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Posts Tagged ‘Business Finances’

Drawing a Salary From Your Business: Part 2

In Monday’s blog post, we discussed two barriers that may keep you from drawing a salary from your business. Today, we’ll cover the final aspect of this issue: Mindset. If you’re honest with yourself, this is most likely the biggest obstacle.

Here are three common beliefs:

Photo__Thoughts_and_ideas__Marina_Zlochin_24049520-193843
1. Cash, and possibly customers, is in short supply and bound to dry up any minute. Better paysuppliers as soon as the invoices arrive to make sure we have enough cash to cover them.
Besides, we tell ourselves, it’s a sign of business strength to pay vendors quickly.

2. It’s better to invest in the business than it is to pay yourself. Chances are, you are the business,or at least a significant part. Paying yourself is investing in the business.

3. If you’re the competitive type, you fall under the spell of the chase: “If I can do $XX in business,than I can do $XXX if I keep going.” Competitive types also play that game with the amount of cash they keep on hand, always looking to increase their business bank account balance. This is just a game! Set a reasonable level of cash to have on hand; pay yourself a salary.

If you’re struggling to draw cash from your business, consider each of the factors carefully and make adjustments where you can. Set a pact with yourself that increased revenues or improved profitability brought about by changes made will become your salary.

For example, the business owner who said “We’re up 132% but I still can’t draw a salary” should be able to take at least 20% of that increase as salary. We often get caught up in what “salary” ought to be, but there is no minimum. At my urging, one client recently took her first paycheck to the bank – a whopping $65, but she said it felt great and was grinning from ear to ear. $65 this week, $95 next week, and so it goes. As with any journey, you have to start somewhere.

Add a comment below or Tweet to share your experience.

View Part One of this post here. 

 

– Helen Dutton, Business Coach

Draw a Salary From Your Business: Part 1

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“We’re up 132% but I still can’t draw a salary”.

Empty Wallet

This was posted on the web by a frustrated business owner, and it’s not that uncommon. We’ve all heard the advice to “pay yourself first” but, most of the time, it just doesn’t work. Or so we tell ourselves. Let’s look at this challenge more closely.

Profitability

 Profit, or net income, is a simple mathematical equation: Revenue minus expenses equals profit. If profit is too low, then either revenue is too low or expenses are too high – simple math. All too often, business owners believe that if they open their doors, customers will come. Sorry, it doesn’twork that way. Instead, look at what additional revenue streams you can add; analyze current revenue streams and, by revenue type, brainstorm on ways to increase each. Here are a few ideas to get the ball rolling:

If you are a… Consider this revenue generting idea:
Business to Business Service Business Take advantage of the slower summer season; offer longer consults during July and August.
Business to Business Product Business Develop a “Frequent Buyer” program with incentives provided by complementing businesses. It helps both businesses!
Business to Consumer Service Business Post service openings on Facebook; it creates asense of urgency and generates traffic
Business to Consumer Product Business Your customers want to be outside so coordinate a “Summer Celebration” with neighboring businesses. Think picnics and face painting!

 

If expenses are out of line, ask yourself this: “If I had to cut expenses in half, what would I change?” I promise that you will know exactly what you would change. When we ask ourselves to cut 5% or 10%,we look for little changes within our current systems. More significant expense reductions require achange in your operations; that’s where meaningful savings will appear.

Cash on hand

 If you’re not currently taking a salary because the cash flow doesn’t support it, look atyour cash flow statement. This financial statement may feel overwhelming and difficult to understand,but here’s the bottom line: if you have inventory or facility equipment, you might as well have dollar bills on the shelf. I want you to picture that “great deal” you got as a pile of cash.

If customers owe you money, that’s cash you’ve “loaned” to your community, and that’s cash you could have used to pay yourself a salary. Excess inventory or equipment and customer receivables canall prevent you from paying yourself. Paying your vendors quickly can also prevent you from payingyourself, but more about that in a moment.

Check back later this week for the final piece of the puzzle: Why your mindset is the biggest obstacle to drawing a salary from your business. 

Until then, add a comment below or Tweet us to share your thoughts on Profitability, Cash on Hand and how you manage (or don’t manage) to draw a salary.

– Helen Dutton, Business Coach

What the Facebook IPO Can Teach Your Business

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The Facebook IPO felt a little bit like the year 2000 to me: a lot of excitement in the days leading up to the IPO, a price higher than the company’s fundamentals warranted, and a big letdown as the market responded. Facebook’s turnout was a direct result of some very basic business rules that were disregarded, perhaps because of the magical glow that surrounded Facebook. Here are some business guidelines that I’m reminded of that will serve every business, from the smallest “mom and pop” cornerstore all the way to the behemoths (like Facebook!). Whether you are planning an initial public offering or just wanting to build a nest egg for retirement, pay attention to the basics and your company’s value will build.stock market value

  1. Today’s business results are just as important as potential value tomorrow. How many companies have failed because they forgot about being profitable NOW? Potential is wonderful, but you have to still be here to reach it.
  2. Don’t get caught up in the hype – a new product, a new market, the latest widget or strategy that will revolutionize your business. Entrepreneurs love the adrenalin rush; be aware that it’s adrenalin. Make sure that the fundamentals exist to back it up.
  3. You need more than one man (or woman) to be successful. Mark Zuckerberg may be a genius but he is one person. As a small business owner, brainstorm joint product or service ventures with colleagues, potential recurring revenue streams, and look for ways to build depth in your organization. Your ego may take a hit initially when others in your business are viewed as valuable as you are, but your retirement account will thank you.
  4. Value is not just the “thing” that you do. Facebook’s “thing” is making connections; their value is the information that can be collated from all that posted personal data. Good hair salons don’t cut hair; they are a retreat. Build on that.
  5. Don’t fool yourself about the value of what you do. The stock market clearly told Zuckerberg and his team that they want sustainable growth, not just fun toys – and those toys aren’t worth as much as they believed. Be wary of industry valuation guidelines; until you have a buyer with cash in hand, your value is just a guess (see my past post on Valuation vs Speculation )

– Helen Dutton, Business Coach

Price Increases in Small Business: Too Risky?

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As we slowly and hesitantly climb our way out of the recession, more and more business owners are wondering “Is it safe to increase my prices yet?” Many business owners are nervous about customer retention, about competitors’ reactions, and so decide to just keep prices status quo. I can’t tell you for sure if it’s time for you to increase your pricing, but I can give you thoughtful questions that will help you make the decision intentionally, rather than as a decision by no action.Eye on Money

  1. When was the last time you increased prices? If it’s been over a year, you need to consider a price increase (move to question 2 automatically). If there have been unusual industry changes within the past year, you may also need to increase pricing.
  2. Are eight or nine out of ten prospects saying ‘yes’ to your fees? If you’re having troublekeeping up with demand, it may be time to increase the entry level of doing business withyou. Increasing pricing because of demand is not necessarily being greedy; it is a question of attracting customers and clients that are ready to step up to your new level.
  3. Do you recognize that you are giving less than “your all” to your customers and clients? Charging too little for our products and services gives us an excuse to do less than our best. If you see your business stepping up its level of service by increasing your fees, you actually do your customers a dis-service by keeping pricing flat. Give your customers what they want and deserve; it may start with you increasing your fees.
  4. What reasons have kept you from increasing your fees? If the honest answer is “fear”, it’s time to take a hard look at increasing your pricing.
  5. Do you feel adequately rewarded for the effort you put forth in your business? Some of you may have trouble with the “feeling” of this question. If so, consider it as a simple algebraic equation: if energy expended times pricing is greater than the reward you feel, consider increasing prices. Even as a former CPA and Chief Financial Officer, I consider this question the most important for small business owners in knowing when it is time to increase fees.

Increasing your prices, or not, can be a difficult decision. All too often, business owners choose to keep pricing flat by ignoring the issue altogether. If two or more of the above questions point to potentially increasing your fees, it’s time to pull out your data and consider your pricing thoughtfully. Ignoring the questions may provide short term relief, but may also lead to you resenting your business and your customers. Do everyone a favor and ask the questions.

If you’d like an independent third-party to help with your pricing questions, consider my one-hour laser focused coaching session.

– Helen Dutton, Business Coach

Designing a Performance Pay Strategy For Your Business

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performance pay

Citigroup investors last week let the Board of Directors know that they would not approve executive pay when the company’s performance was less than stellar; last month Citigroup failed the Federal Reserve’s latest stress tests. Further, investors saw an inequity between shareholder value and executive pay. In short, they wanted performance pay.

Whether executive pay on Wall Street, sales incentives, or company-wide bonuses for performance, incentive packages can be tricky business. I’ve learned the hard way that rewarding the performance you want more is not as simple as it seems. Here are my top five tips to designing performance pay plan that your employees are excited about and that increases your bottom line.

  1. Understand and incent for the behavior or performance you truly want. Creating marketing materials within a tim eframe may be a goal, but if no one remembers it or picks it up, you haven’t achieved anything. Another desirable goal is to increase client loyalty, but never lose sight that the bottom line objective is revenue. While it could make sense to reward for repeat appointments, incorporating a pay component based on increasing revenue is also critical.
  2. Understand that by rewarding one behavior, you may discourage other behavior. By rewarding the retention of customers, you may inadvertently incent employees to avoid marketing and building the customer base. It’s about balance.
  3. Engage the employees in the process to make sure your goals are in alignment. Incorporating the employee’s goals is a win-win; if they’re enthusiastic about meeting or exceeding the goals the company more easily meets its goals. Understand what rewards are valued by the employee; not everyone is motivated by financial reward. Ask what motivates them and incorporate their goals and motivators.
  4. The behavior or performance being rewarded needs to be measurable. If systems need to be built just for the purpose of calculating incentive pay, think again. You are either not incenting a behavior directly in line with your goal, which are generally simple (increase revenue, decrease inventory levels), or you need to break it down into smaller, simpler components.
  5. The employee ought to be able to easily calculate where they stand during the performance period. Performance pay strategies should be so simply designed that whenever a sale is made, an appointment booked, or customer payment received, the employee can quickly calculate the associated pay.

If you don’t see the desired results from your performance pay plan, get ideas from employees and adjust. When incentive pay is done well, it’s easy and you’ll see your desired outcome quickly.

 

 – Helen Dutton, Business Coach

Helen Dutton, A Vision of Your Own, has provided business and personal coaching for small business owners since 2000, providing online and face to face coaching for entrepreneurs, small business owners, start-up businesses as well as established businesses across the country. Clients come from New Hampshire, her home state, but she has also acted as a mentor to business owners in Atlanta, Chicago, Los Angeles, the Denver area, and closer to home in the Boston area. Helen helps her clients develop their small business ideas, create marketing plans, improve operation efficiency, build customer service systems, build management and leadership skills, and develop confidence as a business owner. Helen provides business tips and resources through her blog and her newsletter, where you can also find business templates to help your business prosper.