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SBOCTeam — Thu, 22 Oct 2009 14:15:13 GMT

When should your small business choose cash versus credit?

by Reed Richardson

The statistics staring at budding entrepreneurs are ugly-nearly two out of three new businesses won't survive past six years. A lack of a rigorous business plan, insufficient marketing, and poor product quality can, among numerous other problems, contribute to this sobering reality, but foremost among the reasons for early failure is a rather mundane and oft overlooked difficulty-poor cash flow management.

"Consumers are not stupid about banking issues, but they often are ignorant about the most efficient choices for themselves," noted E. Thomas Graham in a lengthy article on the FDIC Consumer News website that discusses using cash versus credit (click here to read more). Graham, who is president of the non-profit Personal Finance Employee Education Foundation as well as professor emeritus of consumer economics at Virginia Tech University, argues that many Americans-including many small business owners-are poorly educated about their own finances and, as a result, the choices they make on a daily basis often lead to long-term trouble.

Cash

Despite our economy's perceived obsession with credit, most transactions within our economy-from straightforward purchases like buying a soda at a vending machine to complex transactions like a massive cash-for-stock corporate takeover-still rely on good old cash. The most compelling reason for cash's continued dominance is its immediacy-"I want something now and I want to pay for it now." The buyer and the seller are both satisfied at the same time. This immediacy brings with it no extra transaction costs either, as FDIC Associate Director for Consumer Protection Kathleen Nagle explained in that same Consumer News article. "Cash is usually the cheapest way to go," Nagle noted. "No fees, no service charges, no interest payments."

Cash, of course, is (almost) universally accepted as well, making it the last and best form of payment no matter who is involved in the transaction or what's being purchased. Likewise, the primary hurdle for using cash-its availability-has been eliminated thanks to the vast network of 24-hour accessible ATMs now standing at practically every street corner. For small business owners that might be struggling to keep their head above water, using cash to pay bills and settle debts can offer a welcome oasis of simplicity and acceptance in an otherwise complicated and rejection-happy world. And no business ever fell into too much debt from just using cash on hand. Indeed, perhaps the most effective spending limit around involves looking into one's wallet or purse to see how much cash is left and to plan accordingly.

But cash as a payment method has its limitations and drawbacks as well. Unless you're an established customer or dealing with a public utility, cash won't be of much help when trying to execute most online or phone transactions. Nevertheless, cash is still considered the most liquid of all assets and, as such, it can therefore be the hardest to track in terms of how quickly it flows in and out of your business. Unless you are an inveterate receipt saver, a heavy reliance on cash can therefore easily mask where and how you're spending your money, which could lead to a cash flow disaster that shuts down your business if left unchecked. In addition, cash simply isn't well suited to large transactions or big-ticket capital investments and it offers the least in the way of consumer protections after the point of purchase-there's no way to stop payment or dispute a cash purchase after the fact.

Credit

By contrast, small businesses that rely more on credit get the benefit of time. In fact, credit cards are best thought of as short-term, roughly 30-day, interest-free loans. Putting off these payments for just one month can mean holding onto extra cash-and therefore earning more interest-which can be a boon to a small business's bottom line. But for this plan to work, a small business owner has to be diligent about paying off the entire amount spent at the end of their billing period. As countless examples have shown, if you fail to follow this rule or let spending with credit far exceed your small business's incoming revenue, you're in danger of adding extra costs to your purchases as well as over-leveraging your business. "After adding in the finance charges," the FDIC's Nagle explains, "you have [done] the opposite of buying on sale." Instead, she notes that not paying off your credit cards each month is "like marking up your purchases."

Still, credit and credit cards are only gaining in popularity because they increasingly offer many of the advantages of cash, yet with added consumer protections and built-in tracking mechanisms. Rare is the business that still refuses to accept some kind of credit card or, if you have a steady buyer-vendor relationship, delayed invoicing system, making the acceptance of credit for payment almost as ubiquitous as cash in today's economy. Plus, the Fair Credit Billing Act ensures that a small business can rely upon the consumer protection features of most major credit cards to ensure that the products or services it purchases match up with the quality promised by the seller. And for entrepreneurs looking to closely monitor all their outgoing expenses-no matter how small-over the course of a month, using a business credit card instead of cash is a simple way to ensure all those nickel-and-dime transactions get captured for later review.

Finally, as mentioned previously, credit remains the most popular method for making big-ticket purchases and for financing major capital investments, as it lets a small business spread its payments over time (while simultaneously depreciating those investments, in many cases). Still, using credit requires that someone be willing to lend that money to your small business and as many entrepreneurs have discovered, that can often be a more difficult task than expected. And trying to swear off credit purchases altogether is of little use as even those small business owners with the most modest of aspirations will one day require some kind of credit or lending for a purchase, so starting early and building up a reliable track record for borrowing and paying back is still a wise move.

Striking a balance
For an overwhelmingly majority of small businesses, a mix of cash and credit purchasing will end up being the right solution. Convenience at point of purchase is always a big driver in choosing between cash and credit, but many budding entrepreneurs fail to also consider the convenience factor when it comes to accounting for this spending later on. As managing cash flow is a critical part of a successful start-up, it's important to understand which spending preferences work (or don't work) well with the two main accounting methods. For example, the accrual method of accounting, which counts both debts and revenues on the books as soon the purchase or sale is made, provides a more accurate view of a company's current debt obligations, but can make it hard to judge just how much cash is currently available. A company using accrual accounting, then, might be better off using credit for more of its purchases. Conversely, a small business that follows a cash-based accounting method, where revenues and debts are only recorded once money actually changes hands, might be better suited to use cash or a debit card for most its daily expenses.

In fact, employing a debit card is perhaps the best compromise measure, one that builds in the immediacy and restraint of cash purchases, yet offers the flexibility as well as access to the often-generous rewards programs of a credit card. Linked to your small business's checking or money market account, your debit card, which effectively works as an electronic check, can become a quick and efficient way to combine many of the best features of both cash and credit purchases. For larger purchases you'll still likely need an actual credit card, but if your bank offers online access, a small business owner could then consolidate much of their company's spending within this account, which would allow for monitoring of spending going out, revenues coming in, and remaining cash flow on almost a real-time basis. And anything that gives you a better sense of your small business's cash flow is always a good thing.

Business Plan 2.0

SBOCTeam — Thu, 22 Oct 2009 14:00:33 GMT

Don't forget to update this critical foundation for your small business

By Max Berry

A sound business plan is the foundation of any successful business, but this particular foundation should not be set in stone. The world changes faster and more frequently now than it ever has before. A successful business needs to keep up, which means employing a business model that can change with the times. Doing things today the same way you did them a year ago probably won't work. Here are some tips to help you stay ahead of the curve.

Keep your eyes open

Most business plans are written before the actual business is up and running, before an entrepreneur has dirtied his hands enough to understand how his venture will fare in the real world. Bearing this in mind, it is important to keep your plan fluid from the start. Review it at the end of each quarter to see how it holds up and how it could be adapted to fit current business conditions.

If you haven't already, try to include some hypothetical changes in your industry within your business plan. Imagine what might precipitate those changes and devise ways your own business would cope with them. If you study trends in your own industry, you'll have an idea of where the industry is headed and give yourself a head start on how you'll react when it gets there.

Pay attention to the way other businesses, even enormous corporations, change their approach. If you notice that a company has recently undergone an extreme image makeover, or has drastically changed the way it reaches out to customers, try to determine why those changes were made. Looking at other businesses in the context of the economy and the culture and mapping their progress will provide you with clues as to what works and what doesn't. It will also help you determine the best ways to change and adapt your own business.

The business of revision

When revising a business plan, or writing one for the first time, the emphasis should always be on the consumer. Too many small business owners are so smitten with their own idea that they spend paragraph after paragraph waxing poetic about its potential without identifying who might actually use it. Before you can sell even the most innovative idea, you've got to know who's buying. Pay attention to your own customers; get feedback about how your product or service is working for them. Ask how it could be improved. Use all this information to strengthen your business plan. How, precisely, you will help your customers should be the thesis of your plan, regardless of how that thesis may evolve over time.

Be realistic about how many people your product or service will reach. Given changes in technology, society, and the economy, the number of people who have a use for your service will change. This may mean you need to adapt your product or service, and the plan through which you sell it, accordingly.

And don't forget to be just as realistic about your own capabilities. If, through managing your business, you discover a key skill you and your team lack, be candid about it in your business plan, particularly if you are trying to attract investors. This may seem counterintuitive, but hiding your shortcomings will only ensure that they remain shortcomings. Be open about what you lack and present investors with the opportunity to help you address the deficit.

The best hard time

An economic downturn is an excellent time to revise your business plan, not simply because, with new economic constraints, you will need to adjust your budget, but also because the lean climate actually affords you some new opportunities. Prospective clients, also feeling the weight of hard times, will be looking for new vendors and suppliers; people everywhere will be looking to cut costs and change the way they do business. Look for ways to adapt your own business model to the times you're living in and court some of this new business. If you can show that your business model is adaptable to the times, you may even be able to attract some new capital in the form of investors looking to put their money in a firm that knows how to adjust.

Still, however often you update your business plan, you should always be candid about the risks involved with running a business; even in good times, there are few sure things. By acknowledging the risks you face, and how those risks will change over time, you better prepare yourself to face them.

Opt In Or Opt Out

SBOCTeam — Tue, 01 Sep 2009 20:19:04 GMT

Find out whether an automatic enrollment 401(k) plan is right for you

By Max Berry

Saving for the future is every person's individual responsibility. But, as a small business owner, you have the power to provide your employees with some incentive. Instituting an automatic enrollment 401(k) plan may be as close as a you can come to guaranteeing that your employees will save. Automatic enrollment increases plan participation dramatically, but it also presents its own set of challenges for employee and employer alike. Read on to find out if automatic enrollment is right for your business.

The Case for Automatic Enrollment

The Pension Protection Act of 2006 requires employees to make a "negative election" or "opt out" of contributing to their employer's 401(k), otherwise payroll deferrals will be made automatically. The effects of the provision are clear: Given the choice to opt in or opt out of a retirement plan, a full third of workers opt out. Automatic enrollment plans cut that figure to less than ten percent.

Employers who stress the importance of saving, and make it easier for their employees to do so, will attract and retain workers who are more committed to the security of their futures and, naturally, their careers. Making enrollment automatic will also increase the number of lower-income workers who take part in the plan. This will help you pass the non-discrimination testing that comes along with many automatic enrollment plans. There are tax advantages as well. You may deduct your own contributions to your employees' funds and taxes on earnings are deferred until distribution.

Bear in mind that there is more than one type of automatic enrollment plan to choose from. The basic automatic enrollment plan, the eligible automatic enrollment plan, and the qualified automatic enrollment plan all vary slightly as to how funds are invested, how much, if at all, employers must contribute, and how accounts are vested. Ask your financial advisor for advice on which one is best for your business.

Going Automatic

If you are planning on instituting an automatic enrollment 401(k) for your business, consult with your bank, mutual fund, or insurance company first. Experts from your financial institution will help you develop a written summary of the plan's terms, set up a trust fund for assets, and create a recordkeeping system. If you already offer an elective 401(k), most of these things will already be in place. You will merely need to adapt the plan to encompass everyone and provide updated summaries of the plan's terms to your employees.

Set a regular percentage of employees' wages to be allocated to the 401(k), but make sure employees are aware that they may adjust how much they contribute. While automatic enrollment helps many employees-especially young ones who may have cause to worry about the future of social security-save for retirement, the median deferral rate for employers using the automatic enrollment system is only 3%, which may be below the rate many employees would choose on their own. Deferring a bit more of employees' salary-even 5% or 6%-could better prepare them for retirement.

You may also choose to contribute to employees' funds, either through matching contributions, a set percentage-of-compensation rate, or both. Under the basic and eligible contribution plans-though not qualified plans-employer contributions are optional. However, as a means of further encouraging participation, not to mention fostering goodwill with your employees, even a small employer contribution will go a long way.

Staying Within The Rules

Not long ago, fear of liability for losses on employees' investments discouraged some employers from instituting automatic enrollment plans. Recent changes in the law, however, relieve employers of that liability. When employees' contributions are used to make certain default investments-known formally as qualified default investment alternatives-that traditionally offer a high rate of return over the long term, the employer is not liable for any losses. Still, to avoid this concern altogether, and to promote a proactive attitude toward retirement saving, encourage your employees to research all the investments available through your plan and select those that most interest them.

And, perhaps most important of all, make sure everyone who is eligible for enrollment in your plan is, in fact, enrolled. According to the IRS, any employee age 21 or older who has worked at your company for 12 consecutive months, and has worked at least 1,000 hours over the course of those months, must be eligible to contribute to your firm's 401(k) plan. This includes employees who are not working for you full time. A thousand hours over twelve months breaks down to around 22 hours of work per week, which is why some employers hold their part-timers to 20 hours. IRS antidiscrimination rules also prevent retirement plans from favoring highly compensated employees over those who don't make as much. Setting up a "safe harbor" plan, where you make a 3%-of-income non-elective annual contribution to each employee's 401(k), will keep you well within the parameters of these antidiscrimination rules. For more information on 401(k) programs, visit 401khelpcenter.com or irs.gov/retirement/index.html.

The �10 Spot

SBOCTeam — Tue, 01 Sep 2009 17:20:10 GMT

What next year's tax law changes regarding IRAs mean for retirement

By Reed Richardson

Typically, the arrival of each new year brings with it a host of tax law changes, some small, some large, and some too arcane for all but the most savvy investors to benefit from. But 2010 brings with it such an important and relatively simple (but easily overlooked) tax law change-one that could potentially save you hundreds of thousands, if not millions, of dollars over the coming decades-that both individuals and small businesses should start planning for how to take full advantage of it right now.

This big change involves a financial transaction known as Roth IRA conversion. Simply put, this conversion amounts to taking an investor's traditional IRA, which is typically funded with pre-tax dollars but pays out taxable income upon retirement, and changing it to a Roth IRA, which uses current after-tax contributions to eventually pay out tax-free retirement benefits. For many, the attraction of shifting more of one's retirement funds from a standard IRA, which also has strict age and minimum disbursement rules, to an investment vehicle with no future tax liability or age-generated payout requirements, like a Roth IRA, is apparent. But up until now, the IRS had set strict limits upon when and how someone could be eligible to execute a Roth conversion.

"Why would you want to make such a swap? Because you think you or your heirs could end up with more money over the long haul by investing in a Roth instead of a regular IRA," explained New York Times money columnist Ron Lieber in July. Previously, households that had adjusted gross incomes of $100,000 or more were barred from such a swap, a rule that prevented many two-income, middle-class families from participating. But starting in 2010, that ceiling disappears permanently, meaning that anyone of any tax bracket that has a traditional IRA can now convert it to a Roth IRA-a process that simply involves catching up on all the unpaid taxes of contributions and investment returns. Even more enticing to those contemplating conversion: the new rule also includes a provision allowing investors to spread that catching up process over two tax years-2011 and 2012-rather than have to take the hit all in one year.

For younger small business owners who expect to be in a higher tax bracket during retirement than they are now, converting that rollover IRA from a previous job's 401(k) could prove to be quite lucrative. And the sooner you convert, the better. Even investors near to retirement could get a bigger bang for the their retirement buck if they're able to cover the cost through non-retirement investments that don't trigger high capital gains taxes. In that same column, however, the +Times+'s Lieber pointed out that some financial experts believe Roth IRAs are just too good to be true and that their tax-free payout status will one day be compromised. As a result, he warns against putting all of one's retirement eggs into the Roth basket. But to get a sense of the tradeoffs and to see if a Roth IRA conversion might best suit your particular circumstances, you can check out the handy one line calculator at http://www.money-zine.com/Calculators/Retirement-Calculators/Roth-vs.-Traditional-IRA-Funds-Calculator/.

Another important advantage of the newly relaxed conversion rules centers on Roth IRA participation. High-income earners-those household making over $160,000 a year-were and still are barred from making any kind of annual Roth IRA contributions. The new no-income limit rule on Roth conversions, however, gives all taxpayers an end-run around this Roth participation cap. Now, any taxpayer can fund a Roth IRA by following a two-step process: First, set up and fund a traditional IRA and then, when it makes sense, convert it to a Roth IRA. If you invest after-tax income to start up the regular IRA, your conversion costs will only involve paying back taxes on the IRA's investment returns, not your contributions. As a result of this loophole, both individuals and small business owners should consider ways they or their companies can establish traditional IRAs in this tax year, so they could then be converted into Roths once 2010 arrives.

All About SEPs

SBOCTeam — Tue, 01 Sep 2009 18:05:03 GMT

Simple to set up, easy to administer, Simplified Employee Pension Plans may be for you

By Max Berry

Among all the 401(k)s, 403(b)s, and various types of IRAs available to you and your employees, Simplified Employee Pension (SEP) plans don't get a whole lot of attention. This doesn't mean you shouldn't consider one for your firm. If you're a small business owner just starting to offer retirement packages to your employees-or one simply looking to expand the ways employees can save-a SEP may be just the thing for you.

The Basics and the Benefits

Simplified Employee Pension plans were created with small businesses in mind. A SEP works like a traditional IRA, but with fewer start up and operating costs than other retirement programs and with a minimum of fuss on your part. Under a SEP plan, employers contribute directly to SEP-IRAs on behalf of their employees, who do not contribute. In 2009, you may invest up to 25% of an employee's salary or $49,000, whichever is less. (The figures are modified each year to reflect cost of living adjustments.)

A retirement plan based entirely on employer contributions may not, on its surface, seem like the most appealing option for a small business owner trying to make ends meet. But there are many benefits to a SEP. In addition to the plan's low operating costs, contributions to a SEP are tax deductible. There are also very few documents to file with the government and, in most cases, your financial institution will take care of this for you. Offering an employer-funded plan is also an ingratiating gesture that will promote goodwill between you and your employees.

One of the key benefits of a SEP-and the reason such a plan is ideal for small or young businesses-is that you do not have to make the same size contribution each year. Managers may adjust the amount they contribute based upon how their business has performed in a given year. If times are particularly lean, you may defer contribution altogether.

Getting Started
They call them ‘simplified' for a reason: SEPs are incredibly easy to institute and manage. Simply contact a bank or other financial institution that offers a SEP plan and complete IRS form 5305-SEP. Some financial institutions offer customized plans that have been approved by the IRS. These require you to complete a different form, but the variance between plans should be small. Take great care in selecting a financial institution to manage your plan; whichever one you choose becomes a trustee in your employees' retirement funds.

Once the SEP is in place, your main responsibility is to forward all contributions to your financial institution by the due date of your tax return. Your trustee will then invest the funds as directed by each individual employee as well as provide participants with yearly balance and contribution summaries. The trustee should also distribute a clear, non-technical explanation of the terms of the plan to each employee. With so much of the day-to-day maintenance of the plan out of your hands, it is important to remember to monitor your trustee closely. Check in with employees to see that they are satisfied with the way the plan is being run.

Keeping Everyone Covered
Employees must be at least 21 and have worked for you in at least three of the past five years to be eligible for inclusion in a SEP. Note that the rule states in three of the past five years and not for three of the past five years; any employee who has worked for you for any amount of time-no matter how little-in three of the past five years is eligible. SEPs can be run in conjunction with other retirement plans, so you may still offer some form of retirement plan to those employees who don't yet meet the eligibility requirements. However, unless the other plan is also a SEP, you cannot use the standard Form 5305. You must instead adopt a prototype or individually designed SEP. It may be simpler for everyone if the employee invests independently until he or she becomes eligible for inclusion in the SEP.

If you do institute a SEP, all eligible employees must be included in the plan. This includes part time employees, seasonal employees, and employees who die or terminate employment during the year. Likewise, contributions must be uniform for each employee-not the same monetary amount, but the same percentage of each employee's salary.

SEP balances may be rolled over to another retirement account tax-free. If an employee younger than 59 withdraws money without rolling it over to another account, the money is subject to income tax plus an additional 10% tax. Employees over 59 do not have to pay this additional tax when they withdraw. As is customary, employees must begin taking a minimum distribution from their accounts once they turn 70.

If the time comes when a SEP is no longer the best option for your business, the plan is easy to terminate. Simply notify your financial institution that you will not be making a contribution for the next year and would like to discontinue the plan. It's as simple as that.

Using Social Media to Grow Your Business

SBOCTeam — Thu, 27 Aug 2009 22:57:26 GMT

By Rieva Lesonsky

There's a good reason why social media is the hottest buzzword on every business owner's lips these days. For smart small business owners, using social media correctly is a great way to build your business-without investing anything but your time and effort. That's good news at a time when we're all trying to tighten our belts and increase our sales.

Here's a quick rundown of the top social media tools out there today and how to use them in your business.

LinkedIn (www.linkedin.com): For entrepreneurs, LinkedIn's edge is the fact that it's tailored for businesspeople, unlike other social networking sites that also attract a great number of general users. You can use LinkedIn to network, find employees and more.

Creating a profile on LinkedIn is free, and you can include as much or as little information as you want. More is better, but keep it professional. On LinkedIn, you can only "connect" to someone if you have a mutual acquaintance in common. See who your connections have in their networks, and if there's someone you want to be introduced to, ask. You can get introduced to possible clients, employees, or business partners this way.

One of LinkedIn's most useful features for raising your business's profile is LinkedIn Answers. Users ask questions that anyone can answer. Answering questions relevant to your business is a good way to become known as an expert in your industry. Make sure not to do a "hard sell;" if your answers are blatantly plugging your business, you'll turn people off.

Check out the various LinkedIn Groups, or consider starting a Group of your own. Being part of a Group relevant to your industry is another way to build your reputation as an expert and to find people who can help you build your business.

Facebook (www.facebook.com): Thousands of companies big and small successfully use Facebook to build their brands and create communities of fans. A business's Facebook page will be different than an individual's page. For your business, you'll want to create a free Fan Page that enables Facebook members to become "Fans" of your company. (Check out my page here: http://www.facebook.com/home.php?#/pages/Rieva-Lesonsky/65219367122?ref=ts) On your Fan Page, you can post news and updates about your business, including photos, videos and links. Fan Pages enable you to post and start discussions with your fans. If you'd like to interact with potential customers even further, start a Group, which offers more sophisticated tools.

Facebook works best for companies that have frequent updates, photos, and videos that other Facebook users will want to check out. It's also more of a "fun" site than LinkedIn, so if you own, say, a CPA firm, this may not be the social media venue for you. On the other hand, if you've got a product or service that users are likely to become fans of and want to share info about-maybe a spa, restaurant or a T-shirt design company-Facebook is a great way to help your company's message spread virally over the Internet.

Twitter (www.twitter.com): Twitter, the newest and hottest social media tool right now, lets users post messages ("Tweets") of up to 140 characters. "Following" someone on Twitter means that you get their Tweets; if you forward a Tweet to your followers, that's called "reTweeting." Everyone from regular people to movie stars to politicians are on Twitter. So what's the business application?

Twitter can accomplish several business goals: to become known as an expert (by commenting on current events or issues that relate to your industry), to attract more customers (by building a following so that more people find out about you through their friends) and to spread up-to-the-minute news about your product or service. For instance, if you own a clothing boutique, you might "Tweet" about a new shipment from a popular designer. If you are an attorney, you could comment on some legal aspect of Michael Jackson's will. Just as with other social media tools, Twitter users frown on a hard sell-so don't blatantly market your company.

Twitter can be overwhelming because of the sheer volume of Tweets. Ask fellow small business owners who use it what tools they like for managing Twitter. There are many free third-party Twitter apps that help you better manage, organize and streamline your Tweets. Personally, I like TweetDeck (http://www.tweetdeck.com/) for the desktop and UberTwitter (http://www.ubertwitter.com/) for my Blackberry. Other popular apps include Seesmic (http://www.seesmic.com/), Tweetie (http://www.tweetie.com/), HootSuite (http://www.hootsuite.com/), People Browser (http://www.peoplebrowsr.com/) and TwitterBerry (http://www.twitterberry.com/).

Blogs: With newer social media tools getting so much buzz today, some people are starting to forget the power of blogs. This is a big mistake. One mention in a popular blog can be all it takes to focus the world's attention on your business.

If you've already got a Web site, consider adding your own blog to it. You can have a blog up and running in a matter of hours with easy-to-use tools such as WordPress (http://www.wordpress.org/).

If you don't have the time--or the writing skills--to start your own blog, don't despair. Being mentioned in other people's blogs can do even more for your business and requires less time. Regularly read the most popular blogs that are relevant to your industry (check http://www.technorati.com/ to determine this). When appropriate, post a comment. Again, you don't want to hard-sell your business here, so resist the urge to comment every day and include your business name in all-capital letters. And, wait until you have something useful to say.

Once you've become familiar with what bloggers in your industry write about, start updating them on your company's newsworthy events. Send them relevant and interesting information about your business. Do you have new statistics or survey data they might be interested in? Bloggers are starved for good topics to write about, so if you can become a trusted source of info for a blogger, you're likely to get lots of publicity.

Putting It All Together

Let's look at how a hypothetical restaurant owner specializing in gourmet burgers and microbrews might use all four of these tools. On LinkedIn, he could join a group for restaurant owners and contribute to discussions among beer distributors. He could network with potential suppliers. On Facebook, he could create a Fan page, announce special events at the restaurant, post photos from a recent beer tasting event, start a discussion about what makes the best burger, and e-mail discount coupons to Fans. On Twitter, he could Tweet about the new buffalo burger he's adding to the restaurant menu, today's lunch special, or a great article on BeerAdvocate.com. He could blog about a recent beer tasting event at the restaurant on his own blog, and send the news to food and beverage industry bloggers.

Social media benefits from personalities, and your advantage as a small business owner is that you, yourself, can be the one behind your Tweets, Facebook page and LinkedIn page. All you have to give it is some time. Plan to devote at least one hour a day to social media, possibly more.

To get started, I recommend you try all four of these tools for three to six months and see what kind of ROI you get. As time goes on, you will see which tool is working best for you, and you'll probably want to devote most of your social media time there.

To make the most of social media, make sure to link your various "personas." Your business Web site, Facebook page and Twitter page should all link to each other, and your LinkedIn page should link to all of them as well. The more ways potential customers can find out about your business, the better. Social media is all about spreading the word.

Rieva Lesonsky is CEO of GrowBiz Media (www.growbizmedia.com), a content and consulting company that helps entrepreneurs start and grow their businesses. Follow her on Twitter at www.twitter.com/rieva

Reassessing Your Business Plan

SBOCTeam — Thu, 27 Aug 2009 22:26:28 GMT

By Rieva Lesonsky

Business planning experts always stress that a business plan is a living document-one that you should regularly reassess and change as your business grows. But in the best of times, how many of us actually follow this advice? If you created a plan when you started your business, when was the last time you actually looked at it?

Well, now is the time to take that business plan out of the drawer. In today's economy, reassessing your business plan isn't just wise advice-it's an essential step to business survival. Let's take a look at the various elements of your plan and how you may need to update them.

The key elements of your business plan are the executive summary, description of your business, market analysis, marketing and sales plan, operations and management plan and financials.

Let's begin with the market analysis. Has your target market changed? Most likely, your target customers have less money to spend than they did when you launched your company. Maybe the demographic makeup of the city where your business is located has changed. Perhaps there's a subset of your target market that turned out to be your best customers, and you should shift focus to concentrate more on them. Update your market research and revise your business plan to reflect the new numbers.

Part of the market analysis is your competitive analysis. How have your competitors changed since you wrote your plan? Has there been consolidation in the industry? Maybe some former key players have gone out of business, and new challengers have emerged. Identify all your current competitors, including both direct and indirect competitors. Then do a SWOT (strengths, weaknesses, opportunities and threats) analysis. What are their strengths and weaknesses, what opportunities do these present for your company, and what threats do you need to be aware of?

Once you've assessed the market, it's time to update your marketing and sales plan. In today's economy, you're most likely looking to cut your marketing and sales costs, while still attracting new business. Are the sales and marketing tactics you've been using still working? Even if they are working, are they the most cost-effective way of getting results?

There are many more low- or no-cost means of marketing these days, including social media and online marketing. If you're not already using these methods, try building them into your revised marketing plan. If you can build your brand with free social networking methods, perhaps you can cut back on paid advertising.

If you have salespeople, do you need to change their compensation structure? How much could you save by cutting back on salespeople who aren't performing, and rewarding those who are? Would a different approach to the sales force pay off? Think hard about what is (and isn't) working for you. The goal is to do more of what works and less of what doesn't.

Next come financials. After you've been in business for a while, you will be able to create far more realistic projections than you could when you first wrote your plan. You'll need to create monthly financial statement projections for the next 12 months, quarterly for the year after that, and annual statements for the next two years. You should also project cash-flow statements-monthly for the next 12 months, then quarterly for the next three years. Finally, project a balance sheet for each of the next three years. Consider working with your accountant to ensure estimates are obtainable and realistic.

How have your financial projections changed since your original business plan was written? If your future financials look substantially less rosy than you'd hoped, try to figure out why. What element of your business isn't performing the way you'd expected? Is there one product or service that's consistently a money-loser? Maybe you're making good money, but spending far more on overhead than you anticipated. Pinpoint what the problem is and figure out how to address it.

Once you have updated these parts of your plan, it's time to take a look at organization and management. The changes in your market, your marketing and sales strategy, and your financials will dictate these changes. If you're adding an in-house sales force, for instance, you'll need to change your organizational structure to reflect that. If low sales are forcing you to slash expenses, you may need to eliminate some staff and outsource their duties instead.

In some cases, reassessing your business plan may lead to a full-scale overhaul of your business model. Perhaps your plan for a chain of retail stores isn't working, and you need to launch an e-commerce site instead. Maybe the business you thought would target teenagers is actually a bigger hit with their moms. In situations like these, you'll need to revise your business description as well.

Last, but not least, is the most important part of your business plan-the executive summary. Revise it, incorporating all the changes you've made in your business going forward. The executive summary is the shortest part of your plan, but the first (sometimes only) part potential investors and lenders read, so make sure your new summary captures everything that makes your business unique, exciting and likely to succeed.

Now that you've got your business plan updated, don't put it back in the drawer again. Refer to it often, and use it as a tool to guide you on your path to business growth.

Business Tech

SBOCTeam — Thu, 02 Jul 2009 13:54:54 GMT

These five high-tech products make a lot of low-tech sense

By Max Berry

It seems that there is always some new gadget to buy, some new breakthrough that you, the small business owner, supposedly can't live without. It can be hard to separate the essential business tools from the latest tech novelties. Here, to help you make some sense of the deluge, are five innovations that will truly put your business on the cutting edge.

1. Looking for an ultra-thin laptop at a reasonable price? The folks at MSI Computer have granted your wish. The MSI X-Slim X340 Notebook ($899; see us.msi.com for retail information) weighs in it a svelte 2.86 pounds and is only .78 inches thick at its widest point, making it ideal for easy travel. It is also the first notebook to utilize the Intel ULV CPU, which requires just 1/6th the power of a standard mobile CPU. The LCD monitor offers HD resolution and you'll have 320 GB of storage at your disposal. And did we mention it costs less than $900?

2. For office work on the go, Brookstone's Laptop Essentials Kit ($50, Brookstone.com) provides all the standard accessories of your desktop computer in a zippered travel case. The kit includes a USB numeric keypad, retractable optical mouse, and gooseneck USB light. Earbuds with an integrated microphone allow you to use Skype and other Internet-based phone services and a retractable high-speed Internet cable will help you log on even when doing business in a place without wireless access. A four-port USB hub is also included for additional peripherals, so you can utilize all the gadgets and accessories standard to your office no matter how far from home your business takes you.

3. Metal staples are flimsy, eco-offensive, and often lead to annoying nicks and scratches. Get rid of them altogether with an E3 Living Staple Free Stapler ($6.95; e3living.com). The contraption may sound like a contradiction in terms, but the staple free stapler punches out tiny strips of paper and uses them to sew together as many as five sheets. In addition to the environmental benefits and low likelihood of personal injury offered by E3 Living's product, you'll also save money on staples and have an easier time recycling paper since there are no metal scraps to deal with. If you're looking to fasten more than five sheets of paper, might we recommend jumbo sizes paper clips or reusable binding clasps?

4. If you're a serious techy, chances are you already have an iPhone. Why not soup it up with some applications designed with the small business owner in mind? PC2Me allows you to connect remotely to your Windows desktop and costs $29.95 for the year. QuickBooks Online gives you access to your QuickBooks data. The monthly cost of $9.95 covers you and your accountant. The Splurge app keeps your spending in line by tracking and organizing expenses while Billing Manager, free from Intuit, is great for easy invoicing on the go. Doing business internationally? TokTok Translator provides quick translation between Chinese, Japanese, English, French, Dutch, German, Italian, Spanish, and Arabic, among other languages. And, naturally, you'll want to stay abreast of all the latest gadgets to help your run your business. Get All The Tech is a preconfigured RSS reader that sends you feeds from tech sites like Engadget, Gizmodo, Slashdot, Techcrunch, and Wired.

5. It might not be a gadget, per se, but YouTube is an excellent technological resource for marketing your business. Simply transferring your local television spot to the web might be a good idea for your own web site, but YouTube presents a different kind of challenge-and opportunity. If you're a craftsman, make a video of yourself at work, documenting your process from beginning to end. Stone Brewery, of Escondido, California, has posted a dozen or so videos on YouTube offering an inside look at their brewing process-a craft beer aficionado's dream. Just remember that the site is a community of users looking to be entertained, not pitched to. Feature your product or service in a quirky way, like Orem, Utah's Blendtec did by producing a series of videos in which the high-powered blender manufacturer put its product to the test by attempting to blend odd items like glow sticks and hockey pucks. It all adds up to an innovative marketing scheme and-best of all-it's free. Participate in the site's discussion forums and comment on other videos to start getting your name out there. And don't forget to include your e-mail address and URL in your video. YouTube can bring people who wouldn't normally hear about your business directly to your door, or at least your inbox.

Taking One for the Dream: Paying Yourself Nothing

SBOCTeam — Thu, 02 Jul 2009 13:12:22 GMT

When, if ever, does it make sense for an entrepreneur to stop taking a salary?

By Reed Richardson

It's a long-held rule of running your own small business: don't forget to pay yourself. However, in an upside-down economy that continually provides exceptions to all the old rules, many entrepreneurs are finding that paying themselves is yet another piece of conventional wisdom worthy of reconsideration. But before you go cold turkey on salary, it's important to ask yourself several questions to make sure you don't unnecessarily risk both your own future as well as your company's.

What are the rules about how much salary a small business owner can/must take?

For most entrepreneurs, there really are no hard and fast legal rules about what they can pay themselves. As a general rule, it's best to pay yourself close to a "market rate" salary for your profession or industry. In fact, a good business plan should already figure in an owner's paycheck as a top-line expense because deferring that salary is, in effect, ignoring a real liability of the company. Still, many sole proprietor and general partnership startups launch with no one on the official payroll and some will end up paying their first few employees a salary before their owners see a substantial return.

Incorporated small businesses, on the other hand, have much clearer rules. Even the founder/owner of a C Corporation is considered a company employee, and so, according to tax laws, he or she must draw a market rate salary. A small business CEO that draws a suspiciously low or zero salary is in danger of arousing interest from the IRS, which might suspect the company of trying to avoid paying its fair share of employment taxes. (Too-high salaries also raise tax alarms, as they could be seen as a way of disguising dividend payments to small business owners.)

Is it really necessary to take $0 as salary?

While salary.com's 2007 Small Business Executive Compensation Index found that the median annual salary for a small business owner was $233,500, most budding entrepreneurs make far less than that. As a result, going "all-in" and accepting no salary to help your struggling startup survive might seem even more necessary, but, by the same token, a consistently lower annual salary also suggests having less money socked away to go income-free for long periods of time.

Instead, small business owners could consider taking a significant pay cut rather than a pay freeze. One tactic might be accepting only enough salary to pay your personal overhead-mortgage/rent, food, car loan, light bill, etc.-and forego any other investing or saving for retirement. This decision particularly makes sense if you're also asking employees to sacrifice a percentage of their salary to buoy your business's chances in tough times. After all, you would never expect them to work everyday for no pay, so to be fair, you shouldn't ask that of yourself either. Also, it's important to recognize the singular role that many small business owners' personal credit score plays in their company's ability to access capital-wreck your own credit rating by skipping a few car payments and, in effect, you've wrecked your company's credit as well.

If I do decide to forego all salary, am I crazy?

Any entrepreneur that foregoes any salary in the early days of his or her company should never feel alone. But in this bleak economic climate, even stable, well-established business owners are joining the club. In fact, a recent American Express Small Business Monitor survey (http://home3.americanexpress.com/corp/pc/2009/mtr.asp) found that 30 percent of small business owners were not currently taking any salary and 27 percent had done the next best thing, by enlisting a family member to work at the business for free. Retail entrepreneurs, in particular, were more than willing to sacrifice a personal paycheck, as more than four in ten-42%-reported taking no salary to help their business survive the recession.

Taking no salary functions like a periodic personal loan you give back to your business. And in an era in which many of the traditional fallback sources of capital for budding entrepreneurs-home equity lines of credit and personal credit cards-have dried up, temporarily recycling all of your salary back into your company offers the advantages of being both simple and immediate. By helping your business's cash flow remain robust enough to meet payroll, keep up with sales demand, and pay vendors in a timely manner, your company will remain attractive to its customers and suppliers, while building solidarity and loyalty among its employees. And by preserving your business's morale, reputation, and credit position, this short-term sacrifice makes your company more attractive to those constituencies that often determine long-term growth and success-lending banks and equity investors.

What are the broader drawbacks and disadvantages to taking a $0 salary?

Make no mistake, if foregoing a paycheck becomes more than a short-term, emergency measure, you are no longer running a business as much as you're running a benevolent employment agency. So, if after several months of no salary your company's fortunes still haven't turned around, that might be a signal that it's time to seriously examine the long-term sustainability of your business. This is particularly true if multiple business partners are subsidizing the company by refusing a salary. In addition, potential capital partners like banks or equity investors will be reluctant to inject any capital in a company that continues to rely upon this cash crutch to survive, even if the money is being plowed back into research and development or expanded production.

From a personal standpoint, taking no salary represents a dangerous, slippery slope for small business owners. For dedicated entrepreneurs, forgoing a paycheck for a few weeks or even a few months can seem like a small price to pay to keep a dream alive. But at some point, reality must set in. Even if your only retirement plan involves selling off your business in forty years, that future sale of your successful business won't put food on the table today. After all, if your company sinks and ends up bankrupt, you can always start another one someday, but that's much harder if your personal fortune goes down with it.

Off Season Training

CommunityTeam — Fri, 05 Jun 2009 18:40:44 GMT

All Four Seasons
Running a seasonal business presents a particular set of challenges-and opportunities

By Max Berry

Running a seasonal business may seem like an entrepreneur's dream: Work hard for part of the year and earn enough for the whole of it. But running a seasonal business, just like any other kind, is a yearlong endeavor-one that requires meticulous time management and an extra degree of financial savvy. Here are ten ways to get the most out of your seasonal business at every time of the year.

1. Take Advantage of the Off-Season
Banish the notion of down time altogether: By developing an airtight business plan during your off-season, you can ensure that the money you earn once things pick up again is managed effectively. The off-season is also an excellent time to develop a marketing plan; while you have a minute, poll your patrons to better understand how to serve them and use the information you gather to develop new ideas. You can use your slow season to take care of logistical matters as well. Make sure your lease is in order, lock in your staff as early as possible, and negotiate pay rates before you draw up your budget.

2. Make The Most of the On-Season
One of the perks of running a seasonal business is that, during the busy period, demand for your product or service is high. But the accompanying cash flow can create a false sense of security heading into those lean months ahead. Be financially mature, now matter how booming your business is for those few months. Pay yourself a livable-but not extravagant-salary, put all the money you can into a business savings account, and don't farm out jobs you could do yourself.

3. Diversify
Don't feel like your business is bound to one product or service. You can add to your income by hosting some "extracurricular" events to complement the services you already provide. If you run an art gallery, approach an artist whose work you're displaying about offering art classes at night. If you run a surf or ski shop, try offering lessons on the side.

4. Remember the Locals
Even if tourists represent the bulk of your business, don't forget to cater to the locals too. This can be an especially effective way to drum up business in the off-season, when the tourists are gone. Seasonal restaurants, in particular, can treat the end of tourist season as its own kind of beginning. A well-publicized locals night, celebrating the end of a successful tourist season, will remind your year-round regulars that you're there for them too, and will strengthen your business' place in the community.

5. Have Two Business Models
Rather than shutting down completely, adjust your business model to accommodate the seasonal shift in customer needs. Many summer camps keep revenue flowing in the fall and winter by renting space for special events, retreats, and conferences. It's also regular practice for restaurants that cut back on their hours in the off-season to remain open year-round for private events and holiday parties. While these events will provide a less consistent cash flow than the day-to-day business of your "on" season, patrons will pay more for private use of your space.

6. Make The Scene
Be on the lookout for events to help promote your business; trade shows run year round and taking part in local festivals, fairs, and holiday activities is a great way to increase brand visibility and make a personal connection with the people in your community. Include your goods or services in a local charity auction-whether it is during your busy season or not-to keep your business fresh in peoples' minds.

7. Appeal to the Entire Family
You may eliminate the off-season altogether by appealing to several demographics at once. Don't forget, if you run a restaurant, lounge, or other public community space, that every season is sports season. A television and a liquor license will attract a large crowd on game day, whether that game involves hoops or mitts. But stay family friendly. Games and a special menu for the kids-as well as a smoke-free environment-will make your business a viable destination for anyone's night out.

8. Give Them Something to Get Into
If there is one particular season that sags for your business, give it some life by initiating year-round clubs and competitive leagues for your customers. Bars and restaurants can bring in business with billiard leagues or regular darts tournaments; bookstores can host regular book club meetings and creative writing workshops; and restaurants can offer a series of cooking classes specializing in local fare and holiday favorites.

9. Start a Complementary Business
Perhaps the surest way to survive a seasonal business' down period is to start another business for another season. Some landscapers, for instance, do interior floral arrangements and design work in the winter. As long as the two businesses are complementary, the reputation you've built through one will lend you credibility in the other.

10. Stay In Touch
Stay fresh in your customers' minds by starting a mailing list. This way you can send periodic updates on developments in your business, new products, and information on when you'll be opening for the season. You can also send valued customers special offers and discounts to keep them coming back. A quality web site, with a section for similar news items and updates, will also give you a way stay at your customers' service throughout the year.