What Should You, As A Business, Charge?

wsyaabOf the many skills needed to stay in business, knowing how to set fees for your services is one key to successful marketing. Yet the underlying methods and issues on setting fees are too often unfamiliar to service providers, consultants, and other entrepreneurs.

Pricing plays a central role in how much (or little) you earn for the work you do, and in the psychological subtleties of your business relationships. Set prices too high, and you may lose valuable business. Lowering prices may garner you assignments and projects you’d otherwise miss. But too-low prices can also translate to working unnecessarily long hours, to earning less than you should for your efforts, and, in the worst case, to earning less than you need to turn a profit.

FUNDAMENTAL STRATEGIES

There are several strategies you can use to set fees, ranging from asking for the going rates to raising your rates until clients say ouch. But the bottom line is cost-based prices–that is, fees that reflect what it costs you to be, and stay, in business. (You still may decide to negotiate different rates at times.)

Cost-based prices are relatively easy to determine. It will take you some thinking, perhaps a few phone calls, and then a little time with your spreadsheet or caculator. It’s an exercise all serious businesspeople must do, once or twice a year, even if they also set prices by other methods.

In return, you get real, bottom-line information essential to both starting and running your business. This article offers a step-by-step guide to basic fee-setting data, plus a simple way to get a rough estimate. The process applies to any business that sells time and knowledge.

There’s nothing mysterious about the process I describe here. You’ll find it in almost every book of self-employment and consulting. Yet a surprising number of self-employed individuals and small businesses I’ve talked with have never done this exercise.

CALCULATING COSTS

Too often, people underestimate the full costs of starting up and maintaining a business, even if it’s something as simple as doing transcriptions using a computer.

Just like the real cost of running a car includes not only the purchase price, but also insurance, maintenance, repairs, gas, parking, tolls, auto-club membership, and an occasional car wash, running a business entails ongoing spending for recurring costs and fresh investments in equipment.

Costs fall into three categories:

1. Business and office expenses. You can start up a business on a shoestring–with only an answering machine and business cards, to be precise–but it’s hard to run one for long on that basis.

Day-to-day expenses are part of the cost of being in business. Your pricing must reflect these costs–that’s one reason that the rate you charge is different from what a full-time employee appears to be paid.

With few exceptions, you’ll need to run some kind of office, even if it’s a room where you live. You’ll have ongoing expenses, such as phone and electric bills, postage, copying, stationery and office supplies, and subscriptions.

Also, you’ll need to make regular investments in office equipment and furniture: computer purchases and upgrades, filing cabinets, fax machine, copier, desk, telephone headsets, and more. And you’ll quite possibly have business-related taxes, such as sales tax and service tax.

Excluding rent on office space, many home-based independents report that phone bills are their biggest expense, followed by major equipment purchases, like a new laser printer or a plain-paper fax machine. It’s also easy for memberships and subscriptions to add up to $1,000 a year.

One piece of good news: As a rule, business expenses come out of pretaxable dollars, subtracted on your Schedule C from your gross revenues to yield your taxable net income.

2. Salary and personal taxes. One rule of thumb for self-employment says you should plan to earn about what you’d get as a full-time employee–otherwise, being an employee may be a simpler way to pay your bills. Lower stress and higher satisfaction are important benefits of being self-employed, but economic issues must often come first.

Another way to start setting your fees is to determine what “salary” you need, in annual, monthly, or weekly terms. Don’t forget to consider personal taxes in your calculations. Underestimating or miscalculating the money due to the government out of each “paycheck” is a common pitfall.

As a Massachusetts resident, I pay state income tax in addition to federal income tax and social security. According to a graph I did recently, the total tax bite on my income runs about 40 percent. In other words, for every $1,000 I want for take-home pay and benefits, I need to earn about $1,600.

The prudent person will open a separate bank account, designated for Our Friend the Tax Collector, and put the appropriate percentage of each received check in it–so it’s there when payment times roll around, and earns interest until then.

3. Benefits. As employees, most people receive benefits: health, life, and disability insurance; retirement, profit sharing, and other plans; and other items, whose value can be as much as a third of your salary.

The amount withheld from an employee’s salary is usually less than the benefits’ real cost, and is usually only a fraction of what you’ll have to pay as a self-employed individual. Some expenditures for benefits are deductible on your Schedule C, some on your 1040; others cannot be deducted by individuals. Health insurance may cost significantly more for individuals than for employees. Disability insurance will definitely cost more, although the package may be more comprehensive.

ESTIMATES TO TRY OUT

Now that we’ve outlined the basic costs of running a business, let’s set up estimates for calculating cost-based fees.

For the purposes of this exercise, estimate business expenses of $30,000 per year, or $2,500 per month. And let’s suppose a salary-equivalent of $50,000 a year. Further, assume that health, disability, and term life insurance and other benefits will cost more than $400 per month, or $5,000 annually (to earn the money for these benefits, after taxes, means about $8,000 per year for an unincorporated individual). Let’s add $6,500 in annual contributions to a retirement fund, such as SEP-IRA. These contributions are exempt from federal income tax–but not from FICA, state, or other taxes–so we’ll add another $8,000 to required annual revenues.

This gives us annual costs as follows: $30,000 (business and office expenses), $50,000 (salary and personal taxes), and $16,000 (benefits). In other words, annual costs total $96,000, or $8,000 per month.

So, to make the equivalent of a $50,000 salary as an employee, you’re looking for annual gross revenues of nearly twice as much. You can get by on less; but this is the amount you’d like to earn, and you’ll want to base your fees on this total.

CALCULATING SALABLE TIME

On to the other leg of the equation: figuring out how much time you have to sell.

Overestimating billable time is the first trap most business planners fall into. “Let’s see, if I work 40 hours a week, 50 weeks a year, then if I charge this much . . .”

BRRAPP! That’s the sound of the alarm going off. Back up several assumptions and start again.

If you are going to treat self-employment like a job and a business, start by defining a realistic work scenario. From the 52 weeks in a year, subtract two weeks for holidays, two weeks for sick or personal days, and three weeks for vacation. You may never take all that time off, but you should still build it into your fees so that you don’t cheat yourself out of the same benefits you’d get as an employee.

The brings you down to 45 working weeks per year–pretty standard. But that’s not all billable, revenue-generating time, not by a long shot. To start with, you’ll need to spend time marketing. Count on making phone calls, attending meetings, contracting, negotiating, goint to trade shows, writing follow-up correspondence, and the like.

One hour per day, every working day, is one standard estimate for marketing.

The same amount of time or more is bound to go for administration, support, and overhead–reading trade journals, paying bills, installing and learning new software, doing taxes, reloading the fax machine, addressing envelopes for couriers, and so on.

That’s about a quarter of your working time that you won’t be reimbursed for. And there’s no certainly you’ll get enough work to be busy all the time.

So to be safe, let’s assume 40 working weeks per year, with six billable hours a day, for a true total of 1,200 billable hours (as opposed to our original guess of 50 weeks at 40 hours per wee, or 2,000 total hours). You may end up being able to sell more hours, particularly if you tend to do medium- to long-term jobs (four-week-or-longer assignments), so you could have 1,500 salable hours.

But don’t count on it. If you don’t base your calculations on a sane, realistic set of assumptions, you’re looking for trouble, burnout, and other unexciting forms of life stress.

For our exercise, let’s use the 1,200 figure.

READY, SET, CALCULATE!

To calculate your basic hourly rate, simply divide your annual costs by the number of salable hours. That is $96,000 (annual costs) divided by 1,200 (annual billable hours) equals $80 per hour.

In other words, to pay yourself a salary of about $50,000, plus expenses, benefits, and contributions to your retirement fund, you will need to charge about $80 an hour.

That may sound like a lot of money, but it’s certainly in line with what therapists, programmers, public-relations consultants, and other professionals get. Many consultants charge far more.

Obviously, there’s a lot of leeway in this $80 figure. You may find you’ll be able to go down to $60, $50, or even $40 per hour. For example, you may have minimal business expenses, defer socking away that retirement money, be willing to draw a much lower salary, or work more billable hours. Or you may find that your rate should be $100 or $150 per hour.

In any case, don’t apologize for you prices if they’re fair. They reflect the cost of you business or service, including all your overhead.

MORE PRICING STRATEGIES

Once you know what you must charge, you can do also consider other strategies to base you prices on, which take into account factors like circumstance and bargaining strength. For example:

Going rates. What do your fellow professionals charge? What are prospects paying? Call them and ask, or have a friend call.

Until they say ouch! Raise your rates periodically. Keep raising them in talking with new prospects until they fall off their chairs in shock. Also, leave opportunities to negotiate down.

Ask for a piece of the action. Base your fee on a percentage of sales or savings you create. Get the deal in writing.

Paying for priority. If someone needs immediate, drop-dead service, that’s often worth 25 percent to 50 percent more. Don’t be greedy, though, and try to let clients know in advance that fees will go up as time gets shorter.

And finally, always remember that it’s legitimate to have different sets of prices, such as for:

* Large corporations versus start-ups and small businesses;

* Agencies, job shops, contract houses, and so on;

* Regular clients;

* Standard types of projects;

* Individuals, based on a sliding scale;

* Nonprofits, charities, and other worthy causes.

Remember, you’re in control. You set the price, although clients may challenge it. Negotiating makes all the difference. But without knowing what you have to charge, you can’t go out and sell–and you won’t know when to say yes, when to say no, and when to say, “Let’s keep talking.” So pick up that pencil, fire up that spreadsheet, and start calculating.

Posted in Uncategorized at June 26th, 2014. No Comments.

Protect Your Ass (And Back!)

cpafA home office needs more than computers, printers, and modems. Furniture, especially chairs, can be one of the most important purchases we make. A chair can radically affect productivity and enjoyment of work. And a chair can have a profound effect on health, since chronic backache is such a widespread problem for desk-bound computer users.

A good chair is an investment in your back that will pay dividends for the rest of your life. So sit up and take notice. The following questions and answers will guide you in your quest to keep your weary bones comfortable and rested. After reading, sit back, relax, and turn to the chart for a sampling of models from the leading commercial office-chair manufacturers.

What should I look for in a good office chair?

Adjustability. A good chair is one you can fine-tune to fit you. The best ones adjust automatically based on the user’s weight distribution, or manually, with easy-to-reach knobs or levers. The more adjustments possible, the more expensive the chair.

The most important adjustment is the height of the chair’s seat. There are two basic ways to raise and lower a seat: the screw post and the more expensive gas lift mechanism. The old piano stool used a screw post: spinning the seat raised or lowered the seat height. A gas lift mechanism is a cylinder filled with air, and it works much like the shock absorbers on a car.

Both methods work fine. However, you can operate the gas lift in seconds with a gentle tug on a lever while sitting in the seat. The screw post requires you to climb under the chair and rotate a ring or a large nut on top of the chair’s base. While this is somewhat inconvenient, you probably won’t have to change the setting much if you are the chair’s only user.

On the other hand, some people like to be able to make small adjustments in seat height throughout the day, while moving from handwriting, say, to keyboard entry. Under these conditions, a gas lift becomes more important. A subtle but alluring feature is that a gas lift acts as a shock absorber or spring. Flopping into the chair from two feet up is no problem.

What other kinds of adjustments are important?

The second most important adjustment is the back-tilt mechanism. As you sit, your heels should rest comfortably on the floor, to maintain circulation in your legs and feet as you lean back. When a chair is improperly adjusted, we tend to compensate in all sorts of ways: We put our feet up on the desk, rest them on the edge of an open file drawer, cross our legs, and so on, all to reduce pressure behind the knee.

The mechanisms that keep our heels on the floor are called posture-back or knee-tilt mechanisms. With a knee-tilt mechanism, as you lean back, the rear of the seat drops down without raising the front edge. Posture-back chairs have a back which moves independently from the seat. Both mechanisms accomplish the same thing, which is to keep the lower back at the proper angle with respect to the legs and feet.

Is it important that a chair have casters?

Casters make rolling from keyboard to fax machine to printer a simple matter. However, many people use four-legged or sled-based chairs, preferring them for functional (or financial) reasons. There is nothing inherently wrong with a stationary chair of this type, as long as you find it comfortable enough after a long day of sitting.

Caster-based chairs have a smaller footprint than stationary ones, and a five-pronged caster base is smaller than a four-pronged base, factors you’ll need to consider if space is tight. Floor surface is a major concern as well. The typical residential carpet will swamp any chair, casters or not. If you can’t replace the carpet with a short-nap industrial one, you have two choices. The first is to find a chair with three-inch casters instead of the standard two-inch ones. The larger wheels “float” somewhat better. The other solution is to buy a chair pad, which is simply a sheet of stiff plastic that provides a hard surface for wheels to roll on. Unfortunately, the standard pad is generally too small for most offices. And rolling off the pad is right up there with paper cuts in my book of office irritants.

Are kneeling-type chairs practical?

In the early eighties, a new chair appeared on the scene: a forward-tilting seat. The theory is that if you sit with your thighs sloping downwards from the pelvis, the opened angle between your back and legs tips your pelvis forward and thus maintains the natural curvature (or lordosis) of the lower back. This posture is most dramatic in the Balans chair, a backless “perch” (with an 11-degree angle built into the seat) on which your weight is partially supported by a kneeler in front of the seat. The Balans chair is surprisingly comfortable, but many people find it to be useful mainly as a task-intensive chair, for keyboard entry or similar focused work. As a general-purpose office chair, however, it lacks something (namely, a back).

A forward-tilting seat is for some a good compromise between the kneeling posture, which can be hard on the knees, and the standard flat seat. I have found that a fairly shallow seat (about 17 inches deep) with a “waterfall” or sloping front edge, when combined with a gas lift mechanism, approaches the features of a more expensive forward-tilt mechanism. By raising the seat height and moving forward to the edge of the seat, you can achieve the same forward-sloping effect for short periods of time.

Is there any practical difference between

high-back and low-back chairs?

As far as function is concerned, there is very little difference. The most important area in the chair’s back is the lumbar or lower-back region and the angle that it makes with the seat. What happens above that area has little to do with the chair’s apparent comfort.

But our office chair, especially if we meet clients or address employees, says something about our attitude, economic status, or self-image. There’s a reason that a judge sits in a high-back chair with a roll behind the head. A felony judgment handed down from a lawn chair just wouldn’t be the same.

Secretarial chairs are functional chairs designed for task work, generally low-backed and often without armrests. Managerial chairs (the kind in our chart) are also functional, designed for meetings and telephoning, but more comfortable and impressive than secretarial chairs, with armrests and often higher backs. Executive chairs, designed for status over function, look like thrones, with armrests and high backs.

Are armrests important?

Armrests are more a matter of personal preference and budget than a functional absolute. They do make a chair more comfortable, but add several inches to its width and can make it too tall to fit under a desk. Seek short armrests that slope downwards at the front. They need only support the forearms and elbows; if the arms extend to the front edge of the seat, they may bang into your desktop all day long.

A good covering material is self-skinning foam, the same molded resilient vinyl used to cover automobile steering wheels. It is friendly to the elbows, its color is uniform throughout so scratches disappear, and it is soft enough to protect other furniture.

Avoid fabric-covered armrests. They appear comfortable initially, but soil easily and are otherwise vulnerable. I once saw an entire installation of $700 chairs returned after six months because the undersides of the granite desktops sanded off the top of every chair arm. Also, stay away from wood. Wood edges find funny bones too easily.

What’s the best material for seats and

backs?

The best filling is molded polyurethane foam, preferably a progressive-density type. Although sometimes hard to distinguish from slab foam, which is fabricated from large pieces, molded foam is more dense and compact. If you can press into the seat with your hand and feel the padding “bottom out” rapidly against the seat structure, the chances are it is soft (and less expensive) slab foam. In fairness, I should add that a slab-foam seat applied over rubber webbing or a similar resilient decking material is a close second in terms of comfort and quality.

For a seat and back covering, nothing comes close to leather in comfort or durability. Leather is tough, resilient, and pleasant to the touch. It breathes, yet protects the filling from UV light and oxidization, both of which break down polyurethane foam. It also allows clothing to slide easily across the chair.

Unfortunately, good leather can almost double a chair’s price. But remember that leather improves with age. In 20 years, it will look and feel even better than it does today.

Where can I find a good chair?

Generally speaking, the very best office chairs are made by manufacturers in the so-called contract, rather than residential, furniture industry. (Contract manufacturers build chairs for commercial enterprises on contract.) Since they sell primarily to architects and interior designers, a sophisticated, well-informed clientele, contract manufacturers have a much better understanding of seating requirements. They sell through contract dealers who have showrooms in most major cities. Unfortunately, they rarely carry any stock, since fabrics, finishes, and other options must be selected by the designer. With thousands of fabrics and over 150 models of the Sensor chair alone (a single model out of literally dozens of other possibilities), it is no wonder a Steelcase dealer doesn’t carry inventory.

In the past, contract dealers wouldn’t sell to individuals, but today most will. Ask contract dealers to show you their “QuickShip” or “FasTrack” catalogs. Standard lead times are four to six weeks, sometimes longer. QuickShip programs ship from a limited catalog in a matter of days.

What can I expect to pay for a good, ergonomic chair?

List prices for contract chairs range from $350 to more than $2,000, depending on options, and choice of fabric or leather. After you recover from sticker shock, though, consider several bright spots. First, virtually every dealer will sell at a 5 to 25 percent discount off their list prices (even more if you can buy through a designer or architect). Second, most dealers periodically have sales to get rid of showroom samples, chairs shipped in the wrong fabric, and so on. Sale prices are outrageous, sometimes 50 to 60 percent off. Finally, a good chair should last 15 to 20 years, if not a lifetime.

Posted in Uncategorized at May 29th, 2014. No Comments.

Cashflow: How To Forecast It

cfhtfiLast summer I taught an adult-education seminar entitled “Running a Home Business with Your Computer.” Some studens wanted marketing ideas, some business-development ideas, and one person even wanted to know which computer to buy. But there was one thing they all wanted to know–how to manage their finances.

“My business is growing fast and I want to get control of my finances before it gets too big,” said one woman, who sells health and nutrition products. The man who hadn’t yet bought a computer was fretting about his shoe box full of invoices and receipts. He wanted to scan them into his computer and let the microprocessor take over. “You’d laugh if you saw my accounting system,” he said.

I could identify with these voices, since I spent five years gearing up to automate my financial record-keeping before finally computerizing last January. Hearing the high lonesome cries of manual accountants wandering in a forest of paper, with guesstimates as their guides, reminded me that I’ve still got a ways to go myself.

I started using Quicken to write checks and record withdrawals and deposits for three reasons: (1) I wanted to keep more accurate records, so that I always knew how much money I really had at any given time; (2) I wanted to ease tax preparation, by keeping consistent records of spending in various tax categories throughout the year (and thus avoid the April shoe-box syndrome); (3) I wanted a handle on future cash flow, so that I could better judge the impact of periodic capital expenditures.

The first two goals have been achieved. I walk around with a balanced checkbook. Bank statements and my register don’t always match, but they are close, and the monthly ritual of electronic reconciliation patches up any errors. I don’t need a computer to do this, of course, but reconciling by hand (or with a calculator) is a more daunting task. As for tax preparation, I’m licking my chops in anticipation of pumping out reports for spending in key categories. Until I actually do it I won’t be sure that I’ve got the categories set up right. I’ve already found a few mistakes and am constantly fine-tuning. Nonetheless, I know I’m on the right track.

With my basic system operating as smoothly as could be expected, I now must turn to cash-flow forecasting. That’s the real reason I computerized in the first place. Automating my check writing gives me a record of where I’ve been; I want to know where I’m going.

With two imcomes (one of which fluctuates, since my wife is self-employed), two sets of business expenses and tax forms, and two checking accounts, I found that I never knew how much money we had. One day we’d be rich, the next we’d be poor. We’d get a big check one week and pay it out in quarterly taxes the next. Then we’d get hit with a balloon payment for taxes or insurance or computer equipment and immediately dip into overdraft mode at the bank.

We were never in financial trouble, but we did feel out of control–the same floundering feeling that was pestering my students. How can you make sensible decisions if you never know where you stand financially? What if you make a bold move that turns out to be a financial disaster because you overlooked key information?

You can balance a checkbook and create a cash-flow forecast without a computer, but I never did. There’s something about using the computer as a glorified calculator that makes the task more appealing. You write (or type) less than you do with a manual system, since each recurring payee is listed once and then invoked with a mouse click. You do no calculatingm since the computer takes over. And you can generate a variety of profit-and-loss, cash-flow, and spending-by-category reports that you can’t do at all with a manual system.

Following the instructions in Quicken, I copy the file for my checking account, and save it under the name Cash-Flow Forecasts. Then, for a six-month period (or as far ahead as you can reasonably predict income and outgo), I enter expected payments and deposits.

If I were doing this with pencil and paper, I might easily overlook future expenditures. But since I’ve been recording past expenditures in my computerized check register. I have every likely payee listed as a “recurring transaction.” More important, I’ve recorded every single cash withdrawal, the major cause of leaks in my financial ship. “Cash” is such a nebulous category that I’m not likely to think of it the same way I do mortgage, insurance, or tax payments. (Money spent on entertainment and gifts is also difficult to track without computerized checking.) But, in less than five seconds, I can generate a report indicating how much cash we’ve withdrawn from the bank in the last year. Thus, I can reasonably expect that we’ll continue at more or less the same rate.

Once I’ve entered all expected payments, deposits, and withdrawals, my register balance tells me immediately whether I’ll be in the red or the black after six months. If I wanted more detailed reports, as any business with a payroll or creditors would, I could generate daily, weekly, or monthly cash-flow reports. And, of course, I can play what-if games, adding or subtracting large expenditures or deposits to see where we can or need to expand or contract. I used to do this in my head, but seeing the figures on paper is more practical.

My system’s not the most sophisticated in the world, as it doesn’t take into account tax ramifications. But it’s easy enough to spot major tax-related expenditures and estimate the consequences. Predicting my cash flow is not unlike predicting the weather. I can still get surprised, but I can boost my chances of being prepared for financial thunderstorms. Meanwhile, I don’t worry about every check I write or bill I receive. I’m expecting them, along with death and taxes.

Posted in Uncategorized at May 10th, 2014. No Comments.

Multi-level Marketing: It Can Work, But Buyer-Beware

mlm“When my son was born, I wanted to start a home business, but nothing fit,” says Sharon Holmlund of Thurmont, Maryland. Then she read a magazine article about Shoebox to Showcase, a home-based business in which consultants teach customers to preserve their family photos using photo-safe albums and accessories. She started running her Shoebox to Showcase business part-time in April 1990. This year she hopes to earn $15,000; in five year she expects to be making $50,000 a year, while still working part-time.

Shoebox to Showcase, a program started in 1988 by Creative Memories, a marketer of archival-quality photo albums, is a low-cost way to start your own home business. (Creative Memories is a division of Webway, Inc., which has produced photo albums since the 1930s.) It’s particularly attractive to parents at home with young children because the program allows you to market and manage a business at your own pace. According to Creative Memories vice-president Susan Iida-Pederson, 98 percent of Shoebox to Showcase consultants are women, of whom 85 percent work part-time.

“The market is anyone who has been put in charge of organizing family photo albums but doesn’t know what to do,” says Holmlund.

Shoebox to Showcase is similar in structure to other successful multilevel, direct-sales companies like Mary Kay Cosmetics of Dallas, Texas. There are three levels in the organization. The first is consultant. Holmlund began as a consultant by purchasing the standard $95 introductory Shoebox to Showcase package. This includes a demonstration album and sales materials that show how to create a photo album to use at presentations. Holmlund also bought a number of discounted albums to sell. (Album purchases are useful for presentations, but not required; customers can order from catalogs.) Using personal contacts and others suggested by Creative Memories staff, she held several Shoebox to Showcase classes and presentations. Holmlund became an “active” consultant when she registered $300 in sales.

As a consultant, Holmlund generates income from two sources–the sale of albums and supplies, and customer workshops on photo preservation and album making. She receives a 30 percent commission on all album sales; through varying monthly incentives, she can receive as much as 40 percent. For each class, Holmlund receives a nominal fee from each student.

Consultants become unit managers when they recruit six new consultants to the company. Holmlund found most of her recruits through workshops. Working 15 to 20 hours a week, Holmlund became a unit manager in about nine months.

There are more ways for unit managers to generate income. From consultants whom Holmlund recruits (first-line consultants), she receives 6 percent of all merchandise they purchase from the parent company. From consultants recruited by her consultants (second-line consultants) she receives 4 percent of sales. Holmlund can also generate income from classes for new consultants on sales strategies and photo-album techniques.

A unit manager becomes a director when four of his or her consultants become unit managers. No one has yet reached this level in the organization of Creative Memories.

As an individual progresses in the organization, the sources of income change. For example, when Holmlund was a consultant, nearly all of her income came from sales. This year, as a unit manager, she projects that 40 percent of her income will come through sales and 60 percent from benefits earned from her consultants. In four to five years, Holmlund foresees 10 percent of her income coming through sales and 90 percent from work with and sales by recruits. “It’s the classic sales-to-management approach,” she says.

COMPUTER-BASED MARKETING

Holmlund runs the business from her home office, using a Macintosh Classic and an Apple Personal LaserWriter printer. With FileMaker Pro software, she tracks clients and consultants and produces ongoing business-generating mailings (about 50 letters per month) to historical societies, women’s groups, and local and national periodicals. With Microsoft Word, she produces a monthly newsletter, From Sharon’s Shoebox, for her 40 to 50 consultants, and fliers for crafts fairs and shopping-mall promotions. (See this month’s cover story on newsletter production.) Monthly mailing costs run about $50; monthly copying costs are $35. She has also set up an 800-number ([800] 484-1091, ext. 5049) for orders and queries; the monthly cost varies, depending on business volume.

“Support from the company is very strong,” says Holmlund. Creative Memories provides catalogs, press kits, and promotional materials. The company sponsors several regional mini conventions throughout the year and an annual national convention.

“Shoebox to Showcase is a business you can begin on a shoestring and stay with for the long haul,” says Holmlund. In 1988, when the company was just starting, Creative Memories/Shoebox to Showcase had eight consultants and no unit managers; today it has 800 consultants and 30 unit managers across the country. “There’s so much room for growth,” says Holmlund. “And I’m glad I’ve found something that lets me balance my business and my family.”

Posted in Uncategorized at April 22nd, 2014. No Comments.

13 Tips That Can Help You Get A Business Loan

gablIf you’ve outfitted your business about as far as you can on funds scraped together from checking-account float, birthday money, and your MasterCard, it might be time for a loan.

Maybe you’ve already asked your banker how to get a loan, and he or she has suggested that the whole process would be much easier if you put up your house as collateral, call it a home-equity loan, and forget about getting past the killer business-loan committee.

It’s true that business loans, especially for small, home-based businesses, are not easy to come by in this credit-crunch environment. But they’re worth the trouble: The sooner you start building a business credit history, the easier your borrowing will be down the road if and when you need big bucks for a major expansion. For that reason, even a small, more obtainable loan is worth pursuing.

When you start the loan-application process, your banker will probably give you the standard, but valuable, information about how to prepare a business plan (see page 43 of the May 1991 issue for more about business plans). Follow those directions, but realize that it’s the inside tips your banker won’t mention that can win you the edge.

GET A LOAN

Here is a baker’s dozen of banker’s secrets that can get you capital.

1. Bankers like their buddies. This doesn’t mean insider trading–it just means that they like working with people they know. If you think that in six months to a year you will be asking for a business loan, start cultivating a relationship with the loan officer now. Find out who he or she is, introduce yourself and your business, say you will be asking for a loan in about six months, and ask about the procedure. Find out who is on the loan committee, how often it meets, what it looks for, and the like. Invite your friendly banker to come see your offices, or take samples of your work to the bank.

2. There is no such thing as a fill-in-the-blanks business-loan application. The form of the presentation depend on the applicant, but, the more details and data you can provide, the better off you will be. At a minimum, says Steve Cranfill, a former Seattle loan officer turned consultant, small businesses should provide up-to-date tax returns, monthly cash budgets, and some sense of how your business is performing vis-a-vis your competitors. You will win many points with your banker if you bring in an outside accountant to prepare these statements for you. Even if you know how to do your own income statements, using a CPA helps a banker assume a level of confidence.

3. Bankers are not impressed with big deposits. That huge check you just received for the six-month project you finished last month won’t convince your banker of your solvency–it will just make you look like a lousy cash-flow manager. And cash flow is what bankers look at when they consider your ability to repay loans. If you have clients who are paying you in big chunks, try switching them over to incremental billing every two weeks or so. Your banker likes to see frequent and regular deposits, even if they’re small.

4. Bankers like and understand ratios. Provide them with these numbers and you’ll win bonus points, according to Cranfill. The ratio of sales to assets and net profit to assets will tell your banker how effectively you are using what you own to make money. Compare your ratios with those that predominate in your field, as listed in the Robert Morris Associates statement studies, which your banker should have and many business libraries carry. Also consider your debt to net worth ratio and your inventory turnover ratio. The first measures your current debt load, and the second, how often you are turning over your inventory. (It should be often.) These are all bankers’ terms that will help convince Mr. or Ms. Loan Officer that you know of what you speak.

5. The sentence they hate most: “How much can I borrow?” It demonstrates to a loan officer that you don’t know what you need. It’s like asking an English teacher how long the book report has to be.

6. Banker’s hours prevail. The best time to visit with your banker is between ten and noon. Cranfill says. Before then, the loan officer is likely to be in meetings. After twelve, lunch hours, the afternoon blahs, and everyday minutiae dominate.

7. They know all about your checking account. You should, too. Bankers and financial advisors always tell loan seekers to try the bank where they keep their business checking account, but they don’t say why. It’s because banks usually make money on your checking account, and if you’re already providing a bank with money, it will want to keep you happy. Larry Reynolds, Washington, D.C., founder of the Small Business Advisory Letter, recommends that businesspeople ask the bank for an account analysis of their checking account. “The bank keeps a record of what it makes off every checking account. If it shows, for example, that you are running $50,000 a month through that account, the bank might be making $100 a month in investments and fees. When you go in to bargain for a loan, you’re not just talking about the loan, you’re talking about your value to the bank as a customer,” Reynolds notes.

8. The money-lending business may be more seasonal than your banker will admit. banks try to maintain a lending ratio of loans (assets) to deposits (liabilities) of about 75 percent, observes Reynolds. Sometimes they will be above this, sometimes below. If you review your bank’s quarterly-report financial statements, you can get an idea of what time of year the bank tends to have more cash on hand for lending. Many rural banks, for example, are loanned up in the spring when farmers borrow planting money and have extra money to lend after the fall harvests. Some city banks that run big retirement-account promotions may be cash rich in late winter and early spring, as customers feed their IRA accounts.

9. Your banker wants to hear a story. Beyond the facts, figures, and fancy computer-generated charts, the banker wants to hear enthusiasm. “Bankers like to deal with people who are confident and positive, and that’s why most bankers enjoy working with small-business owners,” says Cranfill. “In many cases they may envy them their freedom and independence and the lack of bureaucracy.” If you can tell your banker the story of your business in a way that makes it come alive, you can help him or her feel a part of something exciting.

10. Bankers hate surprises. “Bankers make accountants look like bohemians,” says Reynolds. They don’t want to leave themselves vulnerable to a dressing-down ] by their superiors if something unexpected happens to your business. If you suspect that a major piece of equipment is about to fail, or that a competitor is moving in down the street, let the banker hear it from you, not somebody else. This will help establish trust, and will let your banker know that you are managing your business with your eyes open and without rose-colored glasses.

11. Rates may be negotiable. Once a bank decides to lend you money, try to find out how much that bank is paying for its money. A good measure is its 90-day certificate-of-deposit rates. To get a rough idea of what they can afford to charge you, check the bank’s most recent annual report for their typical interest margin, and apply that margin to the current CD rates. And remember, the prime rate is a guideline; it’s not sacrosanct.

12. Play them off one another. If you have a good, solid, proposal, it won’t hurt to present it at more than one bank at a time. Then you can choose the bank that offers you the best deal.

13. Bankers want to lend you money. They like nothing better than finding a winner. Bank trade publications have been filled recently with news of the “hot new small-business market,” and they recognize that this is where the growth is. Prepare yourself to the hilt and then go in and trade on the specialness of your business.

Posted in Uncategorized at April 3rd, 2014. No Comments.