Wednesday, December 8, 2010

Bank Local

Bankers are not very popular these days. Neither are they considered very trustworthy. A quick search on Google or Bing brings up quite a collection of articles about declining trust. Here are two examples.
A healthy mistrust of banking is very trendy. Distrust of large financial institutions is as American as apple pie. The second and third Presidents of the United States were both leery of banks. President John Adams was no friend of banks when he said,
Banks have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation than they can have done or ever will do good.
Thomas Jefferson also had some scathing words.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. 
The problem with the universal condemnation of banks and bankers is that it is misplaced. There are several banking systems. Adams and Jefferson were writing about a national bank. The recent financial meltdown was caused by another type of bank, the “too big to fail” banks and financial institutions. These are the banks that consumer guru Clark Howard calls “giant monster mega-banks.” However, locally owned and community based banks still deserve our trust and respect. If anything good comes out of the financial meltdown and the near collapse of the big banks, it may be a return to banking at locally owned and community based banks. If this happens, then it is part of a larger trend of doing business locally.

Many modern banks and financial institutions are primarily transaction processors and speculators, but those are new roles for bankers. Banks, especially in small town America, used to be the institutions that helped start small businesses and made it possible for people to buy homes. When little boys and girls saved their allowance or paper route or babysitting money, they dutifully took it downtown to the bank, and the friendly banker put it into an account and marked the deposit in a passbook. Banks encouraged people to put money away for a rainy day or to save for big purchases. Before the days of MasterCharge (now MasterCard) and BankAmericard (now Visa), banks encouraged customers to save for holiday shopping with Christmas Club Accounts. Now banks encourage customers to take on high interest rate debt. It is hard to say which came first, the rise of giant banks or the change in social mores from planning and saving to debt. In either case, too much debt is a huge part of the morass in which the world finds itself today. It turns out that easy credit had consequences.

The solution is to return to banking as it used to be. If you know where to look, you can still find a friendly banker. There are still places where children can deposit their allowance into passbook accounts. You can still find bankers that will discuss your business plan and work with you to help your business succeed, and there are still banks that will lend you money because the loan committee knows you personally, and they consider your character as important as your FICO score. A community bank  in Central Texas runs an ad where the banker asks, “Who is your banker?” He’s not asking the name of the bank. He’s asking the name of the person at your bank that knows your name. Do you bank where someone knows your name?

Local and community banks in your town also support neighborhood business. They have a vested interest in the success of the local grocery or pharmacy or hardware store because they shop in those stores. When the banker lends money to someone to open a new restaurant, it is not simply another loan to generate profit for the bank. Instead it is a new business for the community and another place that families, including the banker's family, can go out to eat.

Neighborhood bankers don’t just want local business to make enough money to repay their loans. They want local businesses to be successful so that the community is prosperous. When local banks make a profit, the money stays in the community and supports local business.

If you long for the days of a friendly banker that knows your name and not just your account number, if you want to do business with someone that will take the time to learn your business and wants you to succeed, if you want to bank with someone that is part of your community and not just a branch of some giant corporation, then it is time for you to start banking with the locally owned banks in your community.

Thursday, December 2, 2010

Why Groupon Succeeds

Have you ever used Groupon? Groupon is a service that sends out a daily email with coupons for local businesses. Most of the deals are pretty good. If you don’t have any idea what I am talking about, ask around. One of your friends probably subscribes to Groupon or has used it on Facebook. Business owners that have used Groupon to promote their business have reported that doing so resulted in a lot of sales. Groupon is a new company, and it appears to be successful. According to recent speculation, Google may even be considering purchasing Groupon.

The whole concept and implementation is innovative. Even so, there must be some secret to their success. Do you wonder what it is? Do they have some sort of super-efficient way to manage their vendor and customer relationships? Could it be cutting edge technology?

Well? The answers are no and no. The secret is their attention to detail and the quality of their writing. Groupon does not rely on business offering deals for ad copy. It has a writing staff. It may not be off-the-wall like this product description I’ve added to the end of this post for a wool coat from the J. Peterman Company, but according to CEO Andrew Mason,
. . . having well-written, engaging content is a key part of convincing users to keep reading about new shops that they might never have never heard of.
Creative writing was a hallmark of J. Peterman whose ad copy was so well known that it even ended up as part of the plot line on the popular TV show Seinfeld.

Groupon works because Mason and his team understand the importance of branding and of articulating a value proposition to customers. Groupon recognizes that it has two customer groups: the vendor with the product and the customer looking for a deal, and it offers value to each group. Groupon’s brand represents good deals for consumers and an easy approach to product promotion using online coupons to for vendors, and the company avoids the trap of being another coupon clipping site.

Check out this blog article about Groupon. DEMO: The secret of Groupon’s success is … good writing?

J. Peterman Company product description:
North Woods Know-How
Men who wear jackets like this know things.
  • How to start a fire in the rain.
  • Measure a cord of wood.
  • Build empires.
Like Samuel Bingham. Started out as a saw-filer and eventually became “The King of the Cascades.” At 60, he was still showing the greenhorns how to untangle log jams on the Gatineau.

Or J.R. Booth. Started out as a carpenter with $9 in his pocket. Worked well into his 90s and left a railway empire estimated at $33 million.

Clearly two men worth emulating.

Wool Zip Jacket (No. 2833). Both rugged and handsome, it’s made of a 90% Melton wool blend that’s brushed so the warp and welt yarns aren’t visible. 2-button adjustable cuffs. Side slits. Front and back yokes.

The front yoke is unique in that it covers the pockets, making them the perfect place to keep maps, a deed, or your GPS unit. Extremely warm but not bulky.

Every North Woods estate should come with one of these jackets and a black lab. Imported.

Men’s sizes: S, M, L, XL, XXL.

Colors: Navy, Red.

Tuesday, November 30, 2010

A different approach to business plans

I wrote a short note to an old Marine Corps buddy who is launching a new business. This is what I wrote.
Here are a few things for you to think about as you get rolling.

You need to develop a one sentence description of your venture that captures the essence of what you plan to do. If you want to dust off your old field manual and use SMEAC that will work. Just be sure you cover the Who, What, Where, When, Why, and How.

Be sure you have a clear vision of what you are trying to accomplish. In the business planning world, this is called a vision statement. Figure out something that helps share your vision that is memorable and short. KISS is the acronym to remember for this one. “Keep It Short and Simple.”

You also need to have a clear understanding of your mission. One way to do this is to take the time to write out a simple mission statement.

If all of this sounds like the beginning of a formal business plan, that is because it is. Here are the basic components of a plan.

Overview of the business
Analysis of the market
Description of products
Organization and management
Marketing and sales plan
Financial details
If you have experience with business plans, most of this should be familiar, but what is SMEAC? If you have a military background, then you may recognize SMEAC as a Five Paragraph Order. The Five Paragraph Order, or some variation, is the format for virtually everything the military does. The initials stand for:

Admin and Logistics
Command and Signal

The armed forces are large bureaucratic organizations, and it is easy to poke fun at them. However, two things that the military does better than most are organizing and planning. For example the basic administrative tasks of military units are divided into four parts: 1) Personnel, 2) Intelligence, 3) Training and Operations, and 4) Supply. Those four groupings are clear, concise and complete. One of the ways that the military accomplishes its organization and planning tasks so well is that it has developed consistent methods and proven them over time. The processes are also simple and easy to remember. For example, when troops need to report enemy intelligence, they simply remember the acronym SALUTE which stands for Size (of the enemy force), Activity (of the enemy), Location (of the enemy), Unit, Time, and Equipment (of the enemy). This is simple and easy to remember. It also provides all of the information necessary.

SMEAC is an easy to remember way to organize a plan. It will work with big projects and small projects. It is simple, and it contains all of the elements that would normally be included in a business plan. The following explanation is simplistic, but it will help you to understand the concept.

This section is exactly what it sounds like. It is the section where you will provide an overview of the relevant facts and provide background information. This is also the place where you would explain the business opportunity.

This section is where you will explain what you will do. You do not need to explain exactly how you plan to do it. You will explain how in the next section.

In the previous section, you described what you were planning to do. In this section, you will describe how you will do it.

Admin and Logistics
This section will include the details to support what you say you will do in the Mission section. It will tie to how you plan to do it as described in the Execution section.

Command and Signal
In this section you will describe your organization.

As you can see, the Five Paragraph Order is clear, concise and complete. I’m not suggesting that you use it instead of the business planning formats that you already use for two reasons. The first reason is that if you are already comfortable with a process that works, you should stick with it. (If what you are already doing does not work, that is another matter.) The second reason is that most of the other people that you show your plan will be more familiar with a more traditional format. Even so, it is useful for you to understand this way of organizing your plan. It will help you to write a more complete plan and to write it more quickly. SMEAC is also so simple that you may find that you are able to take the time to plan that you may have done without planning in the past.

Tuesday, November 23, 2010

Do you need a zero balance account?

A zero balance account is an account that usually has a zero or extremely low balance. Businesses use zero balance accounts to manage cash by moving money into the account only when it is going to be needed for a specific purpose. For example, payroll accounts are often zero balance accounts. Businesses will move the funds necessary to cover payroll into the account right before issuing paychecks, and then as employees cash the checks, the balance will drop back to zero. Zero balance accounts let businesses keep cash invested until it is needed. Zero balance accounts also help reduce exposure to fraud because it limits the number of people who have access to other business accounts.

Zero balance accounts are useful whenever a business makes routine or predictable payments out of an account. The most common example of this is payroll, but other examples could include rent or vendor payments.

So the question is, “Do you need a zero balance account?” The short answer is that you do if a zero balance account will help you put idle cash to work. While it may seem to be a lot of extra effort, many banks that provide cash management services can help you automate the process.

There is another reason to consider a zero balance account, and this reason applies to all businesses. It also applies to people that do not own businesses. The reason is fraud. Do you bank or shop online or use a debit card? Have you set up automatic debit transactions with vendors? A zero balance account can protect you. Consumers have a measure of fraud protection when they use credit cards. Business credit cards may not have the same protections. Debit cards may offer fraud protections, but legal protections may be limited. There are also some issues with automatic debit transactions.

Here is how a zero balance account could work for you. First establish a new checking account. Use a checking account because savings or money market accounts often limit the number of withdrawals that you can make. Keep your existing checking account. You use the same financial institution where you normally bank. That will make it easy for you to make transfers as necessary, and it will limit your additional recordkeeping. Try to use an account that allows a zero or very low minimum balance and either no fees or small fees. Some financial institutions will combine the balances of all of your accounts for the purposes of calculating minimum balances. You should also choose an account that will let you set up automatic transfers.

Once you have the account established, link it to your debit cards and online banking. Use the new account for automated debits and other predictable transactions. If possible, unlink your debit card from your old account. You can set up automatic transactions that will transfer funds from your first account to your new low balance account to cover your routine transactions. When you know that you are going to be using your debit card transfer the funds to cover your anticipated transaction. The idea is to limit your exposure to risk by limiting the amount of money in your account. Another way that it works is that setting up a cash management process that requires regular attention also increases your awareness so that if you are a victim of fraud or theft, then you will be able to respond more quickly.

Does a zero balance account makes sense for you or your business?

Friday, October 29, 2010

IRS Consumer Alert

The IRS does not send taxpayers unsolicited e-mails about their tax accounts, tax situations or personal tax issues. If you receive such an e-mail, most likely it's a scam. IRS impersonation schemes flourish during filing season. These schemes may take place via phone, fax, Internet sites, social networking sites and particularly e-mail.

Many impersonations are identity theft scams that try to trick victims into revealing personal and financial information that can be used to access their financial accounts. Some e-mail scams contain attachments or links that, when clicked, download malicious code (virus) that infects your computer or direct you to a bogus form or site posing as a genuine IRS form or Web site.

Some impersonations may be commercial Internet sites that consumers unknowingly visit, thinking they're accessing the genuine IRS Web site, However, such sites have no connection to the IRS.

For more information on scams and what to do if you're subject to one, see our Problem Alerts page, Online Scams that Impersonate the IRS, Suspicious e-Mails and Identity Theft and How to Report and Identify Phishing, E-mail Scams and Bogus IRS Web Sites.

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Friday, July 2, 2010

Do you need a board of directors?

If you are not a corporation and required to have some sort of board, you may be wondering why anyone would even ask this question. After all, a board of directors represents the shareholders, and if you are a sole proprietor, you are the shareholder. If you are in a partnership, you and the other partners are the shareholders. It makes sense that you don’t need anyone else to look after shareholder (your) interests.

Or does it?

A board is . . .
A board is the governing body of a corporation. It is responsible to the owners of the corporation. It hires and fires the CEO and sometimes other officers. It sets policy and direction. Board members are supposed to be selected on the basis of their skills, experience, knowledge, or some other strength. No single board member is expected to be an expert in everything, but their strengths should complement each other. The board should be a moderating influence when necessary, and it should lead the corporation in new directions when necessary.

At this point, business owners are saying, “But that is my job!” They are right, and strictly speaking there is no need for a board to represent the owners and to direct management when the owners and management are the same. However, it might be good for business owners to learn the lesson that writers learn when they are first learning their craft. It is not a good idea to try to edit your own work. It is always a good idea to find a source of independent feedback so that you do not end up breathing your own exhaust. This is a term that refers to getting caught up in your own world view so that you lose sight of other ideas or approaches. The sad truth is that we are often not very honest critics. We either give ourselves a pass on opportunities for improvement, or we downplay our strengths. One approach that many businesses use to find an independent voice is to hire consultants. The consultant approach may be good for specific problems. However for ongoing advice, it makes sense to find a more permanent solution. That is where the a board comes into the picture.

While the role of the board may formally be all about policy and direction, effective boards are also advisory bodies. Wise CEOs take advantage of the accumulated expertise of their companies’ boards. Large partnerships are able to do the same thing because the partners often bring multiple skills and experiences to the firm. Not-for-profit organizations do the same thing. Sole proprietors and small partnerships however, do not typically have boards. Skill, knowledge, and expertise are limited to the owner or the partner or employees hired for certain tasks. What if something is missing? It is beginning to sound like a good idea to have a board or a team of advisors.

A board is not . . .
Having a board is not the same as hiring professionals to perform specific functions for your business. Your board will not take the place of your attorney or your CPA. Your board’s risk management advice will not be a substitute for a good relationship with a trusted insurance agent. However, your board may be able to help you in ways that these professionals cannot.

How to create a board
Your objective is to find a source of guidance, and you hope to be able to create a team of people willing to help you lead your business.

This is something more than just a group from the civic club or business networking group, but it does not have to be much more. Your objective is to find a group of people with skills or knowledge that are willing to help contribute to your success. It is easier to do this than you might think. The most anticipated hurdle to overcome is your own thinking that there is not anyone out there that would want to do this, or if there are people that want to do this, then they will charge dearly for their time. Good news. While there are people who make their living as consultants that will charge you dearly, there are just as many people that will help you without sending you a bill. The key is in understanding why they might want to help you build your business.
People will agree to help you for several reasons. The first is simple self interest. Your success will contribute to the economic growth of the entire local business community. If they help you, and your business grows, then their business will probably grow also. In addition, when you are ask other people for help because of their skills or expertise, they realize that you are likely to reciprocate. Another reason is altruism. Many people, particularly those who have been successful in life, enjoy helping other people become successful. One potent example of this is SCORE which has 12,400 volunteers with experience in over 600 business skills.. This is a group that shares its accumulated experience with small businesses. They do it simply because they can and because people need the help.
If you are trying to grow your business, seriously consider forming a board.

Friday, June 25, 2010

Who is on your team?

In the last week or so, I’ve been thinking about teamwork. The Word Cup is big news. Basketball teams are fighting over new talent in the NBA draft. Lance Armstrong is assembling a team for the Tour de France. Teamwork is in the news.

A well run business is like team. Businesses have owners and managers and workers. In big businesses the various players are pretty well defined. Small businesses tend to be more like pickup games though. Owners and employees do whatever job needs doing. It’s not all that different from showing up at the ball field where one day the team needs a left fielder and another day the team needs a short stop or a catcher. Specific skills may not be as important as simply being there to do the work. That works fine until the team realizes that it is good enough to play in a tournament. That’s when the team captain goes out and tries to recruit ringers. Unfortunately the new players rarely lead the team to victory. No matter what their skill or talent, it is not a substitute for practicing and playing with the team.

Think about how this applies to business. Many small businesses rely on employees to do whatever needs doing. It is simply too expensive to hire a lot of people, and until the business gets to be a certain size there is not be enough work for full-time employees. The owner usually manages the business, does the bookkeeping and payroll, hires and fires employees, manages compensation, keeps up with rules and regulations, and pays taxes. Since none of those things have to do with making or selling products and turning a profit, the business owner does all those things in his or her spare time. When tournament time comes, and the small business owner is struggling with financial statements and taxes or trying to understand insurance or deferred compensation, he or she goes out to find an expert. Unfortunately, just as with the softball or basketball team, the new player often does not know enough about the business to make a difference.

The way to victory is sign the players to your team before the tournament. You can do this even if you do not have any money by choosing the right people when you seek advice. When your books got too involved, did you ship them off to the least expensive book keeper you could find? Do you shop for a new accountant every year? Is your insurance agent simply someone you send money to every year? Is your attorney’s business card buried in a stack of cards in your desk? If the answer to any of these questions is, “yes,” then I have a new idea for you.

Find a single professional that will assemble a team for you. Many professionals recognizing the value of a team approach have developed relationships with other professionals. For example, many CPA’s routinely refer clients to the same team of advisors for legal matters, insurance, investment advice, and even hiring assistance. If you already have an accountant, attorney, book keeper, insurance agent, or investment advisor, ask that person for recommendations. Find out if they routinely refer to each other or if they ever work as a team. If you don’t already work with any of these professionals, then be sure to ask about professional relationships with other service providers when you are hiring them.

After you have identified a team of professionals that will work together for you, take the time to meet with them to discuss your business and your needs. You might try to meet with them together. If your CPA acts as a business advisor, then he or she may be able to help you do this. Consider a business lunch. The amount of time you spend with each professional will vary. The amount of time that you spend may vary. You may find it desirable to pay for a consultation. The short list below describes some of the things you might want to discuss.
  • Attorney: You will want to discuss the form of your business and related liabilities and regulations that may affect your business.
  • Accountant: The topics here include tax planning and structuring your accounting system so that it will provide you useful information. Other topics include cash management and accounting controls. Depending on the form of your businesses, you may also want your accountant to help you figure out how to distribute income.
  • Bookkeeper: You may not have a separate bookkeeper if your books are simple or if you do not have a large volume of transactions. However if your books are complex or you have a lot of entries, or if you have payroll, then hiring a bookkeeper will be more efficient than doing it yourself and less expensive than having your accountant do the work personally. Ideally your accountant will handle the bookkeeping for you by assigning it to a bookkeeper or junior.
  • Insurance Agent: The obvious items to discuss with your insurance agent include anything having to do with property or liability insurance for your business. If you or your employees drive for business, then you also need to discuss auto liability coverage. If you are a sole proprietor in a partnership or in some other business where you can be held personally liable, you should also review your personal coverage. If you provide health insurance to your employees, you may have a different agent for the health insurance.
  • Investment Advisor: The discussion will include retirement planning and related issues. Your CPA will advise you on the tax consequences of various retirement plans and deferred arrangements. Your investment advisor will actually help you set them up for yourself or your employees.
 The objective is to create a team of professionals that know you and work together. Ideally one individual such as your CPA or planner can coordinate the work that they do. If that is not possible, then you can do it yourself. They key is to assemble your players and have them become part of your team early. If you wait until the tournament or the finals, it will be too late.

Wednesday, June 16, 2010

Hiring older workers

What did you think when you read the title of this post? Does it seem like a good idea? Is it a bad idea? How do you know? Ignore all of the obvious stereotypes of older and younger workers and take a look at this quote from an interview by Beth Kowitt, on June 11, 2010 in the Fortune Magazine section of the website.
70% of all money in banks is held by people over 50. That's an example of an industry that's finally coming to realize that a 60-year-old client might actually appreciate dealing with a 60-year-old banker. Other sectors likely to welcome a more mature approach: adventure travel, luxury cars, lifelong learning, or retail.
The same article discusses strategies that retirees returning to the workforce should use and suggests:
sell yourself as a mature person. Stress your capacity to make smart decisions, your good judgment in managing people, your contributions in brainstorming and business development, and your lifetime connections. This is your advantage.
What do you think? Does that sound like the kind of worker that you want working for you? The proliferation of books such as Encore: Finding Work that Matters in the Second Half of Life by Marc Freedman and Don't Retire, REWIRE! by Jeri Sedlar and Rick Miners suggests that more older workers are either choosing to begin second careers instead of retiring, or they are reentering the workforce after retiring. This trend could mean a supply of experienced and knowledgeable workers for your business. Are you in a business sector that might benefit from more mature and experienced workers? Would your customers be more comfortable with older workers?

Finding qualified employees is always a challenge. Recognizing and understanding the trends related to more experienced workers can help you.

Thursday, June 3, 2010

Tips on self-employment and working from home

If you have been following employment trends over the last few years, then you are probably aware of two important trends.
  1. People in their 50's, 60's, and even 70’s aren't retiring. They are reinventing. They are taking their skills and changing careers. A few recent books such as Encore: Finding Work that Matters in the Second Half of Life by Marc Freedman make this point. There are also a variety of resources such as that provide services directly to the “Boomer” generation.
  2. More people are working from home. This may be because companies are developing flexible work arrangements. It may be because of increased use of contractors.
One thing that links these trends is that many of the “encore careers” that boomers are pursuing involve working at home. Whether this is because a successful career has become the springboard for a second career as a consultant or because the boomer has the experience, knowledge, and skill to negotiate a non-traditional working arrangement, many older workers are not going into an office every day.

This new way of work brings some challenges though, and as Bill Vick from writes in Self-Employment and Working From Home Legal Facts:
Working from home can be a lot of fun and quite lucrative but there are a lot of things that you need to know from a legal standpoint that will help keep you out of trouble. Things such as managing finances, paying appropriate taxes, and following laws that the IRS has created are all important things that you’ve got to learn.
These are just a few of the question you should ask.
  • Am I an employee or a contractor?
  • If I am self-employed, how to I handle my bookkeeping and taxes?
  • What other laws or rules affect me?
Check out this excellent article from to get started on the answers to these questions and others. Self-Employment and Working From Home Legal Facts

Friday, May 28, 2010

Book Review: The Four Principles of Happy Cash Flow

The Four Principles of Happy Cash Flow
By Leita Hart, CPA

Cash is king! This is a simple three word sentence, but it is very powerful, and forgetting that cash is king can have severe consequences for business owners. Business owners that do not understand cash flow can actually find themselves in the odd position of making a profit while going out of business!

Knowing that cash is important, however, is only the first step. Business owners need to know how to generate cash, and they need to know how to manage their cash once they get it. The good news is that understanding cash flow does not have to be hard.

In The Four Principles of Happy Cash Flow Leita Hart has condensed cash management into four basic principles, and she describes them in simple easy to understand terms. She demonstrates the concepts by using examples from familiar companies such as Dell and Wal-Mart, and she explains how the principles can be applied to businesses of all types and sizes. The book includes ideas for:
  • Maximizing cash balances,
  • Getting money in the door faster,
  • Managing or controlling inventory,
  • And more.

Thursday, May 20, 2010

Green is good business!

The green movement has grown tremendously, and it has become mainstream. This is a trend you need to understand. If you have been reading the business pages over the last several years, you have probably seen a lot of terms such as green building, renewable energy, and sustainability. Not too long ago, conventional wisdom said that going green cost too much. It turns out that conventional wisdom was wrong.

Green is good business!
Who knew? It turns out that it makes sense to conserve energy. Energy costs are high and going higher. It makes sense to conserve raw materials. Reduce, Reuse, and Recycle are not just buzzwords. They are tools to reduce costs. They reduce the cost of hauling away garbage and of storing garbage in land fills. Green also means using renewable resources and local sourcing. These practices can reduce costs too.

Customers like it too. As more people become aware of what it means to be green, they are demanding that the companies they do business with become green. In fact, green has gone from a niche market to mainstream. Customers may even be willing to pay more for green products.

Green has gone mainstream.
If you have any doubt, do some quick research on major corporations that have announced green initiatives. Among the companies that are going green are CSC, BP, GE, Marriott, Verizon, Wal-Mart, and more. Local governments across the country are announcing green initiatives.

What does this mean for your business?
The growing green movement is an opportunity for you. You should think about doing two things.
  1. Understand what it means to be green.
  2. Figure out how to satisfy your customers' desire to be green.
Understand what it means to be green.
Understanding what it means to be green is both easier and more difficult than you might imagine. There is a lot of really bad information floating around. Get your information from a variety of reputable sources.

Don't be afraid to ask questions, and be assured that you know more than you realize. You will learn that a lot of things that have to do with being green are pretty simple.

Figure out how to satisfy your customers' desire to be green.
This could be as simple as letting your customers know about  your green practices. However, depending on the type of business you have, you may also want to evaluate your product mix. Leaning what your customers want may be a challenge, but you can begin by looking at approaches used by other businesses. In addition, if your customers know you are thinking about going green, some of them will be happy to tell you what they want. Ask them.
Remember that conventional wisdom that going green cost too much? It turns out that not going green might cost you even more.

Wednesday, May 19, 2010

Slow Money

Have you heard of Slow Money? Does it even make sense to you? Modern life is supposed to be fast paced, and business is supposed to be about getting deals done. If we even think of the speed of money, then we think back to introductory macro economics courses where the professor droned on and on about velocity of money, and faster was supposed to be better. The Slow Money movement has been around a while, and it has been building slowly. (How else?) It is a trend small business owners need to understand.

So what is Slow Money?
According to John Tozzi, in his post Big Ideas for 2010  on the Successful Entrepreneur Blog, Slow Money is an example of two emerging ideas:
  1. New ways to finance social ventures
  2. Local capital markets
Tozzi in an earlier article, Slow Money, Local Business, and Social Capital, described the slow money movement and observed:
The emerging model involves several trends we’ve been tracking for a while: crowd funding, community development capital, buy local movements, and for-profit social enterprise.
The idea behind Slow Money is that people ought to do business where they live and eat and work and play. In many ways, the movement is a reaction against growing globalization. In addition, people are beginning to question whether it was a good thing to replace family farms with giant industrial agriculture factories.

This is what the Slow Money Alliance has to say on their website.
Slow Money's mission is to build local and national networks, and develop new financial products and services, dedicated to:
  • investing in small food enterprises and local food systems;
  • connecting investors to their local economies; and,
  • building the nurture capital industry
What might this all mean to you and your business?
The values that are the foundation of the Slow Money movement are embodied in the belief that people are part of a place. That belief is not at odds with the idea that individuals are part of a broader national or even global community, but it does question whether bigger is always better and whether the constant search for cheaper and faster is worth the tradeoffs in quality that sometimes occur. The many “shop local” movements springing up around the country are evidence of a desire for the things the Slow Money movement describes. So too are the twin movements to reclaim small town America and to create livable cities. Small villages and towns all over the United States died as large corporations displaced locally owned stores agribusiness took over family farms. It is up to small business to get back into the marketplace. In many places, as people rediscover small town or village life, some of these places are coming back to life. This is not just a rural or suburban movement. In cities, corner grocers and soda fountains and drugstores with lunch counters were displaced by giant chains. Today, however, locally owned stores are returning.

The reason that this is important for small business owners is that locally business is small business. The Slow Money movement is all about supporting small business and “connecting investors to their local economies.” You need to know all about Slow Money, because Slow Money is all about you.

Tuesday, May 18, 2010

Two Rules for a Successful Presentation

I ran across some great advice on the Conversation Blog of the Harvard Business Review. The post was Two Rules for a Successful Presentation Since small business owners frequently give presentations, it seemed worth repeating. What? You say you never give presentations? Think again. Business owners give presentations every time they talk to their customers or their bankers.

The rules by Nick Morgan, the President of Public Words Inc, are simple.
Rule One: Know Thy Audience.
Presentations are about their audiences, not their speakers. Before you write anything down, or commit anything to a Power Point slide, you must give some thought to your listeners.
This applies to more than presentations a the Rotary or Lions Club. The same thing applies whenever you talk to a customer. You have to understand the customer's needs before you can understand how to meet them and how to make the sale.

It is even harder to apply the lesson when talking to a banker about a loan. Business owners want to talk about their plans and why they need the money. All of that is important, but why it is important becomes obvious in the context of "Know Thy Audience." The banker wants to know that he will be paid back. So when you make your presentation asking for a loan, remember why you are talking about your business.
Rule Two: Tell Them One Thing, and One Thing Only
This is a difficult rule for most presenters to follow. But it's essential. The oral genre is highly inefficient. We audience members simply don't remember much of what we hear. We're easily sidetracked, confused, and tricked. We get distracted by everything from the color of the presenter's tie to the person sitting in the next row to our own internal monologues.
This one, according to Morgan, is difficult. When speakers get up in front of an audience, they want to talk about everything they know. We've all been to presentations where the speaker keeps listing so many examples that we forgot the original point.

These two rules presented by Morgan should remind us of a couple of other public speaking terms. WIFM and KISS. Keep in mind that your audience often has a simple question, and you can give them the answer. The question? "What's In it For Me?" When you give them the answer Keep It Short and Simple.

Click on the title to read the origninal post by Nick Morgan.

Wednesday, May 12, 2010

Book Review: Younger Next Year

Younger Next Year: A Guide to Living Like 50 Until You're 80 and Beyond
By Chris Crowley and Harry S. Lodge, M.D.

I was skeptical when I first heard about this Younger Next Year. There are so many books about healthy lifestyles or dieting or exercise, I’m not sure the world needs more. I’ve also grown weary of every new age bit of hocus pocus that seems to show up on the best seller list and talk show circuit. The guides supposedly based on medical research are not any better. One day caffeine is bad, so we are all supposed to give up coffee and tea, and then the next day it is good. Alcohol used to be bad, now wine is good. As far as food types go, choose your poison: carbohydrates, fats, or protein. It was refreshing to read a book that distilled it all down to something simple, “Quit eating crap!” Then to top it off, the authors continue to tell it like it is by reminding us that we really do know what is good to eat and what is not. They also remind us that deep down inside our genes, we know we need to get moving. We just weren't made to sit on the couch in front of the TV all the time.

Younger Next Year is a great book. It is not just another diet or lifestyle book. It will give you something to think about. It was fun to read.

I heard about this book on a cross country skiing and camping trip in the Boundary Waters Canoe Area Wilderness in Minnesota. I’m fairly active, so wandering about on the lakes and in the woods of the North Woods is fun for me. One of the people on the trip mentioned the book, and it sounded interesting.

The basic premise is that our whole understanding of aging is bunk. We seem to have this idea that people begin some sort of downhill slide sometime before they reach 50. Then when they reach 50, their bodies really begin failing so that life is really a gradual and pathetic descent into painful decay. Upon reaching retirement people can look forward to a feeble existence living out their days in a nursing home. Look around. That’s just not true for everyone. It is not even true for most. Sadly it is true for too many. It does not have to be this way.

Chris Crowley and Harry Lodge got the idea for the book after Chris went to Dr. Lodge for a checkup after retiring. Like many people, Crowley needed to make a few adjustments to his lifestyle. Unlike many people, he really listened when the doc gave him the news. It turns out that many of the things that we think of as normal aging are actually the result of our behavior. The majority of illness, it seems is caused by our modern lifestyle. A few simple ideas can help us stop and even reverse that “normal” decline. In the book Chris describes his story in an entertaining fashion. Harry explains the science behind what Chris says. It is sometimes thoughtful and often witty. Neither of them pull their punches.

The book leaves the reader with a solid take away. The basic guidelines are all wrapped up in Harry’s Rules. There are seven of them. I’ll list them here, but you will get a lot more out of them if you get the book and read as Chris and Harry describe them. If you want a preview, then check out their website. The book has turned into quite a sensation. Chris and Harry now have a website, blogs, and even speaking engagements.

Harry’s Rules
  1. Exercise 6 days a week
  2. Do aerobic exercise 4 days a week
  3. Do strength training 2 days a week
  4. Spend less than you make
  5. Quit eating crap
  6. Care
  7. Connect and commit
Check out the book. No matter how old you are today, 30, 40, 50, 60, 70, or more, you can be younger next year. By the way, the guy that told me about the book was retired. He said that trips like the winter camping trip we were on was part of how he stayed young.

Tuesday, May 11, 2010

Angie’s List and Yelp: How to make consumer sites work for you

Just when you thought that you had the Internet all figured out along comes something else for you to worry about. If you have a website, you have probably already heard about search engine optimization, also known as SEO. You may have already explored using widgets such as Add This. You’re blogging, tweeting,  and Facebooking.  You are Linked In.  What else is there to do?

How about getting back to basics? Build your reputation. You can do this by understanding and using consumer review sites. Two popular Internet services are  Angie’s List and Yelp.

Both sites provide customer reviews of merchants and service providers. Angie’s list has a small membership fee, Yelp is a free service. They are not the only review sites, but they are two of the most well known. Yelp began in San Francisco in 2004, and according to their site, subscribers have written over 10 million local reviews, and over 31 million people visited Yelp in a 30 day period. Yelp can be accessed from just about any device with Internet access, and it was listed in a Time magazine article, 10 Essential Websites.

Angie’s list has been providing reviews since it was started in Columbus, Ohio in 1995 by Angie Hicks. Angie’s List groups customer reviews by service and location. The small membership fee provides access to local reviews on, live support, Angie’s List magazine, access to a complaint resolution team, and product discounts.

Why this is important to you and your business 
More and more people are using consumer review services such as Angie’s List and Yelp, and the recommendations are powerful. More than a million belong to Angie’s list, and Yelp gets more than 31 million visits a month. That is a lot of people. Word of mouth reviews have clearly moved beyond friends talking to friends. Whether you do a great job or a lousy job, people are likely to talk about you on consumer review sites.

Carpe Diem! 
If you understand the power of consumer reviews, you can make them work for you. Here’s how.
  • Don’t bother trying to game the system
  • Understand your customers and your business
  • Deliver the goods
  • Ask for referrals
Gaming the system
This is a loser’s game. The reputable consumer review sites work hard to present unbiased reviews. You can try to join the sites and review your own business, but you will probably get caught. Besides, if need to write your own review to get a good one, then you have bigger problems than a customer review site. It is a good idea to look yourself up on the sites so that you can see what your customers think of you.

Understanding your customers and your business
The key to good reviews is happy customers, and the key to happy customers is knowing what they want and giving it to them. A couple of buzzwords that you should know are “customer value” and “branding.” A customer value is simply the reason that customers buy a product. What value do customers see in your product? What are you offering? What is your "value proposition?" Branding is how you present yourself based on what you offer. Unless the goods or services you sell are inferior to others at similar price points, then the most likely cause of customer dissatisfaction is that what you say your offer, your brand, does not agree with what your customers want. Consider this extreme example.

A farmer went out to buy a vehicle and asks the salesman for the best he has. The farmer has a lot of money, so price is not a consideration. A few weeks later the farmer returned to the salesman complaining that he had been sold a piece of junk. When the salesman asked what was wrong with the Ferrari,  the farmer replied that it got bogged down in the field and there was no place to hook up the seed spreader.

If your customers want tractors, do not try to sell them fine Italian sports cars! A popular theme in sales is “consultative selling.” The idea is that salespeople should work with customers to identify their wants and needs and then demonstrate how the products meet those. This is different from the usual approach salespeople use when calling on customers to pitch their wares. Check out this blog post by Jill Konrath, Sales Classics: Why You Must Go Into Sales Calls Totally, Stark-Raving Naked for another take on the topic.

Deliver the goods
Assuming that you understand what your customer wants and that you have it, close the sale. Then deliver the goods. Your sale was a promise. Keep it. This means doing:
  • What you say you will do
  • When you said you would do it
  • At the price you agreed
If you read through reviews on Angie’s List, two things will become obvious fairly quickly. A lot of companies do not do what they said they would do when they said they would do it for the agreed price, and customers are actually surprised when companies do keep their promises. If you want the best reviews, you will have to do more, sooner, and for less than expected. However simply doing what they promised to do appears to yield good reviews also.

Ask for referrals
This advice has been around for a long time, and it works. Ask your customers to tell other people about you. Ask them if they belong to consumer review sites such as Angiel's List and Yelp. If they do, ask them to write about you. If you have done well by them, then they will do well by you.

So, how can you make consumer sites work for you? Find out what your customers want. Keep your promises, and ask your customers to tell their friends about you.

Saturday, May 8, 2010

Borrowing money for your business

All businesses borrow. They need cash for operations, and they need cash to invest in assets so they can build the business. Businesses can get the cash by they need by making a profit. However this may not be enough for growth.

Generally speaking, businesses borrow for one of three basic reasons. They need money to:
  • Get started
  • Grow
  • Smooth out cash flow
When you started your business, you may have borrowed from family or friends. You may have used your credit cards. It could be that your business is a professional services business, and you were able to start small with just a few clients, and it really did not take much money to get started. Perhaps you turned your hobby into a business. Now you’ve reached the point that you need some money to get to the next level. Maybe you are an attorney and you are ready to hire a paralegal. Maybe you need a new lathe for your woodworking shop, or a new delivery van for the catering business. What do you do?

Good news! Even though you have heard all of the bad news about tight credit, there are plenty of things you can do to make it easier to borrow money. There are only two things you have to know.
  1. Know yourself and your business.
  2. Know your banker.
Know yourself and your business
You need to know about yourself and your business for two reasons. You need to be able to make good plans, and you need to be able to present those plans to whoever is going to lend you money. Give your CPA and bookkeeper a call and get a copy of your most recent financial statements. While you are at it, get copies of the previous few years. Look at everything and not just the P&L. If you don’t understand financial ratios, ask your CPA to explain them. The ratios are tools that you can use (and your lender will use) to evaluate the relationship between your debt and your assets, how much debt service you can handle, how you manage your cash flow, and whether your business is profitable. If you are a sole proprietor or a partnership, you will also want to review your personal financial situation. If you are not sure how to prepare your own personal financial statements, ask your CPA or bookkeeper for help. You should expect to pay a fee for these professional services, but trying to save a little in the beginning could cost you later.

 Once you understand your current situation, you can start working on the future. If you put together a business plan when you started your business, then this part should be easy. All you have to do is update your plan. If you don’t already have a business plan, then develop one. You can do this yourself. There are guides and templates available in many places. You can purchase planning software. You can also ask your CPA for assistance. The Small Business Administration provides a template. Another place to look for help is the Service Corps of Retired Executives (SCORE). This is a link to their template gallery.

However you develop your plan, it will contain these basic parts.
  • Summary
  • Overview of the business
  • Analysis of the market
  • Description of products
  • Organization and management
  • Marketing and sales plan
  • Financial details
With a good understanding of your business and a business plan, you will be prepared to get to know your banker.

Know your banker
What does it mean to know your banker? In this case it means a few things. Some of them may not be possible right away because they take time. Some of them you can do immediately.
  • Develop a relationship with the bank and with the people in it.
  • Get to know everything your bank can do for you.
  • Understand what your banker needs from you.
Develop a relationship with the bank and with the people in it
This should be obvious. Remember the movie, It’s a Wonderful Life. Think about the contrast between George Bailey at the Bailey Building and Loan Association and Mr. Potter. Find a bank that wants to get to know you and your business. Figure out who the George Bailey’s in your community might be, and avoid the Mr. Potters.

The other part of this is, once you find your version of George Bailey, you need to be a loyal customer. The bank will not want a relationship with you unless you demonstrate that you want a relationship with it. You should do most of your business with your new bank. You should also try to do it in person. When you walk in the door, you want the people in the bank to recognize you. Loyal customers are as important to your bank as they are to your business.

Get to know everything your bank can do for you
Many business people simply cannot imagine the range of services available at even the smallest community bank or credit union. Most people know about checking and savings accounts. They know about money market accounts and CDs. People know about loans such as mortgages, auto loans, and personal loans. However, did you know that many banks also provide merchant services? Did you know that your bank could help you install an ATM in your store for customers? Did you know that your bank can probably set up a lockbox arrangement so that customer payments can go directly to the bank and your account? Did you know that your bank can probably help with cash management tools such as zero balance accounts? If you need access to cash, did you know you could set up a line of credit instead of borrowing with a term loan? If you take the time to get to know all of the products and services your bank offers you might discover some new ways of managing your cash.

Understand what your banker needs from you
The simplest description of banking is that banks take the money deposited by some customers and lend it to other customers. They pay interest on deposits, and they charge interest on loans. They make money when the interest they charge is greater than the interest they pay. They lose money when customers do not pay back their loans. This means that your banker needs you to deposit money. Your banker also needs you to borrow money and pay it back. If you want to borrow money, you have to make the case that you will do just that.

That is why your first steps were getting your financial statements together and developing your business plan. You will need your financial statements and business plan to make your case. You will typically need the current year and the previous two or three years. Ideally your financial statements will demonstrate that you are solvent and have appropriate liquidity. They may also show how you handle payables and receivables. In short, the statements will explain your current situation and your history. If the statements reveal any serious flaws in your operations, be prepared to explain them.

Your business plan will tell the story that you hope will unfold. You will describe your company and your customers. Your plan will describe your products and why customers will buy them. It will explain your marketing and sales plans. Finally, your plan will make clear how you will use the money you borrow. This is the most important part because it will also explain exactly how you expect to pay the money back.

Wednesday, May 5, 2010

Small business and the shop local movement

Once upon a time in towns and villages and small cities all over the United States, people shopped at stores owned by their neighbors. People ate food that came from nearby farms. Do-it-yourself types frequented local hardware stores as much for the free coffee and advice as for boxes of nails. If people needed a loan, then the bank president, or at least the loan officer, knew them. Of course this was before the creation of the superstore. It is now possible to go to giant stores stocked with a tremendous variety of low cost items. We can shop for eggs and milk, and then we can step just a few isles over to shop for clothing or office supplies, or electronics or furniture, or auto parts or just about anything.

While the megastores may have big selections and low prices, they have their own price, one that is not so obvious. Grocery stores, pharmacies, banks, hardware stores, dress shops, children’s clothing stores, restaurants, and the like used to be part of the community. Now the local managers of these national and international corporations may be neighbors, but the stores themselves have no ties to the community. Decisions about our towns and our lives are made in corporate headquarters far away. The profits made by the stores are sent to corporate offices in other places. The neighborhood grocer or drug store or hardware store can’t sponsor children’s baseball and softball leagues, and they can’t donate to PTAs because they don’t exist. Neighborhood children can’t get jobs because all of those everyday low prices don’t leave enough margin to pay students to work after school. This is changing.

Get ready for the backlash
People are getting tired of shopping in huge stores. They are beginning to recognize the Faustian bargain implicit in purchasing only for low prices. People are longing for the community they lost when the locally owned stores closed. They want to know where their food was grown.

There are entire movements dedicated to the concept of “shop local.” For example in Austin, TX, the Austin Independent Business Alliance has the motto, “Local Spoken Here,” and they include this quote on their website.
Shopping at locally owned businesses puts three times the dollars into our economy. A landmark study found that of $100 spent at a local business, $45 stays in the community. But that same $100 spent at a chain store would put only$13 in our local economy. Don't give your money away, keep it in our community.
The movement recognizes that it makes sense to pay a little more for quality too. Michael Pollan, in his book In Defense of Food, observes that it might be a good idea for people to spend a little more on food if it enables them to eat higher quality food.   The idea of locally grown food is also becoming more appealing. Many consumers around the country are shopping at farmer’s markets or joining farms involved in Community Supported Agriculture (CSA). Slow Food USA is a national organization that encourages eating locally produced food. Another organization with a broader focus is the Slow Money Alliance.

Consumers are also embracing new businesses that understand the value of shopping local, high quality, and local sources. One of these businesses is Greenling is a grocery service that sells certified organic or local and sustainably produced food and delivers it to your door for free. Greenling is more than that though. Greenling embraces the idea of community and recognizes that its customers are its most valuable resource. Greenling hosts periodic get-togethers to showcase food and vendors, and it encourages customers to submit recipes or even to blog about their experience.

Food is gone as soon as we consume it, but the idea of paying more for quality for durable goods should make sense to everyone. The same concepts of paying for quality and staying local apply in other areas too. Consider buildings. The US Green Building Council (USGBC)  recognizes that using local building materials makes more sense than paying to ship supplies long distances by including local sourcing in the LEED rating system.

What does this all mean for small business?
Small businesses should benefit from this trend for one simple reason. They are the locally owned stores and businesses that consumers are returning to after their fling with the megastores. If you as a business owner want to take advantage of the trend, then you need to understand why people want to buy local, and you need to support them so that they can support you. Here are two key points.
  • Customers buy local because local businesses are part of the community: Be part of the community. Be a friendly neighbor. Learn the names of your regulars. Support community activities like PTAs, softball and baseball teams, high school sports teams and local charities.
  • Customers buy local to support the local economy: Support the local economy. Buy local. Give students after school jobs. Be an active part of the local business community.
As people continue to become disenchanted with big faceless corporations and return to local merchants, it is up to you to welcome them back and to make them glad they came home.

Saturday, May 1, 2010

Boundary Waters Blogger: A Canoe Trailer That Will Last

Jason, a friend of mine, runs an outfitting service and guide service for people taking trips into the Boundary Waters Canoe Area Wilderness. The BWCAW is a 1.09 million acre wilderness area in Minnesota. On the other side of the border is Canada's Quetico Provencial Park. He recently bought a new canoe trailer and wrote about it on his blog. Boundary Waters Blogger: A Canoe Trailer That Will Last This is what he had to say about his new trailer.
Meet one of the most durable canoe trailers available. This photo shows our six-place canoe trailer with box by Remackel Welding. As we talked with other outfitters about canoe trailers that last the longest under heavy use, we repeatedly heard about the custom trailers by Dennis Remackel. He’s been making them by hand for several decades.
Jason's business is tough on equipment. When you or I buy camping gear, we may use it a few times a year. If we buy a canoe, we may be able to take it out a few weekends, and if we're lucky, we may get to go on a week long paddling trip. Jason's clients use his gear every day of the season. He buys high quaility stuff that lasts. If he trys to save a few pennies by buying cheap stuff, it ends up costing him dollars in replacement or repair costs. I did not ask, but I know he did not make the decision to buy the new trailer from Remackel Welding without a lot of thought.
So what's the point of this discussion?
Simply that Jason runs a first class business, and he pays a lot of attention to detail. (One of these days I ought to write an article on how he got started.) That attention to detail is why he bought the trailer he did, and it is why he bought it where he did. Here's a quick list from his post.
  • Dennis gives people several options to customize their trailers."
  •  . . . the trailer is dipped in molten zinc resulting in a trailer that won’t rust and never needs painting.
  • The cool-factor is pretty high, and the practical durability factor is even higher.
  • . . . wheel wells strong enough to stand on, and a plywood step on the tongue. The plywood is all marine grade.
If I were buying a trailer, I would go to Remackel based on what Jason wrote. Knowing the nature of the guiding and outfitting business, his remarks are pretty high praise.
What about you?
Do your customers talk about you and your products the way Jason talked about his new trailer? If not, what can you do so that they will? Here are a few things to try.
  • Understand your customers and meet their needs. Remackel produces all sorts of trailers for all sorts of uses. It is not a one-size-fits-all operation.
  • Offer customization. Jason needed extra durability so he went with a galvanized finish. Other people may be just as happy with less expensive finishes.
  • Your reputation goes before you. Let it be a good one. Your customers can be your best salespeople. Offer them real value.

Thursday, April 29, 2010

How to fix an error on your individual income tax return

Does this sound familiar?
  • You filed the return.
  • You cashed the refund check, or you wrote out the check for the taxes you owed.
  • When you were filing all of your tax paperwork you discovered you left something off of your return, or you received a notice from the IRS.
  • You panicked.
Good news. There is no need to panic. File an amended return. If your CPA completed your return, call your CPA and ask him or her to amend the return. If your return is simple, you can probably do it yourself.

What you will need
Whether you prepare the amended return yourself or send it to your CPA, you will need a few things before you can get started.
  • A copy of your return and instructions for the forms. (If you need prior year forms and instructions, you can call 1-800-TAX-FORM (1-800-829-3676). You can also download them from
  • Form 1040X and instructions (Do not simply re-file a new 1040, 1040A, or 1040EZ!)
  • Any additional supporting documents
  • Any letters or notices you received from the IRS
How to get started
The first step is to organize your documents. It is a good idea to group your documents into categories such as income, deductions, or credits. You’ll want to separate out documents that go with specific schedules. Once you have done that review the original instructions for the forms you filed. This should help you be certain that you understand the changes that you want to make.

The 1040X is a multi-purpose form. Taxpayers have many reasons for amending returns. This means that you may not need to complete all of the lines on the form. Be sure to check the instructions.

The simplest way to make your changes is to make notes in the margins of your original return. Once you have made all of your changes and reviewed them, you can enter the changes onto the Form 1040X. If you use tax software, be careful to follow the directions provided by the software company. Typically you will make a copy of the original file and modify the copy instead of working on the original. The software will also have an option to prepare an amended return.

Once you file the amended return, file it and all of your supporting documents with your other important papers. If you have a CPA, you may also want to send a copy of the amended return to him or her to keep in your files.

File Form 1040X only after you have filed your original return. It is important to realize that the interest and penalty clock rarely stops ticking. If your changes result in a higher tax liability, then you should file an amended return and pay the tax as soon as you possibly can so that you can avoid additional penalties.

If your changes result in a lower tax liability, then you may be due a refund. Generally, for a credit or refund, you must file Form 1040X within 3 years (including extensions) after the date you filed your original return or within 2 years after you paid the tax, whichever is later. There are some exceptions to this time limit for people who are unable to manage their own affairs. Check with your CPA or review Publication 556 Examination of Returns, Appeal Rights, and Claims for Refund

Wednesday, April 28, 2010

Small business help from the IRS

Did you know that the IRS offers free online presentations and webinars? Check out the IRS Video Portal for
  • Archived versions of live panel discussions
  • Archived webinars
  • Video clips
  • Audio archives of tax practitioner phone forums
The portal offers a wealth of material for individuals, small businesses and tax practitioners.
Click on the Small Business tab, and you will find a list of topics. The list below describes some of the material available in the various areas.
  • Business Expenses: Includes a summary of the 2009 law change affecting net operating losses and a video on home office deductions.
  • Business Income
  • Changing Your Business
  • Disaster Information
  • Employers: Information about payroll, hiring family members, required taxes, and similar topics.
  • Filing/Paying Taxes
  • Forms:
  • Post-Filing Issues: If you have questions after filing, this is a place to learn about letters and notices, examinations, collections, offers in compromise, and other topics.
  • Resources
  • Retirement Plans: This section contains information about retirement plans for small businesses. The topics include funding and benefit restrictions, SEPS, and more.
  • Scams & Fraud: This includes several overviews that can help keep you from being a victim of a scam or a fraud.
  • Small Biz Workshop: "The Virtual Small Business Tax Workshop is composed of nine interactive lessons designed to help new small business owners learn their tax rights and responsibilities."
  • Starting a Business: Includes a variety of videos on topics such as record keeping and Schedule C requirements.

Tuesday, April 27, 2010

Is free Wi-Fi a good thing?

Have you noticed all of the signs advertising free Wi-Fi lately? Bookstores, fast-food chains, coffee houses, restaurants, and oil change shops are among the places offering free access to the Internet. I suppose this is evidence that the world is becoming more connected, and there is little doubt that people who feel a need to be connected 24/7 are comforted by ubiquitous wireless access, but is it a good thing? Is it good for your business?
Before answering those two questions, ask yourself two other important questions.
  • Does adding Wi-Fi increase your value to your customers?
  • Does adding Wi-Fi contribute to your bottom line?
Adding value
Whether Wi-Fi adds value is not a simple a question. Consider the many coffee shops and restaurants that have added Wi-Fi hotspots. The access is not secure, and it is often slow. Even so, customers that use their computers see value in having Internet access. However, what about the other customers? Does a room full of people typing away on computers or using mobile devices provide the atmosphere that they seek? Do they resent not being able to find a place to sit and enjoy their visit because the tables are full of people who have long since finished their coffee but are still working on their computers? This is probably not a problem at fast-food establishments because customers value speed and because other cues such as decorating schemes and uncomfortable furniture encourages them not to dawdle.

What about other types of businesses? Do you run a business that requires people to wait? Unlike restaurant patrons, customers waiting for an oil change may not expect comfortable ambiance. (The coffee in most car repair waiting rooms is hardly drinkable.) Adding Wi-Fi might help customers turn down time into productive time.

The key is to understand your customers and your market.

The bottom line
It does not cost much to set up a Wi-Fi hotspot. Monthly Internet access charges, even for high volume business use, could be under $100. Wireless routers are also not expensive. If providing a hotspot increases sales, then it is probably a good idea. In the last example above, a car repair shop, it might be reasonable to assume that customers would come to the shop instead of a competitor's because of the hotspot. It is easy to see how the adding a hotspot increases customers' perceived value and how that could lead to increased profits.

Restaurants or coffee shops are different though. Most of these businesses depend on a constant flow of customers purchasing at least a minimum amount of something. Adding a hotspot encourages customers to linger. This means that tables do not turn over as quickly. If keeping tables occupied increased sales, that would be fine, but that is usually not the case. In addition, customers that are turned away or have to wait a long time are not likely to be satisfied customers. In this case, adding Wi-Fi might reduce sales.

The bigger picture
The topic of this post was Wi-Fi, but it could just as easily have been about any number of business decisions. Here is an example using the auto industry.

Should a luxury car company introduce a smaller economy car? Cadillac introduced the Cimarron, which Time Magazine named one of The 50 Worst Cars of All Time. BMW introduced the Mini Cooper to much acclaim. What was the difference? BMW understood its market and introduced a sporty car with an interesting history. It leveraged the brand and extended the product line. BMW added value and incrased the bottom line. Cadillac stuck a label on a moderately popular Chevy and decided that charging a high price would make it a luxury car. This damaged the Cadillac brand, decreased customer value, and hurt the bottom line.

What this all really means
Finding new ways to meet customer needs is always a good idea. Creativity and innovation are good things, and businesses that are always looking for ways to meet customer needs are probably going to be successful. Before they can do that though, they must understand their business and their customer. They've also got to ask themselves two questions.
  • Does this increase your value to customers?
  • Does this contribute to the bottom line?

Saturday, April 24, 2010

Book Review: Let My People Go Surfing: The Education of a Reluctant Businessman

Let My People Go Surfing: The Education of a Reluctant Businessman
By Yvon Chouinard

Yvon Choinard is the founder and moving force behind Patagonia. This book is his story. Most people come to think of business books as "how to" books. We learned how to manage in The One Minute Manager. We learned how to evaluate business in, The Balanced Scorecard, and we learned how to emulate success with, In Search of Excellence. We could even learn to Swim with the Sharks Without Being Eaten Alive. For those interested in the people behind the businesses, there are plenty of biographies. Business people looking for advice from the past are even exploring books such as The Art of War and The Prince.

Let My People Go Surfing: The Education of a Reluctant Businessman does not fit neatly into any of those molds. The book is part biography and Choinard's life is fascinating. As a child, he moved from Quebec to Southern California. He spoke little English, and the family had little money. The narrative includes interesting stories about childhood challenges, and in time we learn how he became a climber. Choinard did not really start out to build a business. He started out trying to develop better climbing gear and trying to support his hobby. He sold his equipment out of the trunk of his car!

The book is a story about building a business. Choinard talks about the challenges of growing a business. Some of the challenges were formidable. The equipment his company produced was designed for specific uses by people that knew what the equipment was and how to use it. Even so, that did not prevent product liability lawsuits, and Choinard writes about his legal difficulties. The approach is forthright, and he candidly talks about the challenges he faced and how he went about addressing them. He spends as much time describing decisions that did not work out as he does those that did.

The book is also a story about business philosophy. Choinard and Patagonia operate according to a set of core beliefs. Their customer focused, highest quality, product driven practices are derived from these beliefs. The three general guidelines Patagonia has for promotion demonstrate this.

  1. Our charter is to inspire and education rather than promote.
  2. We would rather earn credibility than buy it. The best resources for us are the word-of-mouth recommendation from a friend or favorable comments in the press
  3. We advertise only as a last resort.
Patagonia demonstrates that it is possible to be successful and to also embrace "social responsibility." The company emphasizes renewable resources and sustainability. It works hard to understand and meet employee needs. For example, Patagonia was one of the first employers to offer employer sponsored day care. One of the reasons for this is that Patagonia also recognizes that its employees are its greatest resource.

If you are looking for some new ideas about business, and you want something other than the usual business book. Check out Let My People Go Surfing: The Education of a Reluctant Businessman.

Tuesday, April 20, 2010

Why your customers buy – Understanding the value proposition

One of the key things for businesses to understand is why their customers buy their product. Statements such as the following ones are meaningless.
  • We are the best at what we do.
  • We give great service.
  • We have a great product selection.
  • We offer a great value.
The first two are meaningless because they are vague. Your business may be the best, and it may be great, but what is it that you do? What are your customers purchasing? Another important problem is that they are focused on the business. The next two are slightly better because they begin to describe the products. Where they miss the mark is that they are not specific, and they are not focused on the customer. If this sounds familiar, it is because companies use the same concepts to develop their brand strategies.

A value proposition is a statement explaining why a customer should buy a product. Good value propositions articulate both the costs and the benefits of purchasing a product. For example, assume that you sell cars. What are you actually selling? Are your customers purchasing reliable transportation? Are they seeking a status symbol or making a statement? Do they want comfort and luxury? Are they looking for high performance? Mercedes and BMW are both German luxury that command a premium price. However, the Mercedes emphasizes luxury and the BMS emphasizes performance. Mercedes and BMW have different value propositions. At the other end of the price spectrum, Ford and General Motors both offer more affordable products, albeit without the performance features and without the luxury. This too is a different value proposition and a different set of customers. Companies that ignore their value propositions do so at their peril. Cadillac seriously damaged its brand when it introduced a small relatively inexpensive car hoping to attract economy minded buyers because buyers no longer automatically assumed that Cadillac meant large comfortable car and status.

Restaurants provide good examples of different value propositions too. Consider the difference in fine dining establishments, family restaurants, and fast food restaurants. Consider the values that customers might seek:
  • Fast, low cost
  • Family friendly, budget oriented
  • Leisurely, elegant, cozy, gourmet, price is not a big factor
Is it pretty obvious which set of values belongs to which market segment? Would McDonalds be successful if it dimmed the lights and sold $25 steaks? Would Ruth's Chris be successful if it introduced value meals?

Remember when crafting a value proposition, customer value is not just about low price or the product. Customers are buying what the product provides. For example, people shopping for jewelry can make their purchases in many places from discount stores to department stores to jewelry stores. If it was all about price, then Tiffany & Co. would not be in business. Instead, the Tiffany Blue Box is a status symbol. Tiffany & Co.'s value proposition says exactly what they do.
Since 1837, Tiffany & Co. has been the world's premier jeweler and America's house of design.
That is not to say that prices do not matter. Wal-Mart's value proposition is:
Everyday low prices
Price does matter. The trick is to figure out how it matters. If your product is a commodity, then value means low prices. If your product is status, then high prices may indicate value. This introduces another part of the value proposition. What exactly is the customer buying? Obviously if the customer is purchasing a computer, that is what the customer is buying. But what does that mean? Is the customer buying the box or the components? The customer is purchasing the ability to store and manipulate data. The customer is buying reliability. If you are selling televisions, the customer is not really interested in the device. The customer wants to watch TV. The customer is buying the ability to do that with vivid color and great sound. The customer is buying a viewing experience. If you are selling cars you are either selling transportation or you are selling a driving experience. That is why BMW advertises its value proposition as:
The ultimate driving machine
Even this blog has a value proposition. It is to help you grow your business by giving you useful information and sharing ideas. So now that you understand the idea, go write your own value proposition. Remember to answer these two important questions.
  1. What exactly is the customer purchasing? Remember, their goal is not just to own the product; their goal is to get what the product provides. That could be a lot of things.
  2. Why is the customer buying it?

Saturday, April 17, 2010

How to calculate estimated taxes

If you owed tax additional tax this year, it is possible that you should pay estimated taxes. If you are self employed it is very likely that you should pay estimated tax. This is what the IRS has to say about the topic in Publication 505.

General Rule
In most cases, you must pay estimated tax for 2010 if both of the following apply.
  1. You expect to owe at least $1,000 in tax for 2010, after subtracting your withholding and refundable credits.
  2. You expect your withholding and refundable credits to be less than the smaller of:
  • 90% of the tax to be shown on your 2010 tax return, or
  • 100% of the tax shown on your 2009 tax return. Your 2009 tax return must cover all 12 months.
You can use a worksheet to make a more accurate calculation. If all of your income is subject to withholding, you probably do not need to pay estimated tax. You will want to review your withholding with your employer.
You do not have to pay estimated tax for 2010 if you meet all three of the following conditions.
  1.  You had no tax liability for 2009.
  2. You were a U.S. citizen or resident alien for the whole year.
  3. Your 2009 tax year covered a 12-month period.
 There are special rules for farmers, fishermen, certain higher income taxpayers, aliens, and estates and trusts.
  • Farmers and Fishermen
  • Higher Income Taxpayers (The percentage of 2009 AGI changes from 100% to 110%.)
  • Aliens (Resident aliens should refer to Publiciation 505. Nonresident aliens should review Publication 519 for more information about Form 1040-ES (NR))
  • Estates and Trusts (use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax.)

Friday, April 16, 2010

Figuring out estimated tax

If you are self employed it is very likely that you should pay estimated tax. This is what the IRS has to say about the topic in Publication 505.

General Rule
In most cases, you must pay estimated tax for 2010 if both of the following apply.
  1. You expect to owe at least $1,000 in tax for 2010, after subtracting your withholding and refundable credits.
  2. You expect your withholding and refundable credits to be less than the smaller of:
  • 90% of the tax to be shown on your 2010 tax return, or
  • 100% of the tax shown on your 2009 tax return. Your 2009 tax return must cover all 12 months.

You can use a worksheet to make a more accurate calculation. 

You do not have to pay estimated tax for 2010 if you meet all three of the following conditions.

  1. You had no tax liability for 2009.
  2. You were a U.S. citizen or resident alien for the whole year. 
  3. Your 2009 tax year covered a 12-month period.

There are special rules for farmers, fishermen, certain higher income taxpayers, aliens, and estates and trusts.

  • Farmers and Fishermen
  • Higher Income Taxpayers (The percentage of 2009 AGI changes from 100% to 110%.)
  • Aliens (Resident aliens should refer to Publiciation 505. Nonresident aliens should review Publication 519 for more information about Form 1040-ES (NR))
  • Estates and Trusts (use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax.)

Friday, April 9, 2010

Need tax help? Ask the IRS. Really.

People love to hate the IRS. It is a government bureaucracy. It collects taxes. It enforces tax laws. (Congress writes the laws, but that is another topic.) It makes mistakes. What is there to like?

Actually there is a lot to like. The IRS’ mission statement is to, “Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” That is a tough job. According to the IRS:
This mission statement describes our role and the public’s expectation about how we should perform that role.
  • In the United States, the Congress passes tax laws and requires taxpayers to comply.
  • The taxpayer’s role is to understand and meet his or her tax obligations.
  • The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share.
One thing the IRS does very well is provide information, lots of information. Sometimes the information is overwhelming. Sometimes it is contradictory. Sometimes it is late. (In defense of the IRS, it promulgates rules and writes instructions according to laws passed by Congress. That has a lot to do with conflicting rules and with delay. For good examples of this, read up on the AMT and the Estate Tax.)
Another thing the IRS does well is make it easy to get help. You can call, write, e-mail, fax, or even stop by a local office. If that does not get you the help you need, you can even contact the Taxpayer Advocate Service. (If you have ideas about how to make the process better, the IRS even has a way for you to provide feedback and submit ideas for improvement, the Taxpayer Advocacy Panel.)

Here are five ways to get help from the IRS.
  1. Call the IRS: (800) 829-1040
  2. Call the Web Site Help Desk: United States and Canada (800) 876-1715 / International (319) 464-3291
  3. E-mail the Web Site Help Desk:
  4. Check out the Frequently Asked Questions (FAQ) page:  
  5. Stop by your local office or Taxpayer Assistance Center. Click here to find out how to contact your local Center.  
For other help, check out the directory at