The other day, I answered the front door to find a pleasant young man who wanted to clean my windows. When I answered that I clean my own windows, he said, with a note of amazement in his voice, “Why?”

I don’t recall exactly what I answered - I probably sidetracked the question as politely as I could - but it got me started on a line of thought. Why indeed? Part of the answer was that I have invested in about $100 of quality window washing tools. Part was that (especially with the right tools) it’s a pleasant summertime job. But did it make financial sense?

Which, right after tax season, led me to consider marginal tax. In case you’re not familiar with the concept, marginal tax is the tax you pay on the last dollar you earn. Putting it another way, as a business owner, if I take on another job or client, how much of the money they give me do I pay back in tax? If you do your own taxes with a tax program, it may show you this information. If not, just add $100 to your income (temporarily!) and watch how much your tax goes up. For instance, if it goes up $47, your marginal tax rate is 47%. (If your income is in a corporation, it’s more complicated, but eventually the money will come out of the corporation and into your taxable income.)

It turns out that my post-retirement income is now healthy enough to burst free of the mitigating factors of dividend income, pension splitting, medical costs and donations, and now attracts almost 50 cents on the dollar. It’s nice to make money, but it’s a bit of a drag to consider that after a certain point in the year, I get to work for half price.

There is a big difference between working for a living and working for pleasure. When there is a mortgage to be paid and children to educate (wait - I do still have children to educate!) it’s still worth getting a raise or working extra hours, even for only 50 cents on the dollar. Somehow, it feels different when it’s optional. If you are in a similar position - working after retirement for pleasure or for hobby-money - you should consider your marginal tax rates for different income scenarios. When I set my hourly rate, it was based on a number of factors, but the after-tax value of my time was not one of them. My marginal tax back then was truly marginal, and I failed to plan for success.

My revised business plan is to leverage my time more. I’ll be looking for ways to do one hour’s work and harvest more than one hour’s income. There’s more risk involved, but now I can see more clearly what the benefit is, so it’s easier to justify.

So back to the window washer. Turns out that as long as I can wash my windows in less than three hours, I’m in the money. Doing it on a nice lazy, summer day? Priceless.

In this article we’re sharing what we call “ideas to steal”. They are all real-life ideas from successful businesses - action steps you can pick up and run with right away, without having to research, test or otherwise delay implementing. And, you don’t need to spend money to do them.

Pick three that you can sink your teeth into, and don’t hesitate to contact us if you want more information or help implementing them - these days we all have to work together. .

• Bill faster. Your receivables can count for 40 - 50% of your actual assets. Don’t batch invoice: bill as soon as you can. (See The 10 Most Dangerous Accounts Receivable Pitfalls at: www.sterlingservices.ca).
• Simplify your business. Weed out the unprofitable and the hard-to-sell.
• Simplify your marketing message. Read Made To Stick by Chip and Dan Heath. (www.madetostick.com)
• Get your business and your web site listed in relevant directories. To find directories, Google the name of your town plus “directories url” (e.g. “cobourg directories url”).
• Learn to delegate. Figure out what you do that turns dollars. Then delegate the rest.
• Encourage employees to explore more efficient approaches to their tasks instead of relying on their standard way of doing things.
• Don’t forget suppliers. They might not be on your payroll, but they are more apt to do a few things for you at no charge because you really take care of them.
• Work faster. If you can condense three four-month jobs into three three-month jobs, you can do one more job in the year.
• Reward your team for meeting budgets and time lines. A 5 bonus is cheaper than a 20 increase in costs.
• Cut overhead by automating most of the non-producing items like accounting, customer care, voice mail, sales reporting, ordering and record keeping.
• Make sure you’ve clearly outlined project scope, and don’t be afraid to charge your customer for changes.
• Offer to be a spokesperson on your specialty when your local media need an expert opinion. Send them a relevant press release every month.
• Give something valuable away on your web site; at your front counter; when you send out your invoices; when you deliver goods. This should be free to you, but valuable to the recipient, for example, coupons or a “How To”.
• Highlight offers, features, promotions and news in your email footers, invoices and letter signatures.
• Start accounts with Twitter.com, Facebook.com and LinkedIn.com and post articles. (Get a good overview: here).
• Go where your audience is on the web. If your potential audience hangs out on forums, then post to those forums. Become a trusted advisor.
• Get your supporters to refer you. I’m going to upload another whole article to help you learn more about how referrals can build business.

Securing external financing is often regarded as the most difficult problem facing entrepreneurs and small business owners. The critical issue of creating an optimal capital structure can make or break a business. Should you issue more equity? How much debt can you take on? Those decisions depend heavily on the nature of your business, industry structure, and current strength of your balance sheet.

An area that most small business owners neglect is that of accessibility. Beyond taking a significant amount of time to evaluate and negotiate the best financing deal, too many entrepreneurs go after money that is not appropriate for their venture. Thus, it’s critical for entrepreneurs to first understand what their business growth category is in order to focus their precious time on securing the capital that is available for their business. In general, most entrepreneurial ventures fall under three categories:

Lifestyle Business:
This category consists of new ventures that do not incur the risks associated with high growth and usually only provide a decent living for the founders. They have growth rates below 15% annually, five-year revenue projections below $10 million, and are primarily funded through internal means. Very rarely do lifestyle firms attract external investors. Most equity investors, such as venture capitalists and business angel syndicates, are more interested in businesses with exponential growth potential that fits their investment criteria. Often their objective is to reap the rewards of at least a ten times payout within five years. Realistically, most lifestyle firms need to rely on internal bootstrapping strategies, debt from banks, and love money - family and friends.

Mid-Potential Business:
These firms make up less than 10% of all start-ups and have growth prospects of more than 20% annually. Their five year revenue projections are between $10M and $50M. They are very attractive to business angel investors, but also still depend heavily on bootstrapping to fund growth. Typically, firms in this growth category do not attract venture capitalists since the market opportunity is still too small for that type of investor to make an adequate return. However, business angels play a significant role in this category and should be aggressively pursued.

High Potential Growth Business:
High potential growth businesses are the rare stars that make up less than 1% of all start-up companies. They have the potential to be a $50+ million dollar business within five or six years and tend to be the primary recipients of external equity financing via venture capitalists.

Do all entrepreneurial businesses fall under those categories? External investors use different names for them, but all small businesses will fit in one of those growth categories. As a small business leader, the important thing to remember is that the process of raising capital can take months and be a huge distraction for the management team that might even lead to business failure. Be honest about what you business growth structure is and focus your time on the sources that are truly accessible to your business.

Anyone can start a business, but only a few new ventures manage to last and flourish after a few years. According to recent Industry Canada research, over 50% of small businesses do not survive beyond year three and more than 75% fail within a decade. Regardless of your industry, you can dramatically improve your chances of success by fully understanding that a business relies on two fundamental financial elements: profitability and liquidity.

Everyone knows that a business needs to operate profitability to survive. However, many business owners forget that they must generate sufficient “liquid” cash from operations to provide the fuel to “sustain” growth. There is little benefit if a company is profitable, but has no cash with which to operate. Conversely, a business can have a lot of cash through borrowed funds or selling assets, but might not be profitable. The following are some surefire tips on how improve profitability and liquidity to build a sustainable business.

Finding Hidden Pockets of Profits

Have you ever thought about the amount of unnecessary profits that are lost due to not understanding the financial consequences of your actions? The following are just three examples of hidden pockets of profits that are probably lying dormant in your business right now:

1. Inefficient job scheduling leading to unnecessary overtime
2. Providing discounts when the customer did not ask for them
3. Poor fixed asset management resulting in unnecessary write-offs

By focusing more on how your actions can affect the bottom line, most businesses can easily add on several profit percentage points almost immediately.

Improving Liquidity

Cash is the life blood of any business without which the business cannot function. Thus, many business owners need to carefully monitor accounts receivable days outstanding and inventory levels. High accounts receivables and inventories can drain cash, which can cause a business to fail even when profitable. Also, too much cash tied up in assets impacts the operating profitability through unnecessary interest payments on debt, bad debts from receivables, and redundant inventory. The easiest way to improve your cash flow is by better managing your receivables and payables. Here are just three examples on how to improve cash flow from receivables:

1. Get retainers or deposit payments immediately when a sale is made
2. Do credit checks on new customers who make significant orders
3. Issue and follow-up invoices promptly

In essence, improving liquidity is about delaying your outlays of cash as long as possible while trying to collect cash as fast as possible from the people who owe you money.

Sustainability

As mentioned before, sometimes a business can have cash, be profitable, but cannot sustain growth. For instance, a business might heavily rely on a high margin fad product that only has a product life span of about 12 months. Thus, a key to building business sustainability is to examine the impact on profitability and liquidity when making both short-term and long-term decisions. It might just make the difference in you being in business next year and down the road.

Money talks - or does it? We see many stars walking away from high paying jobs in search of ‘something more’. We also see many stars staying at lower paying jobs, in spite of countless other opportunities. How do we explain this apparent lack of logic? Simple - it comes down to a classic case of currency rates in a foreign exchange.

There are many forms of currency that are being exchanged every day. These are things that hold value for individuals and often hold as much or more value than actual dollars. Some examples of different currencies may be recognition, a sense of purpose, values alignment, flexibility, passion, excitement for the vision, location, environment and career-development opportunities.

Kathy was a star marketing director for a leading packaged goods company. She found the work interesting, was well-paid, respected the company and was by all accounts on the fast track to the top. From the outside, it looked like she had the perfect situation. Much to her boss’ surprise, she ended up walking away from this prestigious position to join an agency. What happened that led her to that decision? She was not being paid in her highest value currency - flexibility.

The one factor that we didn’t list above is that Kathy was the mother of a two year old. Before she was a mother, she didn’t mind the long commute to and from her office, which was 45 minutes outside of downtown. After having her child, though, the extra couple of hours per day became the difference between seeing her daughter or not. Through our coaching, Kathy discovered that her number one currency was flexibility. She needed to be able to work from home one or two days per week, in order to feel more connected to her daughter.

Kathy put together a business case to present to her boss, outlining the reasoning for her request and an implementation plan that had very little risk to the organization. Unfortunately, the ‘command and control’ culture of her organization was very traditional and was not open to providing Kathy with this type of arrangement. As a result, Kathy left her position for a job where she made significantly less money, but where they encouraged her to work from home as often as she wanted. She has never looked back.

As a leader in your organization (every individual in an organization is a leader, regardless of your title), what are your most valued currencies? What do your peers trade in? What about your direct reports? What about your boss? Be curious about the value that the people around you place on different currencies. When in doubt, ask. Most importantly, be clear about your top currencies and be proactive about communicating what works best for you. Remember, true leaders are proactive and instead of complaining that they’re not happy, they dig a little deeper and make the requests to ask for what they want.

So how did the Tories do with the latest budget?

Hate em or love me, if you’re an SMB/entrepreneur, you should be cheering.

Finance Minister Jim Flaherty’s days as the Ontario Minister of Entrepreneurship, Opportunity, and Innovation (now since renamed to Economic Development and Trade) served him well as he came out with a budget that feels like Christmas in Spring.

The budget is offering tax relief for SMBs, at a $90-million price tag. There’s tax relief, for small businesses, fishers, jewellers, vintners, brewers, tradespeople, and farmers.

There is an increase in the amount of small-business income eligible for a 12-per-cent tax rate to $400,000 from $300,000, as of Jan. 1, 2007. The rate falls to 11.5 per cent in 2008 and to 11 per cent in 2009.

If you need an extra hand as your business grows, there are new apprenticeship job-creation tax credits for employers, who will get $2,000 per apprentice.

If banging out productivity is your trade, there’s a new $500 tax deduction for the cost of tools.

Fishermen catch a new tax break when they transfer property to their children. Family fishing boats become eligible for a $500,000 lifetime capital-gains tax exemption.

Not to forget farmers, but they’ll be harvesting a $2 billion injection of funding and tax relief over two years.

Even small and mid-sized brewers get a break.

For those who produce less than 300,000 hectolitres of beer -- duties will be reduced on the first 75,000 hectolitres of beer.

If beer isn’t your choice of drink, the budget has ordered up a tax exemption for vintners on the first 500,000 litres of wine produced, on the condition that only Canadian grapes are used. In the spirit of giving, the relief also applies to other products such as ciders, wine coolers, fruit wine and sake.

Now that’s something to drink to.

Every business sets out to make a profit but many small business owners don’t know how to measure the profitability of their businesses. Here are some guidelines to help you figure out if you’re actually making money.

1) Have you determined your total revenues for the accounting period? In order to answer this question, consider the following questions:

• What is the amount of gross revenue from sales of your goods or services? (Gross Sales)
• What is the amount of goods returned by your customers and credited? (Returns and Rejects)
• What is the amount of discounts given to your customer and employees? (Discounts)
• What is the amount of net sales from goods and services? (Net Sales = Gross Sales - (Returns and Rejects + Discounts).
• What is the amount of income from other sources such as interest on bank deposits, dividends from securities, rent on property leased to others? (Non-operating Income)
• What is the amount of total revenue? (Total Revenue = Net Sales + Non-operating Income).

2) Do you know what your total expenses are? Expenses are the cost of the goods sold and the services used in the process of selling goods or services. Some common expenses for all businesses are:

• cost of goods sold (Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory);
• wages and salaries (Don't forget to include your own - at the actual rate you'd have to pay someone else to do your job);
• rent;
• utilities (electricity, gas, telephone, water, etc.);
• delivery expenses;
• insurance;
• advertising and promotional costs;
• maintenance and upkeep;
• depreciation;
• taxes and licenses;
• interest;
• bad debts;
• professional assistance (accountant, lawyers, etc.).

There are many other types of expenses, but the point is that every expense must be recorded and deducted from your revenues before you know what your profit is. Understanding your expenses is the first step toward controlling them and increasing your profit.

Making a profit is only the first step; making enough profit to survive and grow is really what business is all about.

• Have you compared your profit with your profit goals?
• Are your goals are too high or too low?
• Have you compared your present profits with the profits made in the last one to three years?
• Have you compared your profits with profits made by similar firms in your line?

Have you analyzed the direction your profits have been taking? To do this you need to do a trend analysis. To do this you plot the numbers for several years. If the results are laid out in columns side by side, you can then evaluate your performance, see the direction it's taking, and make initial forecasts of where it will go.

Does your firm sell more than one major product line or provide several distinct services? If it does, a separate profit and ratio analysis of each should be made:

• to show the relative contribution by each product line or service;
• to show the relative burden of expenses by each product or service;
• to show which items are most profitable, which are less so, and which are losing money; and
• to show which are slow and fast moving.

The profit and ratio analyses of each major item help you find out the strong and weak areas of your operations. They can help you make profit-increasing decisions to drop a product line or services or to place particular emphasis behind one or another.

When you review the financial statements of many companies, they look great. Revenue is positive and growing; expenses are under control; and the company appears to be profitable. So why do some of these companies fail? Usually it’s because they get caught in a cash crunch. Their cash flow doesn’t generate the cash required to sustain their growth and profitability.

Cash flow is simply the cash that flows into the business from various sources, minus the cash that flows out. To have a positive cash flow the balance in your bank account must be positive.

This is a basic concept, but having higher revenue than expenditures is just one of three requirements for a healthy cash flow. There are two other key components to managing cash effectively. The first is that you need to have enough liquid assets to meet your financial obligations. Second your cash supply needs to be timely; that is you receive the required cash before you need to make your required payments. It is the failure to deal with these two key requirements that causes many businesses to run out of cash and go out of business.

These two weaknesses occur more often than you might think. An example is a company that makes large purchases through current cash flow instead of matching the purchase with long-term funding, such as bank loan. It can also happen if a large creditor does not pay on time.

So how can a business avoid this type of cash crunch? There are several alternatives such as cutting costs, increasing inventory turnover, accelerating cash inflow and delaying cash outflows.

Cutting costs can be done in most companies and can have a very positive effect if the cost reduction is done carefully. However the downside to this tactic is that this short-term solution may restrict the growth of the company. Business growth is usually achieved by spending on marketing, R & D, technology, and staff and this requires an up-front cash investment that creates payback later. If the cost cutting has an adverse effect on profitability, other options should be considered.

Increasing turnover can accelerate business growth and improve cash flow. Examples include increasing the number of customers; or increasing the number of times those customers come back; or increasing the average value of each sale. This helps build revenue and generate more cash flow into the business.

However the third option which involves accelerating cash inflow can have the biggest impact on cash flow. There are many ways to speed up the inflow of cash. Examples include requiring payments upfront or offering early payment incentives.

The cash flow output side should be closely monitored. This involves justifying expenditures and seeking the best possible deals. Payment due dates should also be closely monitored to avoid unnecessary interest charges.

In summary, managing cash flow requires the close monitoring of cash and some simple forecasting. If you follow the above principles, your business can maintain a positive cash position, enjoy growth and most important, be profitable.