Category Archives: Business Management

Handling Small Business Stress

Handling Small Business Stress

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There are only two ways to make a living in this world – working for someone else or working for yourself.

If you’re an employee, unless something serious goes wrong, you have a reasonable expectation of stability, certainty and knowledge of where your next paycheck is coming from. Depending on your employer, you may have good benefits and potential to advance in your career. The risk-reward ratio of a salaried job is low to medium and suits the majority of people just fine. But, as the saying goes, nobody ever got rich working for a salary.

As a self-employed person or small-business owner, however, you are entirely responsible for your own income – and, if you have employees, for their income, too. There’s always the chance that you will be wildly successful, but that possibility is tempered by the very real risk of failure, sudden changes in the market, and a host of other risks. The risk-reward ratio is high and, for a small percentage of people, worth it.

Accept that you will undergo stress

If you’re considering working for yourself or starting your own company because you’re tired of working long hours, many rounds of golf with clients, or getting up at whatever time of day you feel like it, prepare yourself for failure right now. Because, as any successful small-business owner will tell you, it’s going to take a massive amount of very hard work, long hours, and the ever-present risk of losing it all. It can be a very high-stress venture and knowing how to deal with that risk could make the difference between pushing through the lean times and packing it all in for a nice, stable salary. Your first step is to accept the fact that you are going to experience stress and prepare yourself to deal with it.

Focus on what’s in front of you

It’s always a good idea to have a plan A, B, and C in place to deal with foreseeable contingencies; however, it’s impossible to foresee every scenario, so don’t spend all your time planning for what might go wrong. Have one or maybe two backup plans in place, then focus on what you’re trying to achieve – after all, the cost of reward is risk. Deal with each problem as it arises – don’t spend fruitless time worrying about what may happen. At the same time, don’t put off dealing with an issue for too long; both of these habits will cause you far too much unnecessary stress.

Have a release valve

For some self-employed people it’s a daily walk with the dog, for others it’s a weekly art class. Whatever it is, everyone, no matter how busy, needs time away from work to allow the mind to shut off, focus on other things and remember that there really is more to life than work. Unfortunately, for too many people that ends up being the instant gratification of alcohol or drugs, so take the time to find something worthwhile. Before you even choose the name of your new company, find something that can serve as your release valve and stick with it – you’ll thank yourself later for it!

How to Position Sales and Specials to Increase Profits

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Sales, specials, discounts and one-time offers are often a quick, simple way to boost your business. They help you attract new customers, offer long-time customers a reward for their loyalty, and encourage occasional customer’s incentive to buy more items. An added bonus, sales can help you move excess stock that’s taking up valuable space earmarked for new products.

Reduced price offers are, however, risky business. Offer too big a discount and you won’t make any profit; offer too little discount and it hardly seems like a deal. Here are three ways to tackle a special to help maximise your profits.

1 Crunch the Numbers

The first thing to do is to work out the golden median – what discount will allow you to still make a profit but will seem like a worthwhile deal to customers? This is where a good understanding of your income, expenditure and cost of sales comes into play. Depending on how big your profit margin is, you could potentially offer a significant deal. If it is a small margin, you need to be careful to take into account the hidden costs of the product, like warehousing costs, shipping, and other money already spent. Don’t be afraid to ask your accountant to help you work out the figures.

2 Find creative ways to offer a deal

It’s not just about slashing prices. Sometimes, you could gain more effect by offering a bundled deal, where two complementary items are sold together for a small discount, but in a way that showcases the benefit of having both. Alternatively, you could offer discounts for quantity – buy three, get a fourth free, or buy bulk for a discounted rate.

You could also offer discounted rates to specific groups. For example, a retail store offering senior citizens certain items at cost price on one day a week would encourage them to buy several additional non-discounted items during their shopping. Another situation, an internet service provider could offer registered university students a certain amount of data per month for free. It pays to be cautious with these kinds of deals, though – they should be limited time offers, as long-term discounting could cause you more harm than good.

For service-oriented businesses, you could consider offering certain customers a retainer deal – they get up to a maximum amount of hours or service from your company for a fixed rate every month, which can certainly help in the quieter, leaner months of the year.

3 Go seasonal

Depending on what you’re selling, you could consider offering seasonal deals. A clothing retailer catering to school kids could offer special deals at various times of the year – back to school or beginning of the vacation. A service-based operator could offer an annual discount to long-term customers at a quieter time of the year to encourage additional business.

Lastly, a little tip – be very careful of offering reduced prices when your cash flow is tight. You could end up doing yourself more harm than good. It may seem like a great way to drum up extra sales, but unless you are sure of making that profit, it could be too big a risk for your business.

A Simple Guide to Profit & Loss and Your Balance Sheet

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You have a great idea for a small business. You’ve done all the research, you know there’s a need for your product or service and you even have a few great marketing ideas. Unfortunately, you’re not exactly a financial genius. You know profit is a good thing and loss not so much. However, when people start asking anything more complicated than are you making any money, you’re at a bit of a loss.

Even if you employ a top-notch accountant to deal with money matters, it helps to know what position your company is in. To help demystify small business finances, let’s look at the basics – P&L and the balance sheet.

Profit and Loss Statement

At its simplest definition, profit is what is left over after you subtract your costs from your income. From this point, it becomes a matter of going into detail. What are the costs? Are they recurring or once-off? Do you have a single type of income or are there various categories – for example, a property company could get income from rentals, property sales, or investments. Each of these is a different kind of income, or revenue that needs to be shown as its own item on the statement, but counted together, they are all income. Costs could include salaries, consumables, marketing and a host of others.

Loss, however, is not the same as costs, or expenses. Loss happens when income minus expenditure results in a negative figure – in other words, when you’ve made less money than you’ve spent. This could be because of any number of factors, including unexpected expenses, failure to make enough sales, or a sudden increase in costs. At the same time, loss can be deceptive – for example, just because you haven’t sold your inventory doesn’t mean it doesn’t have value. That’s where the balance sheet comes in.

Balance Sheet

A balance sheet shows your company’s overall situation when it comes to assets and liabilities. Assets are anything you own, including income received, property, inventory, investments, equipment, anything that has any kind of value that you owner. Liabilities are anything that causes a drain on your finances. This can include normal operating costs, maintenance fees, even depreciation in the value of fixed assets. The balance sheet takes all these factors into account to show the total balance of equity in your company.

Of course, the deeper into company finances you go, the more complex it can seem, but if you can get a handle on these two important statements, you are well on your way to being in control of your own company finances.

How Much is Your Small Business Worth?

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There is any number of reasons why you could need to know what your business is worth – applying for a business loan, deciding to expand, or to sell out at a profit. You might even be a buyer looking to invest in or purchase a small business, wanting to find out whether it’s worth it or not. But how do you accurately assess the value of your business?

There’s more to it than just looking at your profit margins. We’re taking a look at three important things to look at when assessing the value of a small business.

Financial Value

The first, and probably most logical, place to start is the financial value of the business. This is reasonably straightforward to calculate, although it is advisable to use the services of a good accountant or financial manager to make sure everything is taken into account. The simple calculation is Assets – Liabilities to get the fixed value, plus average profit over the last three years to gauge potential income.

Market Value

Market value has less to do with its financial value and more to do with whether it has potential to grow beyond its current position. There are several questions you can ask to determine market value:

Where does your business sit in relation to other, similar businesses in the market? Who is your target market and what are they doing at the moment? Does your product or service have any unique selling points that could attract investors or buyers? What is the potential for growth in the market generally and this company specifically? If there room for growth or is the market saturated? Look at other, companies of similar size to find out how they have fared in the last year – has there been a significant number of closures in the industry or is it booming?

These questions aren’t going to give you a financial value, but will help you gauge whether it is worth selling, investing in or buying this kind of company.

Reputational Value

Even in difficult market conditions, some companies have such a good reputation for customer service, product excellence, market presence, and goodwill that they are a good choice for any investor. Such companies tend to have repeat business based on their positive reputation and relationships with customers.

Fortunately, it is a lot easier to find information on a company’s reputation than it used to be, say, twenty years ago. With social media, online reviews, publicly available reporting information and even something as simple as email, it is reasonably easy to find out if the company has a good – or bad – reputation.

It is always extremely risky to take on a company with a bad reputation, although it is possible to publicize the fact that the company is under new management and that things will change. Counter-intuitively, it can also be extremely risky to take on a company with an impeccable reputation; there is always the possibility that the reputation relies heavily on some seemingly magic combination of factors that could shift under new management.

Whether you’re the current business owner, a prospective investor or someone looking to buy a business, remember this – the value of a company lies in more than just the money it makes, and a savvy investor will take that to heart.