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Bean Counter's Tips For Small Business
The Steps In The Ladder To A Successful Business
I'm no Dave Letterman, but I've prepared a list of some things that
I've picked up from my experiences that
you as a small business
owner should do to monitor and get a pulse of how well (hopefully) or how badly
(unfortunately) your business is performing. I've also included some tips
to aid in the smooth running of your business and to ensure that
employees in a position of trust are doing their job and some "food for thought".
Most people are honest but why tempt them ? Even Eve got Adam-no offense intended ladies.
No special skills or
accounting knowledge (just some good ole common sense) are necessary in order to perform most of these tasks.
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Maintain Separate Bank Accounts
If you don't do anything else at least open a separate bank account
for your business. If you have more than one business open a separate
account for each one. Do not co-mingle (mix) your personal
expenses or receipts with your business expenses or receipts. Deposit all your business
receipts into your business accounts(s) and write checks for your major business expenses from
your business checking account(s). If you need money from your business for
personal expenses write yourself a check from your business checking account(s)
and deposit it in your personal checking account. Just doing this simple
task will make it much easier and save you money
when you prepare or have someone prepare your year end tax return. It also gives you a rough idea as
to whether or not your business is making a profit.
Another benefit of your bank account is that it provides an independent record
of your business activity that can be used to verify the accuracy of
your internal business records and as an aid in correcting any omissions
and errors by either the bank or your business.
If you employ over five employees, I also recommend that you open a
separate bank account(s) for your payroll. Transfer funds from your
regular business account(s) to cover your payroll and write all checks
to your employees from your payroll account(s). I would also
write my checks for my required payroll deposits from these account(s).
The disbursements (checks written)
from your payroll account(s) will give you a good estimate of what your employees are costing you.
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Deposit All Cash Receipts In A Timely Matter
If your activity warrants it you should deposit your receipts each day in order
to reduce the risk of money being lost or stolen. If your business does
not have a lot of cash receipts activity you should at least deposit
your receipts every week regardless of the amount of cash on hand.
All currency, checks, and cash items received should be deposited
intact without any deductions for expenses or advances. Use your petty cash fund
to pay expenses or advances that require currency. You should not keep large quantities of cash
on your premises. If you need cash (currency) for a specific purpose go
to the the bank
and cash a check when it is needed.
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Prepare Good Documentation/Deposit Slips
The area for descriptions on most deposit slips do not usually provide enough
space to enter detailed information. Your entries on your slips should
just be a summary entry such as the customer's name,bank account number, and/or check number.
You need to record the detailed information regarding the check or
cash received on your Detail Receipts Forms.
The majority of your deposits will be for customer payments on account and
cash sales. I recommend that you use a form for each type.
I also recommend one additional receipts form to record miscellaneous
payments received such as loans.
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Customer Payments On Account Form
This detailed information is necessary in order to properly
credit your customer's account for payments on account.
Detailed Information That Should Be Recorded:
Customer's Name
Customer's Check Number or Reference
Method Of Payment-Cash/Check/Money Order
Your Customer's Assigned Number
Total Amount Received
Invoice Number(s) Paid and Amount
Any Special Comments
All customer remittance advices (form attached to check that shows the invoices paid)
should be saved and attached (stapled) to your form.
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Cash Sales Form
Summary information from your daily reports of your registers/cash drawers
with the amounts of currency and checks.
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Miscellaneous Receipts Form
Used to record unusual or non-recurring types of receipts.
Although not absolutely necessary,I recommend you make a separate deposit slip
for each type. If you need to go back and look up something later it makes it
a little easier.
The total of the amounts recorded on your Detail Receipts Forms
should agree with the total amount on your deposit slip(s).
In summary you need to know how much you got, from whom, and what for.
Credit Cards
If you accept credit cards for payments you will also need
to monitor and record these transactions.
No deposit slip is prepared for this type of transaction.
These receipts are directly
deposited into your account and you need to provide procedures for
recording and tracking these "special" receipts.
Balance Your Cash Drawers/Registers
Believe it or not I've done work for some small businesses that
did not want to fool with the "hassle" of balancing their
cash drawers/registers. Oh gosh how tempting. Employees are not dumb
and are fairly observant. As I've already stated, most people are
basically honest but why put them in a tempting position. We also tend
to rationalize-I need a little gas money so I'll borrow it from the register
and put it back later. Most of us don't mind helping out
but I want to be asked. Count your registers/drawers and balance them daily.
If you don't want to do it yourself assign a trustworthy person the task
and periodically check them.
If you need to close up put the cash and checks in a money bag and do your
count the first thing the next morning.
It's a lot easier to find and fix a mistake
today than it is at the end of the month. It's also a lot easier
to balance.
Procedure For Handling Returned Checks
Hopefully Not Very Often
Many banks will run a customer's check twice in order to try collect the
funds and credit them to your account. In the event that they are unsuccessful
your customer's check is returned to you. You need to have a procedure in place
and an individual designated to promptly follow up on these returned checks.
If the check is local and the endorsement has not been cancelled by the bank
one good method is to call the bank that the check is drawn on and see
if the check is good. Good days to make a call are Friday and Monday since many
companies pay their employees on Friday. If the account has a balance large enough
to cover your check high tail it over to the bank and get it cashed.
If the endorsement has been cancelled or the check is non-local, you need to immediately call the customer
and make arrangements for them to make the check "good" and pay any
additional check processing fees that are stated in your policies.
Writing a bad check in today's society is a serious offense and if
prosecuted may result in fines and jail time. Don't leave your bad checks
just laying around collecting dust. Take immediate action and get your money.
You should also review the current status of this customer's account
such as open orders and current balance and late amounts to see
if additional actions such as halting shipments, a credit hold,
or COD terms are needed.
Prepare & Review Monthly Bank Reconciliations
You won't believe the number of "bookkeepers" I've run across that
can not do a bank reconciliation. In all fairness, I've run across some
situations where the owner's recording and banking practices have
made a normally simple job into a hair pulling task.
All businesses should not only know their actual balance in the bank
on a monthly basis but on a daily basis as well. You wouldn't believe
the number of small businesses that call the bank to see how
much money they have.
Keep in mind that your records normally reflect cash increases and decreases
before the bank processes and records them.
As an owner you don't have to actually do the reconciliation
but do occasionally check to see that this task is actually being
performed.
Establish A Petty Cash Fund
Designate an individual and a backup person as custodian of the fund.
In this case "many hands do not make light work" .
This fund is used for minor and unanticipated expenses where
a check can't be written or the amount is so small that you don't want
to write a check. Some examples include buying pizza for the
staff, postage stamps, minor office supplies, paper towels,
and cleaning supplies. A pre-numbered voucher or ticket
should be filled out and approved for each expenditure.
When the balance in the fund becomes low a check from your
regular bank account should be issued and cashed to replenish
the fund and the expenses recorded in your accounting records.
Surprise counts of petty cash should occasionally be done to
make sure that employees are not "borrowing" from this
source of cash. Counting the fund is very easy. The total amount of the
tickets and the cash on hand should equal to the fund's established balance.
Sign All Your Checks
An excellent method for getting an idea of where your money is
being spent and to whom it's going is
for you to personally sign your own checks.
Ask questions if something does not look right.
Sign Checks Only With Proper Documentation Presented
You or whoever you designate as responsible for signing checks
should review the invoice and/or other documentation to ensure
that the invoice has been recorded and properly approved.
The supporting documentation (invoice, etc.) should be "CANCELLED" -marked or stamped
as paid and the check number that paid the document recorded on
the document along with the date paid. Proper documentation might
include purchase orders, supplier invoices, receiving reports, or any
other documents that support the expenditure.
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Keep Checks Locked Up or Secure
Let's not provide a temptation by having our checks or checkbook
easily accessible. Unfortunately it has happened where blank checks have
been taken from the end of a checkbook or stack of computer checks
and forged. If a proper bank reconciliation and review of the cashed
checks is not performed this theft could go unnoticed.
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Separate Cash Duties If Possible
Have one employee or yourself assigned the task of getting the mail, preparing your
deposit ticket and the supporting documentation and another employee should
be responsible for recording these payments and crediting the
individual customer accounts . You want to track and protect your cash as soon
as it hits your door. Make sure checks are stamped or endorsed
FOR DEPOSIT ONLY immediately.
Get The Unopened Mail
No you as an owner don't need to do this every day but occident
you should. You'll be surprised what reviewing your mail
can tell you. What you should look for:
Your Own Returned Check Notices From Your Bank
Returned Check Notices From Customers
Past Due Statements From Suppliers
Notices From Governmental Agencies
Notice of Late Filings Of Returns
Notice of Non-payment Of Returns
Pre-Numbered Documents
Where possible use pre-numbered documents in your business.
Consecutively numbered documents make it relatively easy to spot a missing document.
Some types of documents that should be numbered:
Checks
Receipt Books
Invoices
Purchase Orders
Receiving Reports
These documents are readily found at most office supply stores.
I realize that many computer programs create and/or print invoices,
purchase orders
and other documents and assign numbers automatically. In this case, the
controls are built into the software. I do recommend getting
pre-numbered computer checks even though the software can assign automatic
numbers.
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Get The Unopened Bank Statement(s)
This is a task that is simple and does not require a lot of time.
Review all your cancelled checks to make sure they have all been signed by an
authorized signer and that the signature appears legitimate. No
you don't have to put them in numerical order. I hate to do that too !
Pay special attention to any checks made out to CASH. Also look for checks
made payable to any person or company that you do not recognize.
Also check your bank statement and look for any high numbered checks
that appear to be out of sequence.
This could be an indication that a check was misappropriated.
If you find questionable items ask questions and get the supporting documentation in order
to determine if the expenditure is proper.
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Setup & Maintain Customer, Supplier, Tax & Other Files
Oops I just mentioned my big weakness. I hate to file. I'd almost
rather take a beating. If you must a SHOE BOX is better than nothing
but will cost you in the long run. When a business owner hands
me a shoe box and says do my taxes or prepare
some financial statements my eyes light up with dollar signs.
I was told growing up that if you're going to do a job do it right.
Filing if done on a routine basis is not all that bad. It also
pays big dividends if you have to investigate a customer or supplier
complaint. How many hours have we all wasted in life looking
for something ?
Some files you should maintain:
Unpaid Customer and Supplier Invoices
Paid Customer and Supplier Invoices
Open Purchase Orders
Open Customer Orders
Federal & State Taxes
Monthly & Quarterly Tax Reports
Monthly Bank Statements & Reconciliations
Employee File
Special Contracts File
Insurance File
Special Permits
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Talk And Listen To Your Employees
You might actually learn something. Encourage new ideas and be willing to give
some a try. Give credit where credit is due. Let your employees
know how their doing and a compliment now and then never hurts. No
your not a social agency but if an employee has a problem try to
work with them to help solve it.
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Check Out New Customers Before Granting Credit
I know you want to make the sale but do your homework.
Subscribe to a service such as D&B -it only costs about $25.00 for a credit
report. A small investment that can save you from future headaches.
Review Customers With Past Due Balances and Take Action
The longer you wait the harder it is to collect-the early bird does catch the
worm in this case.Credit is a customer's privilege not right.
You need your cash to pay your own employees and bills. If you sell to
"deadbeat" customers what good is the sale if you have to wait to
Hell freezes over to get your money ?
Review Your Quarterly and Monthly Tax Reports
Non-payment of taxes and
penalties and interest can kill a small business.
Take the time to check that all returns have been promptly filed
and paid. If your like me I enjoy some surprises but finding out
I owe a bundle of back taxes is one surprise I can do without.
Timely Evaluate Employees and Give Raises Whenever Possible To The Deserving
We all like a pat on the back, but that doesn't put food on the table.
If a good employee has to ask for a raise, you've probably already lost them.
Yes good employees are actually one of your best assets. On the flip
side, a job we all hate to do but has to be done is to get rid of non-performing employees.
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Take Early Payment Discounts
Who says you can't make any money by paying your bills ?
All kidding aside, not taking a reasonable cash discount and
paying your bills early is a costly proposition. I'll use
a simple example to illustrate what it's costing you.
Invoice Amount: $100.00
Terms: 2/10,n30- 2% discount or $98.00 if paid in 10 days
full amount-$100.00 due if paid in 30 days
Let's go back to our school days and borrow a simple formula.
I=principal x rate x time
Interest=principal x rate x time
Now let's calculate what having the use of our $98.00
for 20 days is actually costing us.
2=98 x rate x 20/365
2=5.37rate(r)
rate(r)=2/5.37
rate(r)=37%
We're passing up an interest rate of approximately 37%.
To me that's a pretty hefty return on my investment.
If the discount offered was only 1% that's still about an 18% rate.
Work to be in a cash position where you are able to pay your bills
that offer you cash discounts early.
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Prepare Monthly Financial Reports
You're in business to make money ( I assume) so you need a report card to see how you
actually did. You need to prepare monthly financial statements or have them prepared in order to
monitor the success or failings of your business. If you wait until
the end of the year the barn door may have been left open too long
to get your livestock back.
Provide An Employee Handbook
Have rules and enforce them.
No it doesn't have to be fancy but employees need to know what the company
expects from them and what they can expect from your company.
Send Monthly Statements To Customers
The ole saying "the squeeky wheel gets the grease" applies here.
Let your customer's know that you're staying on top of
what is owed you and when it's due.
Check Employee References
You don't want to "inherit" a problem from another business.
Do call prior employers if possible, but many will only
verify that the individual worked for them and the dates worked.
I recommend that you not only check references
but also do a background check. How ? There are local businesses
and services on the internet that provide this service for a nominal fee.
In my opinion, this is money well spent.
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Bill Promptly and Accurately
The faster you bill the faster you get paid.
Accurate billing also heads off payment stalling tactics used by
some customers.
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Prepare Packing Slips And/Or Count Goods To Be Shipped or Delivered
In order to avoid customer billing disputes, make accurate counts
of goods delivered or shipped.
Get Customer Deposits On Special or Custom Orders
If you provide special or custom type services/product you need
to have a deposit policy in order to protect yourself from being stuck
with a product that you can't do anything with.
Establish and Maintain Open Account Credit With Your Suppliers
Open credit is actually an interest free short term loan from your supplier.
Remember that credit is a privilege and not a right. Don't pay your
bills early if no discount is offered but don't drag out the terms and
get the reputation as a slow payer. Most suppliers can handle a little late but
remember that they also have payroll and other bills that they need to pay.
Maintaining a good payment record will also aid you if your growing and
need to increase your credit limits. A supplier will be much more willing
to increase your limit if you have dealt with them fairly and honestly in
the past. Just as we as individuals get a reputation (good or bad) so
do businesses.
Review and Maintain Adequate Insurance Coverage
It's nice to deal with the same company but you still need to
comparison shop before your policy comes up for renewal.
Get the ball rolling at least a month before your renewal date.
Loyalty is wonderful but how many times have you heard the story where
a business or an individual have had their coverage cancelled
after filing a claim.
Make sure you get adequate coverage and understand exactly the types
of coverage you have and what is and what is not covered.
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Review Phone Service, Equipment, & Phone Calls
Long distance and local rates are becoming more and more competitive.
If you're like me you hate to change. "If it ain't broke don't fix it".
You really do need to review your service at least once a year
in order to determine if making a change would actually
save you a significant amount of money. If warranted make the change.
You can always change back if you have to. You do need to make sure
that when you're comparing plans that you compare apples with apples.
Most of the time, the best plan for your business will depend on
your type of usage and volume of calls.
You should also review your equipment and the number of lines
to see if your business needs to upgrade your system or add
additional lines.
In addition to reviewing your service and equipment, you should also spot check your phone
bills to make sure that the use of your business phone is not
being abused by any employees by charging personal calls to the
business.
Last but not least, your business should have a policy and make it clear to all employees who have access to
your phone(s) that it is a business phone and is not to be used
for chatting with all their friends and family during the day and
is to be used only for conducting company business.
It's impossible to take orders and talk to customers if
your phones are constantly busy.
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Prepare and Use Cash Forecasts
Anticipate problems before they occur.
Besides your employees, cash is your most critical asset.
Believe it or not many profitable businesses have had to shut down
because of poor cash management.
Prepare And Monitor Budgets
Very few small businesses I have dealt with prepare budgets unless they
have been required to in order to obtain outside financing. A budget provides
your company with a yardstick that you can use to compare your actual results
with your planned results. Is a profit of $10,000 for a month bad, fair, good,
or great ? Without a plan to compare against you really don't know.
Monitor and Maintain Inventory
If you don't know what you have and where it's located how can you
sell it ? Identify and get rid of slow moving and obsolete inventory.
Identify your fast moving items and maintain an adequate stock level.
Yes I know it's a hassle, but count your inventory at least once a year.
Also, keep as small a stock on hand as your supplier's reliability and
customer demand allows. Remember
inventory "eats up" your cash.
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Keep Your Equipment In Good Working Condition
Like us your equipment tends to wear out with usage and time.
Inspect, repair, and replace equipment when needed. Better yet, schedule preventive maintenance and head off breakdowns before they happen.
It's difficult to do the job if the needed equipment doesn't work.
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Get The Right Equipment For The Job
Work smarter not harder.
Whether it's the office or the plant having the right equipment
makes a job easier and more times than not more profitable.
Keep informed of the latest technology related to your
type of business. If you were in the lawn care business would
you rather have a self propelled commercial mower with a 60" deck or the
push mower with a 20" deck ?
Review and Monitor Your Prices
You definitely don't want to leave chips on the table, but todays
buyers are definitely price conscious.
Provide Excellent Customer Service
No I don't believe the customer is always right but remember they
do butter your bread. We all like to be treated nicely whatever the situation in
life might be. We've all heard the stories where a buyer will drive an extra hour to
buy a product if the local supplier is deemed to be rude or discourteous
to their customers.If a customer has a problem or complaint handle it.
Avoid getting in an argument at all costs. Bite your tongue when you have to.
Know Your Competition
Even football teams review their opponents game films and send scouts
to their games.
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Prepare Receiving Reports
How do you know if what you've been billed by a supplier
is correct ? Shucks, you need to count and inspect the merchandise
in order to verify the quantities received and
the condition of the merchandise. Oops ! What about the price that was
charged ?
As Paul Harvey would say see page two. That's what your
purchase order is for.
A good business practice is to compare your supplier's invoice with
your purchase order and receiving report.
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Use Purchase Orders
A purchase order is just a written request by your business for some needed
goods or services. Normally it contains the description of
the product(s)/service(s) needed, quantities, terms, shipping instructions,
prices and approvals. I've run across many small businesses that use
what I call "oral" purchase orders with their name or date as the purchase
order number. All I can say is they've got a better memory than me.
Accept Credit Cards
Don't miss out on sales by not providing credit card services
for your customers. Yes there's a small cost, but the flip side is you also get
paid almost immediately. Shop and negotiate to get the best rates and
fees possible but do offer this service.
Train Your Employees
When you hire a new employee, even the experienced ones,
someone needs to take the time to
show them what to do.
Your company might just do things differently.
As simple as this sounds too many
times they are left to "pick it up on their own".
As for your "old" employees, be on the look out for better methods
and ways of doing things and then train your employees how to
do the job(s) a better way.
As I stated earlier, I love cash and think it's pretty important
for the success of a business but it's your good trained people that
make this cash a reality.
Know Your Job/Product Costs
Maintain Job/Product Costing Records
If your business buys and resells goods you have a pretty good
idea of what your products cost without a
job/product costing system. This is not the case for businesses
that manufacture products or businneses that provide custom
work or services. In the latter case, records of time spent and materials
used on different jobs/products should be kept.
Evaluate Contribution Margin Rates
Others thing being equal select products that provide the
best contribution margin rate.
The most bang for the buck. A simple illustration of this
performance measurement that we all can relate to.
Would you rather be paid $10.00 per hour; $50.00 per hour; or a
$100.00 per hour ? Of course the answer is obvious-$100.00.
We as individuals have a limited resource-our time. Your business
also is made up of limited resources such as your equipment, space,
and employees. In other words, you can only do so much
with what you have. You need to use your resources as effectively and
efficiently as possible.
Evaluate Gross Profit Margins
Another performance measurement similar to the contribution
margin rate is your gross profit margin. Again when possible
select products to offer with the highest margins.
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Spend Money Only When It Benefits The Business
My Pet Peeve.
Many times I've had a client tell me "So I spent a $1000.00 entertaining
a customer I get to take it off my taxes". In the old days you
were able to deduct the full amount today there are limitations.
Even in the old days assuming your tax bracket was 25%, Uncle Sam
only picked up $250.00 (25% x $1000.00) of the tab. Your still out of pocket
$750.00. Don't get me wrong, there's nothing wrong with entertaining
your good customers but you don't need
to be extravagant. This same rule should apply to all
your business expenditures whether for equipment, materials, services, employees or
supplies. If you just want a tax deduction put me on retainer for $50,000.00
a year.
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Advertise & Promote
Unfortunately, you have to toot your own horn to get noticed. Whether a
local business or a business on the internet you need to spend some
bucks in order to sell your products or services. Finding the best method
is the difficult task. Questions such as do I hire a sales force, use
radio or TV spots, yellow page ads, web site, newspaper ads, promotional products, etc. have to be
answered. You'll probably have to do some experimenting and
monitor the results to see what works for you. Again your
looking for the most bang for the buck.
I do recommend a web site and promotional products as two methods
that do provide some bang for the buck.
Lookout For Customers That Always Claim Shortages or Damaged Goods
No, not all customers are created equal. I hate to say this, but some
customers you just don't need. Customers that you're constantly having
"questionable" disputes with are costing you time and money and need to be weeded out.
Strive For A Varied Customer Base-The More The Better
I know sometimes you have to, but try
not to put all your eggs in one basket. If you only have one or two big
customers your putting the fate of your company in the hands of your
customer(s). If they experience financial difficulties so will you. If you
must, realize the risks involved.
Strive For A Varied Supplier Base-The More The Better
Try where possible to have more than one suppler
for your critical needs. Just like customers, a critical supplier experiencing problems
means problems for your business too.
React Promptly and Make Changes When Conditions Change
At times you will have to make some difficult decisions. If your business experiences
a slow down as bad as you hate to you may have to lay some employees off.
Some events will require you to "strike while the iron's still hot".
If you don't react your business may end up in a position that will be
extremely difficult to recover from.
Evaluate Your Products/Services Life Cycle
Just like us humans, products go through an aging cycle.
If all your products/services are senior citizens and you don't find
some young replacement products/services your business is heading
toward the undertaker. If you're still selling
buggy whips, my prayers are with you. It's tough to sell
something that nobody wants, needs, or uses.
Learn To Delegate
Unfortunately you can't do it all yourself.
Each of use only have 24 hours in a day. We all should be spending
the majority of our working time doing what we're best at. I might
be able to fix a car but it would probably take me five years to do
it. I would be effective but not very efficient and I don't think
my poor customer would want to wait that long or could afford my bill.
Surround yourself with good people that have the skills
you and your business need but don't posess and delegate.
You should still follow up to make sure the task(s) were done and done right
but at least you don't have to do the actual work.
Don't Be Timid About Asking For Free Help
Need some help but can't afford it ? Use the internet and organizations
such as SCORE to find information and guidance for your business.
The internet contains a wealth of free information although I do admit
at times it is difficult to locate.
Selling To Friends
It's fine to give your friends a reasonable break on prices,
but don't give away your service or product.
You're in business to make a profit and keep in mind that if
they purchased the product or service somewhere else
they'd have to pay full price.
Business is business and pleasure is pleasure.
Run An Honest Ship
Be honest and up front in all your dealings with your employees,
customers and suppliers. The ole saying "what goes around comes around"
will eventually catch up to you if you don't.
Be Alert To and Investigate Business Warning Signs
Bounced Checks
Supplier Statements With Past Due Balances
IRS Notices For Unpaid Payroll Taxes
Increase In Supplier Phone Calls
COD Terms Imposed By Suppliers
Disconnected Utilities or Phone Services
Know When To Turn The Spicket Off
I saved this one to last because I didn't want to discourage you.
Sometimes in life we have to wave the white flag.
Even Michael Jordan can only play good basketball for so long.
We all want to succeed, but
sometimes for whatever reasons we need to make the most out of a
bad situation. It's great to be optimistic, but sometimes it's just
not going to get better tomorrow. Cut your losses, salvage what you can, and
use the proceeds to try something new. Remember the ole saying
"the only way you don't ever fail is by not doing anything".
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Free E-book
I have also provided these tips in a PDF E-book that you may download
and keep as a reference. And no, unlike most other sites, you aren't
required to give me your name or e-mail address to get it !
Small Business Tips
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