrepreneurs come in all shapes and sizes and their businesses are as varied as their owners, there are some secrets that these successful businesspeople share when it comes to getting a business off the ground. The following are six secrets to becoming a successful entrepreneur.

Secret #1 - The most important work happens before the business is started. The first thing that successful entrepreneurs do before setting up their business is extensive research to make sure they understand the market, the competition, and what needs they can meet. These individuals know that they cannot effectively provide a service without knowing what challenges they are up against and what opportunities they have to succeed. Good entrepreneurs do their homework. They create business plans, set goals, and lay all the necessary groundwork before taking the plunge.

Secret #2 - You can make money by working for free. Many entrepreneurs got their businesses of the ground by taking on volunteer projects in their communities. Doing this gave them the opportunity to add to their portfolios, make connections, and begin the all-important networking process. Susan Keuhnhold, who owns a graphic design firm in Indianapolis, got her business started by volunteering to do design projects for her children's school and other organizations with which she was involved. "I would go to a meeting, hear about a need and speak up to let them know what I could do," she said. "I completed a couple of great volunteer projects and eventually more and more people who were in need of graphic design learned about my services. Soon I had developed a base of clients, many of which I still have today."

Secret #3 - A good opportunity can come up at any place and any time. Sometimes opportunities present themselves when we least expect them. Successful entrepreneurs learn to keep their eyes and ears open for these opportunities at all times. "You never know where business will come from," said Raquel Richardson, who runs her own marketing company. "The key is to always be planting seeds. You never know what is going to grow, but the more you put out there, the better chance you have of something great popping up." This means being ready to talk about your business anytime and in any place. The secret is to keep yourself tuned to potential opportunities and not be afraid to sell yourself when they arise.

Secret #4 - Small business can lead to big business. Sometimes business owners spend all their time looking for the big fish and ignoring smaller opportunities. Robyn Frankel owns a public relations firm in St. Louis and has learned that clients with minimal work to start can turn into big opportunities. "It is much easier to grow relationships than to start new ones," she said. Therefore, she takes on projects even when they are small, completes those projects with flair, and then proactively works to turn those little opportunities into big ones.

Secret #5 - Passion is important. It's no secret that becoming a successful entrepreneur is hard work. Business owners tend to put in long hours when they are starting out, and often find themselves working on their business - or at least thinking about the business - all the time. That's why it is vital to love what you are doing. Richardson said she puts more time into her business than she did when she worked for an agency, but she doesn't mind because she truly enjoys her work. Other successful entrepreneurs agree. Starting your own business is a challenge, but it is well worth it if you have the opportunity to fulfill your career dreams on a daily basis.

Secret #6 - Personal networking is the best kind of marketing. Entrepreneurs agree that the best kind of marketing is not paid advertising, but personal connections. "You can spend money advertising or developing marketing materials, but you get much more bang for your buck just by networking," said Keuhnhold. This means participating in community organizations, joining local business groups, and attending events to meet new people. Robyn Frankel says some of her best opportunities have come from being on the boards of local non-profit organizations. "I try to be as active as possible in boards and committees, and this has led to much of the work I am still doing today," she said.


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Evaluating the Team Member's Role
Source:  www.smartbiz.com

The employee who accepts responsibility for doing a task carries the burden of seeing that the task is completed as promised. The most effective way to evaluate a team member is by comparing results with objectives. Actual results would determine if the team member succeeded. Don't let personality factors cloud your judgment. Evaluation must be objective.

Once quantitative aspects are determined--whether results were achieved as specified--you can assess other aspects of the team member's work. This closer look provides insight into other factors that may have affected results--including the employee's work style. Some additional factors to evaluate include the following.

Quality

What was the quality of the work done? When you evaluate the quality of a delegated task, concentrate on the quality of the results. Were results adequate to meet desired goals? Did the team member exceed expectations? Exert extra effort? Was attention given to details of
the assignment?

Efficiency

Did the team member achieve the desired results efficiently? Did the team member spend an inordinate amount of time or use excessive resources?

Did the team member complete the assignment on time or ahead of schedule? Did she have and show a sense of urgency? Did she do the right things at the right time? Did she allocate her time effectively between different parts of the assignment? Did she bring problems or questions to your attention at the appropriate time?

Creativity

Was the team member resourceful and creative at overcoming obstacles? Did he seek the opinion of others about how to complete the task most effectively? Did he show insight and vision in completing the assignment?

Cooperation

Did the team member achieve results while strengthening relationships with others, both inside and outside of the department? Was he successful at obtaining the cooperation of the support staff, peers, and other managers? Did he demonstrate effective interpersonal skills and sensitivity in working with others?

Discussing the Managers Evaluation

An important part of evaluating any delegated activity is to discuss the evaluation with the team member. Of course, it may not be practical to hold such discussions after every assignment, but it's important to do so after major assignments. (Discuss more routine responsibilities with the employee at her scheduled performance reviews.) The evaluation should be a two-way exchange of perceptions and feedback on each other's work style, and insights (positive and negative) should be mutually explored.

Positive and Negative Feedback

A good evaluation always includes both positive and negative information, even though such an approach is counter to human nature. Managers often try to avoid criticizing team members. They either fail to comment on a team member's performance or make brief, positive statements regardless of whether the assignment was satisfactorily completed.

Begin each evaluation with positive statements about what you liked and why. This helps to set a positive, constructive tone for the review discussion. Include any unexpected positive surprises about the person's work on the assignment. Then move on to explain any negative evaluation.

Both positive and negative comments are needed for team members to understand what they are doing well and where they need to improve their performance. If you withhold negative comments, a team member won't recognize problem areas and will continue to make similar mistakes. This isn't fair to the team member. And the manager is shirking his responsibility because he is uncomfortable in giving negative feedback. Give team members the advantage of a complete evaluation.

Giving Constructive Criticism

There is a skill in giving negative information in a way that will be constructively received and used to the team member's best advantage. Be sincere in wanting to help the team member improve. Offer suggestions for improvement along with your criticism.

Don't overemphasize mistakes; keep errors in relation to your overall satisfaction with the results.

Constructive criticism highlights solutions and better approaches for future assignments. Focus on job-related issues that the employee can change or control. Don't bring up personality traits over which the team member may have little control. Use specifics in the discussion, and avoid broad general comments that are apt to have less meaning. Use comments that are future-oriented, not past-oriented. Of course, all reviews should be held private.

The Value of Making Mistakes

Accept the fact that employees will make mistakes whenever they are given responsibility for new activities. The way you handle those mistakes makes a major difference in whether the individual is willing to take risks and attempt new tasks in the future. If a person never falls down when learning to ski, for example, chances are she will never get to bee a better skier. Likewise, if you chastise an employee for a mistake, that person will be less likely to take initiative again.

Even if the activity was not completed satisfactorily, everyone should learn something from the outcome. Ask the team member what he learned from the experience and what he would do differently next time. Ask for suggestions that could improve the work environment and seek comments on how you could work better with the employee in the future.

If you discuss mistakes, emphasize what could have been done to prevent them and what the individual can do next time to avoid similar mistakes. This approach doesn't stifle initiative. As the person gains experience, mistakes naturally diminish, and with the proper encouragement, they will.


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Common taxpayer mistakes
Source:  www.moneycentral.msn.com


Here's a lineup of common mistakes taxpayers make. You can learn how to avoid them.

1. Bad math
According to the Internal Revenue Service, errors in addition and subtraction are the No. 1 mistake taxpayers make. All returns are examined for mathematical errors. Mistakes in arithmetic or in transferring figures from one schedule to another result in an immediate correction notice. If the error leads to a tax deficiency, you automatically receive a bill for that amount. If you overpaid, the excess is applied to future taxes, credited or refunded at your request. You can’t appeal such corrections, but you can ask in writing that they be reviewed if you think the IRS made a mistake.

Check the figures on the IRS correction notice. They have been known to make their own mistakes. Arithmetic mistakes alone rarely lead to a full audit.

2. Forgetting about interest and dividends
Interest and dividend payments are reported to the IRS by banks, brokerage houses and other financial institutions, and are cross-checked in about 96% of the cases. The IRS attempts to match almost 100% of the returns that they receive on computer tape and more than 50% of those that are on paper. As a result of this cross-checking, the IRS sends out notices for taxes and interest on overdue taxes for income and other payments that were not reported. Unfortunately, according to the General Accounting Office, the government agency that audits the IRS, about half the 10 million correction notices the IRS issues each year are "incorrect, unresponsive, unclear, or incomplete."

If you get an incorrect notice, follow the appropriate procedures to contest it, or contact your local problem resolution office.

3. Not properly tracking investment 'basis'
A basis is the original value of your investments. If you have mutual funds, for example, each year those funds will report to you the dividends and capital gains you earned. These dividends and gains will be taxable to you in the year reported.

When you sell these funds, your gain will be the difference between what you receive on the sale and your "basis" (technically your amount realized less your initial investment basis). The basis actually increases once any initial financial gains you reinvested are taxed. If you reinvested taxable gains from these funds, those gains (all of the dividends and capital gains reported) are added to your basis to reduce your gain (or increase your loss). For example, if I bought a fund for $1,000 and reinvested $200 in dividends and $50 in capital gains, my basis is now $1,250. If I sell the fund for $1,500, I only have to recognize $250 in gain on that sale. That’s much better than reporting a $500 profit for tax purposes. To make sure you have the right basis, check with your fund company or broker. If you can’t get the data by the April 15 filing deadline, you can either file for an extension or file an amended return later.

4. Losing track of receipts
In the real world, you either have proof of your deductions or you lose them. Always keep your receipts and checks if you want to deduct them. Deductible receipts and checks should always be kept for at least three years from the due date of the year filed, or the actual date filed, if later. Unless the IRS can prove fraud, the statute of limitations to disallow deductions is three years. Once this three-year period has elapsed, the IRS is prohibited from even questioning these deductions. Receipts for expenses that may be deducted in later years, such as improvements to your house, should be kept for three years after the return on which they are claimed.

Remember, the IRS is a paper-based bureaucracy. Separate your receipts and checks by deductible category and make any audit easier for the auditor. The easier you make it for them, the more they believe and accept that you know what you are doing, and the easier they will make it on you.

5. Forgetting to donate unwanted items to charity before Dec. 31
Give your old equipment, furniture, computers and other items away to your favorite charity. The wholesale value of those contributions is allowable as a charitable deduction. Make sure that you get a receipt. No receipt, no deduction. The receipt doesn’t have to list what you gave or what the items were worth, but it must be dated. You can fill in the details yourself.

As always, you should always talk to your CPA before implementing any tax strategy.

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The missing ingredient in your sales plan?  Another look at incentive compensation
Source:  www.smartbiz.com  

You're confident that your products are innovative and competitive, your staff is well-trained and equipped, you are targeting the right markets, and you are paying your salespeople well. Certainly, the economy and the regulatory environment could be better, but they are out of your control. You had pretty complete information when you set your goals and you did your best to make them realistic. You've added a new sales contest, gone on the road to "pump up the troops," even accelerated some product development, and yet, despite all you have done; it looks like your goals were set too high again this year.
What gives?

To be sure, it would be a big assumption to pin the blame on any one factor, but there is one ingredient that few companies have adequately dealt with - incentive compensation for management and sales support. More often than not, these groups were placed on company compensation and benefit plans well divorced from any direct link to sales results. While those making the sale personally had a very clear message on what they were expected to do, the message for the balance of the sales team was muted at best. Oh yes, their managers may adjust their year-end incentive if sales are significantly higher or lower than expected, but does that really have an impact? As they are on the same plan as other employees of their level, management seldom pays lower incentives than what their peers are paid, and they do not have the flexibility to raise incentives much in a good sales year.

So, what motivation does your sales support group have to stay late to finish up an illustration, to do the extra work to finalize and promote a creative new sales concept, to go outside underwriting guidelines in an iffy situation, or to endanger a long-standing friendship by helping the company recruit a friend from another company? And why should your sales managers leave on a Sunday to save the company money, say no on a touchy budget issue, or keep pursuing that reluctant recruit? When their only incentive opportunity is a modest annual payment with minimal variation, the short answer is they have more incentive not to take a risk or go the extra mile than they have to do it. The payments are just too small, too infrequent, and too disconnected to have much impact on behavior.

Leslie Wilk Braksick, in her business bestseller Unlock Behavior, Unleash Profits, cites positive consequences (which include money, recognition, awards, and management feedback) as four times as powerful as antecedents (training, past events, goal statements, etc.) in motivating behavior. You've all encountered situations where management says one thing but the pay plan encourages or allows another type of behavior. For instance, you preach selling only good quality (persistent) business but you pay only for sales. Guess which driver of behavior wins? You can be confident that you will come a lot closer to your sales goals than to your persistency goals. Certainly buy-in to company goals, loyalty, and friendship have impact, but the power of direct monetary incentives is far and away the strongest motivator.

In my four years of designing sales compensation for Prudential Financial, I had the opportunity to work on several new sales initiatives and several reformations. While a few of these are now healthy youngsters, most did not survive the birthing or rebirthing process, or died as infants. Given our annual compensation plan review process, I was able to watch the success or failure of sales initiatives long after the initial plans were installed. There were two traits that separated the thriving from the barely surviving. First, those that thrived incorporated the same messages in their compensation as they sent in their daily management and recognition programs. All three elements - management's messages, the recognition plan, and the compensation plan - reinforced the same behavior. Second, the team that supported and managed the sales force also got very similar messages. They were paid and recognized on the same elements and with the same standards as the sales force. The only divergence was within the administrative support team and at the top of the organization, where the responsible executive was typically paid like other company executives.

That synergistic approach typically came about because management took advantage of having a clean state. While it may take slightly longer than just throwing the support team onto the company compensation plan, these executives understood that they improved their ability to get the behavior they wanted by using all the possible positive consequences to reinforce the organizations goals for their entire team. Putting such reinforcement in place with an existing organization is somewhat more complex as you must move people off existing compensation and recognition plans.

As you are seldom trying to reduce total target compensation, the challenge is not as big as it seems. Being able to tell employees that they will now be paid in line with the success level of the organization that they support or manage is a powerful message that is difficult to argue against. In either situation, getting all the oars of the boat working in the same direction is well worth the effort.

Am I suggesting that you eliminate their salary and pay sales commissions to product specialists, relationship managers, recruiters, trainers, compliance specialists, middle managers, etc.? No, the sales commission model is not a fit for people outside personal sales. However, paying salaries plus goal-based incentives certainly is appropriate. In most cases, salaries do not need to be reduced, which alleviates the major concern of most employees. The incentive element does need to be big enough to get their attention, however, and it has to be paid often enough to keep them focused Paying sales-based incentives annually is better than not paying them at all, but quarterly or monthly is preferable. Although it is helpful to pay everyone on the overall sales goal for the unit that need not be the only sales-related item that each position is paid on.

The institutional and accumulation product sides of financial services have often employed sales goals in compensation plans for their sales force. By contrast, the individual insurance side of financial services relies on minimum production standards and ramped compensation plans to encourage higher productivity with agents. Both groups would be well served by incorporating sales goals into more positions within their sales-related organizations. While treatises have been written on setting sales goals, it remains more an art than a science. Thankfully, a well-designed compensation plan can protect management from the consequences of setting goals that are either too low or too high. The key point is that sales executives and those creating and supporting the sales will not be getting the same message until goals are incorporated into all their pay plans.

It is important to recognize that each sales-related position has responsibilities that extend beyond sales and quality of sales. Shifting from paying based on management discretion to paying incentives based only on sales results (versus goals) would inhibit management's ability to recognize such items as attitude, growth, commitment, team spirit, and the like. Each incentive plan should have at least two elements an element related to the sales goal (perhaps modified by sales quality) and a discretionary element. Maintaining a discretionary element in a compensation plan has an important hidden benefit. It allows company management to require an annual performance appraisal to justify the payment level. Without that leverage, few sales managers will make the time to have the face-to-face, comprehensive conversation about the subordinate's performance that is so critical to maintaining productive relationships.

There are several challenges facing organizations that want to extend sales-based incentive plans beyond those personally in sales. It begins with defining which positions are parts of the sales team. Next are the issue of the measures and the standards of performance. In my experience, there are always some measures that can be used fairly, even for trainers, recruiters, compliance officers, and other positions where good performance can be hard to quantify. Most incumbents will welcome even a less-than-perfect measure in contrast to depending solely on management discretion. Then there is the relative weight of the measures used, administration of the plan, and handling of any transition issues. Having implemented dozens of these kinds of plans, it is clear to me that all these challenges are readily met if management remains flexible and committed. None of these challenges are that difficult, particularly once you've had experience with implementing several such plans. Since finding this missing ingredient will position you to better meet your sales goal, it is well worth the commitment.

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Applying for a Loan
Source:  www.addto.com 

In making loan requests, entrepreneurs tend to be confident that they will meet or exceed what they consider conservative financial projections. They then have trouble understanding when they receive a less than enthusiastic response. To complete the picture, however, we need to look at the process from the banker's perspective.

"What bankers view as a good loan application is at times different from what applicants think," says Ray Fincken, vice president of HSBC Bank USA in New York. "Applicants know the bank needs information about their company to process the loan. So in the first interview they often describe all the good things happening within their company -- focusing mainly on marketing and sales. "

However, bankers are usually more interested in assessing risk and consequently learning that the company has a good core foundation. Does the company have experienced management? Do these managers have various talents and experiences to guide the company through good times and bad?" Given confidence in the management team, the bank must look at the elements of the business plan from a more objective standpoint than the entrepreneur ever can. The critical consideration is whether the company's major products or services provide sufficient profitability and cash flow to meet all its financial obligations, particularly payments to service the debt under consideration.
If the company is a startup, the best indicators are often the norms for the business in which the company will be competing. Are projected margins and ratios in line with others in their industry? The bank will also look at credit reports and tax returns on the key individuals involved in the startup.

If the company has some financial and credit history, the bank will check corporate tax returns and financial statements, individual financial statements, liens, litigation, agency reports such as Dun and Bradstreet, etc. To ensure finances are in order, Ray recommends receiving your personal and business credit reports prior to seeking a loan to make sure the information is correct before going through this process. Misinformation or old loans and liens may erroneously still be on the report. Taking care of these errors prior to applying for a loan can streamline the process.

Fincken says: "We look for consistent, sound cash flow from operations and good, quality assets. We look at these because they are the primary sources of repayment. We then analyze this information and compare it to other similar businesses as a guide." Once the records are in order, the next step is the bank's formal application process. "Planning ahead will help you increase your chances of receiving a loan as well as streamline the loan timeline," Fincken advises. "Put together a business plan and description of why you need financing; include three years of financial statements or projections."
 

Expect to be asked, and prepare your answers to the following questions:

  • How much money is needed?
  • What is the purpose of the loan?
  • How long do you anticipate using the money?
  • How will the company be able to pay back the loan?
  • How will the bank get paid if something goes wrong?

Here is a list of the most common reasons for loan denials:

  • The company is deemed unable to repay the loan
  • There is inadequate financial information
  • The financial statements are unprofessionally prepared
  • There are perceived critical weaknesses in management
  • Applicants fail to demonstrate their ability to implement sound accounting and management information systems.
     

You would certainly be reluctant to extend credit to a prospective customer where you had significant doubt of their ability to pay. Remember that the bank's business is to lend money, and that they must apply the same discretion to your request.

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Word Of Mouth Can Be Your Best Marketing Tool
Source:  www.smartbiz.com 

Motivating Others To Tell Your Story For You.  Sales-focused business people love buzzwords. Seminars, books and articles all push the hot marketing solutions, and salespeople and students of marketing incorporate the new vocabulary into their discussions. If you're looking for a revolutionary way to get customers, there's no shortage of phrases to use: database prospecting by the numbers; multi-level targeted/direct marketing; lead compilation from channels of distribution focus; cold call them when they're warm.

Sales and marketing departments will find that there are definite benefits to using some of these approaches. Unfortunately, there are limitations to a strategy that puts too much emphasis on reaching prospects who know little or nothing about the firm or its products and services.

Our studies and experience indicate that businesses see better results by focusing on a simple marketing tool, one that's been with us for hundreds of years: word of mouth. This back-to-basics approach-- one that is too often overlooked--pays the most dividends for fewer dollars.

According to demographic research, 40 percent of Americans turn to friends and family when shopping for legal services and medical care, as well as for someone to work on their car. Positive word of mouth is also critical for business-to-business firms. Without positive word of mouth, banks, restaurants and other industries would have difficulty surviving.

Here are some ways to use word of mouth, along with some reasons why a marketing plan should not be without this component.

A motivated prospect is 80 percent more likely to make a buying decision.

Clearly, the best place to start word-of-mouth advertising is inside the organization. Every employee should know the benefits of doing business with the organization and how important it is to spread the word. Sales and service people need to take it one step further, telling clients, customers and other vendors that the company relies on referrals. Clients then have a better understanding of the company's goals and are less apt to feel they are "giving something away" when they speak highly of you to other firms.

Some service organizations will take only referral clients. While many business-to-business firms would have trouble turning away a new customer, some are able to function more efficiently by defining who does business with them. Statistics support the strength of referrals and word of mouth. A referred prospect who comes to you with confidence in the firm is 80 percent more likely to become a customer.

Word of mouth creates motivated, prospective customers. Given a choice, a salesperson shouldn't focus on leads when a motivated customer is more likely to buy.

Advertising and direct-mail campaigns can create "positive word of mouth."

The best way to get people talking about your company or its products is to create some excitement. Wendy's did it years ago with a funny demonstration of the competitive advantage their burgers hold over McDonald's. By asking "Where's the Beef?" they were able to build name recognition and show customers why their burger is better. The humorous and offbeat approach helped turn a successful consumer campaign into a positive word-of-mouth campaign.

Another way to create excitement is to give something away. Chrysler went directly to business leaders to introduce its LH series, offering new cars for a weekend to 6,000 top executives between the fall of 1992 and January 1993. The subsequent exposure in newspapers and the electronic media brought immediate public relations benefits. According to statistics, in follow-up surveys: 90 percent said their opinion of Chrysler had changed; 98 percent said they would recommend the car to a friend; and at least 32,000 people know about the car as a result of the 6,000 weekend test drives.

Not everyone can spend millions of dollars on television commercials or lend their products to customers for a weekend. But with a little imagination and commitment to the value of taking a new approach, executives and employees alike could generate more talk about their firm. Trade shows, special events, news conferences and even self--promotional material can help support name recognition. Marketing programs that incorporate the most important communication piece, word of mouth, will help the sales force and company reach their goals and increase the bottom line.

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Avoiding Taxes is Legal
Source:  Justice Louis D. Brandice, United State Supreme Court

I live in Alexandria Virginia. Near the Supreme Court chambers is a toll bridge across the Potomac. When in a rush, I pay the dollar toll and get home early. However, I usually drive outside the downtown section of the city and cross the Potomac on the free bridge.
If I went over the toll bridge and through the barrier without paying the toll, I would be committing tax evasion
If, however, I drive the extra mile and drive outside the city of Washington to the free bridge, I am using a legitimate, logical and suitable method of tax avoidance and I am performing a useful social service by doing so.

For my tax evasion, I should be punished.
For my tax avoidance, I should be commended.
The tragedy of life today is that so few people know that the free bridge even exists.

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New Employee Checklist

1. Employment application form/resume
2. Interview evaluation (if applicable)
3. Telephone reference check (staff)
4. Job description (in policy manual)
5. Permanent personal record
6. Payroll data and authorization form
7. Statement of receipt of personal policy manual
8. 90-day review form
9. Independence confirmation
10. Evaluation forms
11. Record of professional development (in CPE file)
12. Separation checklist
13. Exit interview form
14. Auto insurance form
15. Salary and confidentiality form
16. W-4 Form
17. Form I-9 (get copy of drivers license)
18. Computer and Calculator form
19. Personal property form
20. New employee salary form
21. Copy of health insurance application and letter
22. Copy of long-term disability insurance and application and letter
23. Employee ID and Pass code form

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Choose The Right Sales Force!
Source:  www.businesstown.com 

There are basically four different alternatives for building a sales force:

  1. You can hire a larger company or a distributor to sell for you.
  2. You can hire independent manufacturers' reps.
  3. You can hire your own outside salespeople.
  4. You can hire inside or use phone salespeople.

Which choice you make will have a huge impact on your ability to generate sales and, also, your cost structure.
Often the best solution is to use a combination of the different sales models. For example, we use distributors abroad and in specialty markets; our own sales managers for the largest book and software accounts; manufacturers' reps for midsize accounts; and phone selling for the smallest accounts.

Use Someone Else's Sales Force!
Especially if you have a small product business, you're probably going to be better off trying to get a larger company or a distributor to sell your goods.  Even if you could get sales reps or manufacturers' reps to sell your product, it may be difficult to persuade companies to open a new account for you, and getting paid may tax your patience.
Remember, you need a distributor with an outside sales force who will call on customers and push your product--not a wholesaler who typically stocks a very broad group of manufacturers and more or less waits for customers to send in orders. The terms "wholesaler" and "distributor" are often confused, and it's difficult to judge how aggressively a distributor will push your products--so get references!

Manufacturers' Reps Build Businesses!
Manufacturers' reps played a crucial role in building my book business and a lot of other businesses. They are paid on commission, so you're not stuck with a high overhead for salaries and travel when sales are low, and they already have an entree with the prospects to whom you need to sell.  Generally a manufacturer's rep sells a lot fewer product lines than a distributor does and will push each line harder.  But it's up to you not just to find reps, but to really sell them continually on how hot your products are. Meet with them in person; tell them sales success stories; send them media clippings; send them sales samples; and pay them promptly.

Sales Force!
I hired my first salesperson to sell advertising for a tiny map business I started while still in college. I told her to call in every day with a progress report. Three weeks later she first called in and reported nobody was interested. She had lost her call reports, and she needed her paycheck!  Believe me, it's not easy starting up an outside sales force. It's the most difficult and expensive sales solution by far, but the results can be great if it all clicks together.
If you decide to hire outside salespeople, you'll need to pay a base salary, not just commission, and keep real close tabs on them. For one, you want to make sure they're really working. And for two, even if they are highly experienced, you need to keep motivating them.

Inside Sales Is Easier To Manage!
Managing and motivating inside or phone salespeople is a lot easier than putting together an outside sales force. You can contact a lot more prospects for a lot less money, and you'll save a lot of money by avoiding travel costs.
Hire people who are articulate. Test them by role-playing a sales scenario before you bring them on board. Pay them an hourly or weekly base wage plus a bonus based on results. In addition, consider impromptu contests like "The next sale gets an extra $25 or a pair of movie tickets!"  If you really need to close sales in person, you may want to have phone salespeople find and qualify leads, and then send a more experienced salesperson, or yourself, to close the sale.

 
 

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