10.04.12 | WSJ: Small Business Banking by Amazon.com
In a recent Wall Street Journal article, the writer highlighted the fact that Amazon.com is now offering small businesses that sell their products on Amazon.com a financing option. As with any credit situation, you should always make sure that the financing package makes since for your business. To read the full article go click the link and let me know what you think.
08.27.12 | WSJ: When Freemium Falls Short
In a recent Wall Street Journal article, the writer highlighted the risks of a freemium business model. Freemium is when a start-up venture offers it service for free for a Basic level service package and charges a fee for service levels above Basic. For example, an online billing company may offer a free online billing system for up to five billable customers and then charge $25 per month for 6-10 billable customers and so on. The strategy is to get customers in the door to try the product and hopefully the customer will upgrade to a fee based plan because (1) the product fits their needs and (2) the fee based plans offers something worth paying for in the customer’s mind.
As noted in the WSJ article, it is critical to not give too much away at the Basic level and make it worthwhile for customers to switch to a fee-based service level. The bottom line, when developing a Freemium strategy the conversion rate of non-paying customers to paying customers is critical to the long-term success of the business. If customers are not converting fast enough for the business to become profitable before it burns through its cash it is critical to change the business model immediately until it is right. Here is the link to the full WSJ article.
08.20.12 | Start-up Infographic
Here is an infographic on start-ups created by Start-up Success
This infographic highlights how even after an entrepreneur fails he or she is more likely to be successful in the long-term because learning from failure is in itself a great reward.
07.16.12 | Why Can’t I Pay Myself This Month?
“Why can’t I pay myself at the end of the month?”
As a part-time CFO, I get asked this question a lot by prospective clients who are business owners. In the world of business cash will always be king. A business may be profitable on paper but from a cash flow perspective in the red with constantly overdrawn bank accounts. For any business to have positive cash flow, the business will need to have more money (real dollars) coming in than going out. It sounds simple but here are some common reasons why business cash flow is negative and some ways to turn it around:
- No understanding of the amount of actual cash coming in each month. Revenue or sales do not equal cash unless you are a cash only business.
- Create a cash forecast to understand cash movement using the information provided on your bank statements
- Monitor cash position weekly.
- Not focusing on the most critical barriers to cash flow first.
- Uncollected accounts are basically free services or products that cost your business money. A standard process needs to be implemented for unpaid accounts based on the amount outstanding, customer type and length of delinquency.
- By monitoring past due accounts your business will be able to start seeing patterns in behavior for the type of customers that pay habitually late and tighten of credit policies accordingly. For example, a courtesy email or phone call for customers that are 5 days past due could prevent those customers being 30 days past due since the likely trigger for them to pay is when they get the past due bill in the mail a month later.
- Timeliness matters. The longer it takes the business to follow up on cash impacting items the longer it will take for the business to get the cash in the door
- Not realizing cash going out the door is equally as important as cash coming in the door
- Only pay bills when you have the cash in the bank. Overdraft fees are preventable and is using up cash you don’t have.
- Brainstorm ways to do more with less.
By getting a handle on the business’ weekly cash position, speeding up invoice collections and strategically deciding when and how much to pay bills you can start paying yourself and understanding where every dollar in your business is coming from and going to.
For more ways to help clarify your cash flow issues and improve cash read “How to Keep Your Business Cash Flow Healthy with Financial Checkups“.
With the recent Visa and MasterCard lawsuit settlements, merchants that accept credit cards can now charge its customers fees for paying with a credit card instead of with cash, debit or check. Merchants typically pay 1% – 3% in transaction fees for the privilege to accept credit cards. There has been a lot of debate in certain circles whether or not a merchant should charge its customers a card surcharge.
The rationale for merchants that do want to charge its customers for using a card is that the customer will understand what it costs the merchant to process credit cards. I say “Who cares?” The customer doesn’t care about your processing costs just like he or she doesn’t care about your electricity bill. Credit card processing is a cost of doing business and should be reflected in the costs you charge for your services or products, not a separate charge. One way to run off customers is to start charging these one-offs where they get confused for what they are really paying for. In addition, many studies show that consumers tend to spend more when purchasing with credit cards rather than with cash and by implementing surcharges and pushing customers to use cash overall sales will likely suffer.
There will be certain industries that will have the power to add on a credit card surcharge given their power in the market such as airlines which already charge for baggage and seat selection. Airlines have nothing to lose by tacking on more fees given their market power and limited list of consumer alternatives.
Non-profits are a sector that makes sense to have credit card surcharges. By passing on the cost of card processing, more donations can go into serving the organization’s mission rather than overhead. Most donors would not have an issue with this and by offering credit card donation capabilities many non-profits could see their donations rise without additional costs.
And one more item to take note. Even though this settlement clears the way for check-out surcharges, it is still illegal to do in ten states. Make sure your system capabilities allow you to make the distinction when doing transactions online if you choose to implement a credit card surcharge.
If you are determined to lower your card processing costs by recouping the processing costs via your customers, one option is to offer a set discount that is less than your average processing costs per transaction, say 2% and offer the discount to customers who pay with cash instead of credit card; however, you are also giving a discount to customers who may have paid with cash anyway.
Whatever you decide to do for your business, make sure to consider the long-term impact to your business not just short-term gains.
The Wall Street Journal recently reported that most opposition has been dropped by state governors for taxing online purchases due to the major budget deficit many states are facing. For online business that sell products over the internet, this will be a major change in how online companies do business. Is your company ready for the change?
If your business will be impacted by the imposition of sales tax on online purchases regardless of location, it is necessary to make changes to your business model to ensure profitability and longevity. In essence, sales taxes increase the purchase cost of goods and one of the competitive advantages of shopping online versus shopping at local retailers will be eliminated. It is critical that your business is ready for the change prior to the online sales tax implementation. Here are some things you should be thinking about in regards to your business model:
- Review current pricing – Are your prices still competitive when sales taxes are included? Don’t forget to factor in the cost of shipping when determining how your price compares to local retailers. Is there any pricing power within your customer base to improve profits in a sales tax environment?
- Review business cost structure – Are there ways to bring your product costs down such as buying in bulk, taking advantage of wholesaler sales and so on? Does buying in bulk make sense in light of product storage and distribution costs?
- Review business cash flow levels – Does the business have the access to capital to advantageously purchase in bulk?
- Review business competitive position – Are there other factors beyond price that would make customers purchase your product? If no, then get to work. Your business is at great risk when the change comes. If yes, then continue the good work but always remember competitors will try to copy or improve on your offers.
- Review current accounting and IT systems for capability - Are your accounting staff and IT systems capable of handling all of the different tax jurisdictions for charging sales tax and for submitting tax receipts to the proper tax jurisdiction? Any new costs associated with the back office of sales tax will impact the profitability of your business and thus should be included in any reviews of your business model.
These are just a few thoughts on what to focus on in reviewing your business model in light of the likely changes in online sales tax changes. To read the Wall Street article please visit the link below.
06.25.12 | Facebook IPO Goof Won’t Stop New Listings
According to CFO magazine, the Facebook IPO will not hurt future listings of growth companies seeking funding from the capital markets. What are your thoughts?
I believe mistakes happen. Even though the Facebook IPO was full of huge errors from beginning to end it should not change the attractiveness of other companies who plan to go public.
What does it take to grow a company from start-up to small business? Growing a business isn’t simple, and from an HR perspective, there’s a lot of work to be done. Here are five must-haves they identified to take your business to the next level.
- A Culture that Supports Your Purpose. For many entrepreneurs on the cusp of growth, it’s still go-go-go (and likely will be for a while). But stop working for a second and reflect on what aspirations you have for your company. You need to decide what kind of culture you want your company to have. Start with the end in mind, and then begin identifying what values will help you get there.
- A Sustainable Operation. Can your business survive a week without you? Of course, it’s hard to loosen the reins. Before you cede control, you need a team you can trust. Getting the best people in the door isn’t easy, but hiring a few temporary contractors can free up some of your time–which you can then spend on finding your rockstars.Also, invest time in codifying some standard operating procedures. Develop some guidelines for how work should get done to keep employees aligned with your culture and desired work style. Even with a small team, a little structure will go a long way.
- Refined People Process. Once you can afford to take a breath, devote some time to developing people processes. The first step, is developing a great hiring process so you can begin cherry-picking your team. Before you hire anyone, decide how you will define success–for your company, your employees, and your managers–and how you’ll measure it. Apply this to how you score candidates and gauge cultural fit.People processes don’t end with hiring. Open, two-way communication is key as you build your organization. Be transparent. Share your vision, and openly discuss how things are going. Implement a process for tracking employee goals and performance, and meet with your team regularly to give–and receive–feedback. Make sure everyone is set up to succeed at what you hired them to do.
- A Network of Support. It’s lonely in the driver’s seat. Establishing a network of mentors and non-competing CEOs is pivotal to your personal development and that of your organization. Experts suggest developing a broad network of entrepreneurs so you can learn from them. There are endless resources available for honing your leadership skills.
- An Eye Open for Improvement. Don’t get too comfortable just because you have things cranking a bit. Even if you’ve built a sustainable organization, your work is far from done. As Turo points out: “Be prepared to work harder (and enjoy working harder) than you ever have in your life.”
You’ll make some mistakes (everyone does), which is why process improvement is always iterative. Learn from them, adjust, and consider how you can optimize for success.
On Thursday, June 7, American Family Insurance hosted its Business Accelerator business boot camp in Arlington Heights. It was a packed crowd and very informational. The focus of the boot camp was to help entrepreneurs of all sizes growth their businesses and had a focus on networking and driving sales leads through social media.
The event content was led by:
- Michelle Lanter Smith – CEO of Hi-Impact Marketing & Sales Solutions Inc.
- Dr. Bob Wright – CEO of Wright Business Institute
- Dean DeLisle – CEO of Forward Progress Inc.
My key take aways from the event were as follows:
- You have more contacts in your network than you realize
- Do not separate your business network from your personal network. You never know who knows who and it makes life much easier.
- Goals and action plans need to be developed for where you want the business to be in 6 month increments to help focus your business development efforts.
- Reaching out to “cold” contacts does not only have to be over the phone. Using social media to reach out counts too.
Overall, I was happy that I attended. Each presenter was very approachable.
ABOUT THE AUTHOR
Kimberly Loftis, President of Loftis Consulting, is a graduate of Kellogg School of Business and offers part time CFO and Controller services to small to mid-size businesses including start-ups to improve profits and cash flow.
06.04.12 | Traps to Avoid When Growing Your Business
This article from Inc Magazine applies to both start-ups and large businesses. It offers tips on not losing your way when things are growing and not to be afraid to make tweaks to the business model when things no longer make sense. What are your thoughts on the article?
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