Raising a Business from a Puppy
This past weekend, after months of my boys wearing me down, we went to the animal shelter and adopted a puppy. And not just any puppy, but a hound/terrier mix that is estimated to reach 65 pounds at adulthood. After a lifetime of owning tiny dogs (mostly Pomeranians), I knew Charlie would be a new adventure.
As we have been adapting to a puppy-friendly house, I have been thinking about how similar raising a puppy is to growing a business. There are similar challenges, but similar strategies to face them, as well.
Hav
e set rules.
The first thing I did was to set ground rules early on, before the puppy had even set foot in the house. I reminded my sons that he was never to be fed people food, not allowed on the furniture, and that allowing him to roughhouse and "play-bite" was a bad idea.
In a business, it's also easier to practice good habits early on, and to avoid the bad ones. Getting into the practice of having separation of duties and staying on top of bookkeeping is easier when your business is small, and sets you up for success as your company grows.
Protect your assets.
Charlie has a crate he sleeps in and to which he is confined whenever the family isn't home. We have also stressed to the boys the importance of keeping toys and other valuables off the floor and in their rooms, where they are safe from puppy teeth. (I learned the lesson myself, when a laptop cord I'd left next to my desk was chewed through the first day.)
A new business, if not well-protected, can be even more destructive for an owner. Not having the proper insurance or levels of separation can not only be disastrous for the business, but can bankrupt you personally. And since none of those protections can be applied retroactively, it is best to have them early on, before you need them.
Get help from the experts. 
I know a lot about animals, but I also know I can't be an expert in every area. We have a veterinarian to help take care of our pets' health. I may be comfortable giving the dog a bath, but I still prefer to take him to a professional groomer for things like a nail trim. And though we are reinforcing training at home, we already have Charlie signed up for puppy training classes. I don't have the time to provide absolutely everything Charlie could need, and there are experts who can offer those services much more efficiently than I ever could.
Businesses also need a lot of help, and it doesn't make sense for the owners to handle everything. Even if you're planning on doing your books yourself, get an expert to help set-up and train your and your staff. If you wait until your business is large to come up with a bookkeeping solution, you'll have an unmanageable beast on your hands.
Guest Post: "The Value of Referral Sources for Your Business" by Haley Lynn Gray
Your Accountant's Weird Habits - Explained
If you have a pet in your family, maybe you've seen those articles purporting to explain why your dog spins in a circle before lying down, or why your cat would rather drink from the faucet than a water dish. To many people, there is a creature even more alien and perplexing than any animal: the finance professional.
Your bookkeeper or tax professional might say or do things that don't make a lot of sense to you. Some of their actions might seem flat-out contradictory. But, as with any exotic species, there is a reason behind all of it.
I want to break down a few of the most commonly complained-about behaviors, along with the explanations behind them (with the assistance of cat pictures).
First annoying habit: My accountant keeps nagging me to get organized.
Your bookkeeper wants you to have a system for tracking open customer balances, or wants you to keep all your expense reports in one place. It's frustrating, because the whole reason you're paying them is for them to "keep up with that stuff".
So why do they do it?
For starters, good bookkeeping relies on complete information. (A balance sheet showing $1M in the bank doesn't mean much if there's a $995K liability that got left off.) Unless you have an in-house accounting staff, your bookkeeper is relying on you to get that information to them. A good organizational system ensures that all of the information is getting to who needs it.
Furthermore, most accountants charge based on time expended, and though good accounting can be had at a good value, it's still not cheap. Paying your accounting service to dig through files and hunt down info is a waste of their time and your money.
Speaking of "time", my accountant freaks out if I don't get certain information to them right away. What's the rush?
Certain items, particularly related to tax filings, can incur massive penalties if late. Your accountant needs the information in advance of those deadlines, to record it and check for accuracy. (Inaccurate filings can also, of course, result in penalties.)
If your accountant is pestering you to get information to them quickly, it's because they are trying to keep you out of trouble and save you money.
Since we're already talking about taxes...Why does my accountant try to make me spend money I don't want to spend? For instance, why do I have to treat certain workers as W-2 employees, instead of paying them as contractors?
Because worker classification is a big deal. Not paying employees correctly can result in audits, fines, and even lawsuits. Your accountant is being a stickler about the rules because they don't want you to get sued.
Still talking taxes...Why does my accountant say I can't take this cool deduction I found? I saw online that I can expense my home office/car payment/pet kinkajou/etc.
Present blog excluded, internet advice is no substitute for real, professional guidance. Though you'll seeing many articles claiming that you can write off an entire car payment, or take a "home office" deduction, the actual guidelines surrounding those items have specific criteria which must be met. Unfortunately, small businesses, particularly those which are sole proprietorships, are frequent targets for audits. Taking excessive, unqualified deductions puts you at an even greater risk. If you trust your tax professional, trust that they will advise you of deductions for which you do qualify. (If you are not happy with your current tax professional, we can recommend some.)
So I have to spend extra on employees, but can't take any of the fun deductions. And now I'm being told that I need to watch my spending on meals, and look at ROI for things like advertising. Is my bookkeeper just a kill-joy?
No, they just don't want you to go broke. Going bankrupt isn't just bad for you; it also means you can't pay your vendors (like your bookkeeper). So they have a vested interest in keeping you solvent.
Because, no matter what your business, one thing we all have in common is that we like to get paid.
Guest Post: "Accidental Partnership" by Richard Bobholz
“Oops, I tripped,” won’t work too well as an excuse if you find yourself under scrutiny for an accidental partnership. Despite having the potential to be incredibly damaging, these arrangements happen all the time in business.
What is an Accidental Partnership
An accidental partnership is a partnership that was entered into inadvertently. Yeah, I know that didn’t help at all. These commonly occur when two or more businesses get together to try to put on an event, coalition, or joint marketing efforts.
For example: the very first instance I encountered this was very shortly after I began my firm. A colleague approached me and told me all about this great expo that she and a few other colleagues were going to put on, and she wanted to know what risks there were. That’s when I told her about the accidental partnership.
The Law
North Carolina defines a partnership as “an association of two or more persons to carry on as co-owners a business for profit.” Person can mean any individual, company, or association of any type. What constitutes a business for profit is very broadly interpreted and includes any activity where profit was desired, not necessarily achieved.
In the example above, it was actually a partnership of LLCs that was getting together to put on the expo. Since the expo was to be separate from each of their businesses and yet not an incorporated or organized entity, we’re looking at a partnership.
What does that mean for the partners?
A partnership is not necessarily a bad thing. Each of the individuals in the partnership would have had personal liability protection because of the nature of their LLCs, so they wouldn’t lose any personally owned property if something went bad. However, under the partnership, every partner is 100% liable for anything that goes wrong. That means that if one partner causes huge damages to an attendee at the expo, any partner could be held liable. The person who was harmed can choose one or all of the LLCs involved in the expo to sue for damages.
Partnerships are defined largely by contract law. This means that the partners can define a lot of the rights and responsibilities of the owners and of the company itself. There are default rules that cannot be contracted away, such as the duty of each partner to act reasonably prudent when acting on behalf of the company.
Unless a contract specifies otherwise, the ownership, profits, and losses are divided equally. Additionally, the liability and management are owned wholly by each partner. That means that each partner may make any decision on behalf of the partnership, and the other partners could be held liable for those decisions. This is a scary position to be in.
How do I protect myself?
First and foremost, being able to recognize these types of situations before you enter into them will provide huge protections. Anytime you join together with another company or individual to conduct anything business related, there’s a good chance you’re looking at a partnership. At that stage, you should think of whether or not you want to be in that partnership. You can always avoid it by removing the ownership components, instead either being a contractor or making the other participants contractors. In those cases, contractors should get paid, and management should only belong to the owners.
The best way to protect yourself if you do go forward with a partnership is two-fold:
- Create a separate entity for the project or business activity you’re doing in conjunction with other businesses. An LLC acts like a partnership and provides that liability shield.
- Create a clear and concise contract between the partners so that in the event something goes wrong, there are terms in place to protect you. This should also define what the rights and responsibilities of each partner is, as well as how to resolve any disputes as they come up.
Richard Bobholz is the Managing Partner at Law++, a revolutionary and award-winning business law firm in Durham, North Carolina. Law++ sets itself apart by offering flat rate pricing, easy to understand retainer packages, and the highest quality customized legal services to all their clients. They were also the first law firm in North Carolina to become B Corporation Certified.
Links:
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Check Mark Startup – www.checkmarkstartup.com
What does a bookkeeper do?
"So, what do you do?" It's one of the first questions we ask upon meeting someone. My usual answer is "bookkeeping and fractional CFO". The typical response to that is, "Okay...and what does that mean?"
Most people have a general understanding of bookkeeping is, but fractional CFO is a murkier concept. Essentially, we act as an "outsourced" CFO (Chief Financial Officer) for companies too small to have their own. Offering this service is one of the primary ways we distinguish ourselves from most bookkeepers.
However, there are several differences between what a standard bookkeeper does, and what we do.
A bookkeeper offers monthly reconciliations at an hourly rate. The process most bookkeepers use is to, at the end of the month, have their clients bring a stack of financial documents, such as bank statements, receipts, pay stubs, etc. The bookkeeper then uses that information to make entries and perform a reconciliation. This takes time, and their clients will usually receive that past month's financial statements about midway through the following month. Once the month's work is completed, the client receives an invoice for the hours worked. Depending on how busy that month was, this bill fluctuates.
The Bookkeeper offers bi-weekly reconciliations at a monthly rate. Instead of waiting until month-end, we enter information downloaded from the client's bank accounts every few days, so their financials stay more current. This prevents a long clean-up process at the end of the month, and allows us to complete the monthly financial statements more quickly. Furthermore, we offer our ongoing clients a monthly flat rate, so there are never any surprises on the bill (even when the month was a busy one).
A bookkeeper moves on and makes assumptions. Most bookkeepers focus on one specific aspect of their business, which is just getting transactions entered. If they have an expense and aren't sure what it's for, it gets stuck into "Uncategorized Expense" for the client to figure out later. If they're entering payroll and see that a contractor really should be paid as a W-2 employee, they're just going to make the entry as it's presented to them and move on. They might make a mention of it to the client when they see them again in a few weeks but, in most cases, likely not.
The Bookkeeper pauses and asks questions. Our clients hear from us frequently. If something looks "off", or if there are improvements to be made, we'll bring it to the client's attention immediately. In one account, we identified a case of credit card fraud before the bank and client did, and were able to alert them to it. We also warn clients about potential cash flow issues, or when certain bills are due, to help prevent overdraft fees and other penalties.
A bookkeeper does exactly what the client asks. That's not a bad thing, at all. But most bookkeepers do only what the client asks, and nothing else.
The Bookkeeper proactively seeks out ways to improve our clients' financials. On our own time (again, without charging the client a cent more), we've done things like developing a new pricing strategy to propose to a client having issues with their retailers. We've identified overdue Accounts Receivable to find clients money, and we've saved clients money by negotiating better vendor contracts. We've used our connections with merchant card processors to save clients thousands in credit card processing fees. And we have done all these things without the client ever asking us to.
Money, it is said, is a vehicle.
A bookkeeper is a mechanic. They do routine maintenance. If something breaks (and you notice it), you take it to them to get fixed. If something breaks and you don't notice it for a while, and the problems gets really big, when you take it to them to fix, you're going to end up with an expensive bill.
The Bookkeeper is a travel agent. We help you figure out where you want to go, and we get you there. Whether you drive, cruise, or fly, we are there for you at every step of the journey. And we work to help ensure that the trip is as enjoyable as the destination.
Of course, all of this is hard to sum up in a casual introduction. That is why we offer free 1-hour initial consultations, so we can get to know prospective clients and show them the differences we have to offer.
If you know someone whose business isn't going where they want it to go, before you send them to a bookkeeper, send them to The Bookkeeper.
Getting Creative at Getting Out of the Office
Having a comfortable office for business meetings is a great resource. It's very convenient to have a consistently available place to meet with potential clients, employees, or referral partners. However, it's also great to get away from the workplace at times.
Meeting someone away from the office can offer the benefit of a neutral territory, where people can lower their defenses and engage in more genuine conversation. Where you choose to meet can also give others a better understanding of yourself and your company culture.
When scheduling your next business meeting, consider some variants on these classic choices.
Eating Establishments
Everyone knows the standbys of a coffee or lunch meeting. (If you're particularly adventurous, you might go for an after hours cocktail.) But meeting over meals doesn't have to be limited to a cafe or sit-down restaurant. If you want to make a meeting memorable, start at a food truck, or grab an ice cream cone. Weather permitting, you can walk and talk as you enjoy your snack. Many people feel awkward holding face-to-face conversations with people they don't know well, particularly if they are eating in front of them.
Walking side-by-side helps avoid nerves over eye contact, and can put shier people at ease.
Quiet Spots
Most big cities have plenty of co-working spaces available. (We have a plethora of great ones in Raleigh.) And they are fun places to hang out, even if you don't have someone to meet. Many extroverts (myself included) like to be out around people while we work, even if we're working independently.
If you don't have official co-working spaces in your geographic area, there are likely still plenty of quiet places to meet. Many libraries have meeting rooms and tables which can be either reserved or used on a first-come/first-serve basis, as do some bookstores. If you don't need somewhere with table space, consider a walk around a museum, or other cultural center. (In Raleigh, the JC Raulston Arboretum and Botanical Gardens comes to mind.) Anywhere peaceful and open to the public can be a good meeting location.
Active Meetings
For decades, business deals have gone down on golf courses and racquetball courts. But if you're looking for an activity to get your heart rate up, you're not limited to those two options.
Assuming you're of similar cardiovascular health, going for a run is a great meeting option. Running is always more fun with a matched partner. Other sports which work well for 1-on-1 are tennis and basketball (so long as you don't get too over-competitive).
If those are too strenuous, a brisk walk through the park (maybe hunting some Pokémon?) is a suitable choice, as well.
If you keep an open mind, you can find meeting locations off the beaten path, which will leave an impression. As long as both parties are comfortable, you're able to converse, and it's a hospitable environment, anywhere can be a good place for a meeting.
3 Questions for Defining Your "Ideal Customer"
Whenever I'm networking and have spoken to someone for more than a few minutes, the question I most dread comes up. No, not, "What do you do?"
"Who's your ideal customer?"
I feel like that's hard to answer, so I normally make a joke of it and answer like a dating show contestant. "Oh, someone who's a good listener and open to change."
But it's not entirely a joke, because, though I do tend to serve businesses of a certain size, I also do want clients to both listen to me and implement suggested improvements.
If you're having trouble defining your ideal customer, ask yourself these three questions.
Can I help them?
Most businesses, particularly in the B2B or professional service realms have a certain scope within which they're comfortable. For instance, if you have a professional cleaning service, maybe you don't have enough cleaners to pick up a contract with a large office complex. On the flip side, maybe you don't do residential cleaning, because those jobs are too small for the revenue gained to cover the expenses they require. So your ideal customer is somewhere in the middle.
Or, maybe a certain company just has requirements which are out of your wheelhouse. If you are a business attorney and someone contacts you for divorce representation, they're not your ideal client. You might be able to get some business out of them, but if it's an area in which you aren't experienced, you're probably doing a disservice to you both.
Do they want my help?
Remember my date show answer about wanting a client who listens?
There will be certain clients who, though you could help them, aren't interested for whatever reason. Maybe they're a brand new business and they're not ready to outsource any services yet. Or perhaps they're a larger business who can't be convinced you have anything to offer them.
Maybe you've found that clients in certain types of businesses are less receptive to outside advice, due to the specifics of their industry. Or you haven't gotten your foot in the door with that industry yet.
None of this is to say that you can never work with these types of clients. However, for the purposes of referrals, they are not your ideal clients.
Do I want to work with them?
It's a fact of business that certain customers are not worth the hassle. Maybe they want to pay you bottom rates, but they require 100% on-site work (and their office is on 3-Mile Island).
Maybe they've had multiple failed business ventures, and stiffed their vendors on unpaid invoices when they closed shop. Perhaps they are unethical in their dealings with employees or customers.
If a client is going to be a lot of work for little return, or if they could bring down your reputation just by association, they're probably not the client you want to pursue first.
Again, someone being a "no" to one (or all) of these questions isn't a reason to absolutely never pursue them as a customer. However, when you are in a networking situation and only have minutes to describe who you're looking for, use these parameters to describe your "ideal" client.
Pricing Strategies: How do I know how much to charge?
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One of the hardest decisions a new business owner makes is how much to charge. In calculating the "right" price, there are a number of variables to consider.
For starters, let's re-visit Intro to Microeconomics and ask, is your product elastic, or inelastic? Elastic products are those goods or services in which demand is closely tied with price. In other words, demand on an elastic product will increase with a decrease in price, and vice versa. The demand for inelastic goods is steadier, and less dependent on price.
For example, a specific brand of chocolate chips is a highly elastic good. If the price increases too much, customers will just purchase a different brand of chocolate chip (or decide to bake a different type of cookies, or just buy the pre-made cookies outright). Though I might really like Ghirardelli brand chocolate chips, I don't really need them, and there are plenty of ready substitutes available.
A very inelastic product would be gasoline. The price tends to be relatively uniform within a geographic area, and most people are heavily reliant on it in their day-to-day lives. Even when the price surges, consumers still have to purchase a certain amount. Likewise, even when gasoline is very cheap, people don't necessarily start driving and purchasing significantly more.
If your product is elastic, you don't necessarily have to have one set price. You could employ "surge" pricing, a la Uber, and charge more when your goods or services are in greater demand. You can also try to generate increased demand through temporary price drops. (Perhaps some of you are old enough to remember "blue light specials".) If you want to keep steady prices, or if you're good is inelastic, there are other variables to consider.
To develop a pricing strategy, you should know your variable expenses, how to calculate profit margin, and have a general idea of market price (competitors' prices).
Maybe you have a surface familiarity with the terms "variable expenses" and "profit margin", but aren't 100% clear on how they're calculated. For your benefit, we'll have a quick accounting lesson.
Variable expenses are those expenses which are directly tied to the production of each unit of a product, and might include such expenses as raw materials, labor hours, and shipping costs. In other words, variable expenses increase (or vary) as production increases. Costs of Goods Sold (or COGS) are variable expenses.
To calculate your profit margins, divide your net profit (sales - COGS) by your sales. Playing with these formulas at different prices can help you determine a feasible price for your product.
As far as competitive pricing, it is good to be in a range with your market competitors, though you don't necessarily have to be the cheapest, or even on the lowest end. Trying to win customers on price alone can cause a big hit to your profit margins, and will not bring you long-term success. If you cannot safely price your competitors out, beat them with a distinguished product and superior customer service.
Finally, there are discounts to consider, particularly "friends and family" pricing. Special pricing is fine, as long as you can still maintain healthy margins. Never sell at a loss, even for those close to you. You do not want to have to raise prices on friends and family later, so set them at a level you can maintain indefinitely. If you price yourself out of business, you really aren't doing your loved ones any favors.
How You Use ROI Every Day
For those who don't know, ROI stands for "return on investment". Colloquially, you might think of it as "bang for your buck". Though it's frequently used to describe investment decisions, ROI is something you use in your daily life. You go to the gym because the payoff of improved health has greater value than the time you put into it. You're getting a good return on that time invested.
You might even use ROI to compare two options. Let's say your goal is to lose fat, and there are two classes open when you go to the gym. You could go to an hour-long spin class, or an hour-long yoga class. Doing your research, you find that spin class burns 50% more calories, so you choose to go to that one, as it offers a better ROI.
Looking at it from a financial perspective, there's a very simple formula to calculate ROI.
Return on Investment = (Gain from Investment - Cost of Investment) / Cost of Investment
Now, when it comes to ROI in small business, people tend to think of it primarily in terms of sales and marketing. Before you run an ad or hire a marketing firm, you should be looking at whether the income you're likely to gain outweighs the amount you're about to spend. (For a more in-depth look at mistakes owners make in their marketing budget, see our prior article, Living a Lie: The mistakes that make entrepreneurs go broke.) If you are paying a marketing firm $10,000 a year and your sales only increase by $3,000, you're not making a good return on your investment. Likewise, if you hire a salesperson at base $45K + commission, and he only makes $15,000 in sales, he's probably not in the right position at your company. These are the sorts of obvious examples people think of when it comes to ROI in their business.
However, any business decision really comes down to a matter of ROI, and that is true for hiring an accountant, as well. We're constantly fighting the stereotype of accounting as a necessary evil, and one way to do that is to look at all the benefits that come with good bookkeeping and CFO.
First, of course, are the tax savings. Accurate books not only help you avoid an audit and costly penalties, but also aid you in tracking and recording every deduction for which you're eligible.
Second is saving on expenses. A good CFO service should be locating areas of overspending and helping you restructure to lower or even eliminate certain costs. (Actually, we tend to recommend you eliminate those expenses which don't produce a good ROI. See? It really does all come back to that.)
Third, we like investigate means of increasing revenue. This could be by introducing a new product or service line, acquiring another business, re-examining current pricing strategies, or even by locating and collecting on aged receivables.
To look at how The Bookkeeper does this from an ROI perspective, we save or earn our average client enough in our first year with them to pay our fees for 23 months. That's an almost 100% return on investment.
Finally, there are the benefits which are harder to quantify, primarily opportunity costs. What do you save in energy and stress by hiring someone to take over certain tasks for you?
This week, I challenge you to take a close look at your business, find what's paying off, find what's not, and do something about it.
Expanding our horizons with Xero
Though we are very proud to call ourselves Diamond-level QuickBooks ProAdvisors, one of our best business traits is adaptability. We try to stay on the forefront of a changing global market and, when we read that Xero is the fastest-growing international accounting software (by number of users), we knew that we had to add it to our repertoire.
We are proud to announce that we are now Xero certified partners. This means that we have completed an extensive training course, and passed a rigorous certification exam to demonstrate our proficiency with the software. So if your business uses Xero, we are ready and able to seamlessly transition to managing your books.
You might be wondering how Xero compares to QuickBooks. Both have their benefits and drawbacks. The Xero dashboard might be a bit less user-friendly for a non-accountant, whereas QuickBooks is very easy-to-read. Many users also just prefer the familiarity and solid reputation of QuickBooks, which is perfectly understandable. However, Xero does have some useful built-in tools, particularly an included budgeting application, payroll included on larger packages, and currency conversion on the premium package. Depending on the package chosen, the pricing is similar between the two systems. (Xero starts at $9 per month, with premium plans going up to $70/month.) Obviously, both are online-compatible for cloud computing.
As previously mentioned, we are still incredibly happy to be partnered with QuickBooks, and will continue to offer our support and services for QuickBooks clients. However, there is no harm in diversifying our skill set. Based on our market research, Xero is worth investing our time into. If you too would like to learn more about the benefits of using Xero, you can read about their features here, or contact us. We would love to answer questions you might have about this or any other accounting software.