When is it Time to Let a Customer Go?

Most business owners know in their guts that a good chunk of customers are not profitable. But in a universe in which it's drummed into us that the customer is always right, it amounts to heresy to admit that a customer may, in fact, be wrong and should go.

It's difficult to send any potential revenue packing, but culling the client list is worth it--it frees up resources to take better care of your best customers.

The Pareto principle, more commonly known as "the 80-20 rule," can be applied to customer profitability. In short, it means that 20 percent of your customers likely provide 80 percent of your profits. Inversely, it says that 20 percent of your customers may be sucking up an astounding 80 percent of your direct customer costs.

The problem is that many small-business owners don't have the tools they need to determine if one unprofitable client is worth nurturing for a big payday down the road, or if they should say, "Sorry, I can no longer work with you," and move on.

Analyze Profit By Customer
Profit equals revenue minus costs. Simple, right? To analyze customer profitability, we must assign revenue and costs to each customer. For those of you with thousands of customers, you'll want to put them into groups. For example, a restaurant could divvy up its patrons among the breakfast, lunch and dinner crowds; a building-supply house could group retail and wholesale customers separately.

Revenue is usually pretty easy to pull, since accounting systems can match each sale or invoice to a specific customer. Costs, however, are trickier to determine. Without burying you in the arcane world of cost accounting, here’s a simple yet effective approach. Assign the costs of goods sold plus the direct costs of acquiring (marketing) serving (your staff's time) and retaining (follow-up) customers to an individual or customer group. Keep in mind that for this exercise, overhead costs are not assigned to customers. But even without including overhead, you'll have enough information to make good decisions.

The actual number-crunching is, unfortunately, not trivial. You may need the help of an experienced analyst, controller or CFO to do the work or to set up and train your staff to periodically run the numbers themselves. Many times a company's chart of accounts needs to be tweaked to get costs into the right "buckets" to make the profit analysis correct and straightforward.

The Numbers Game
With a revenue-cost number attached to each customer, you can easily identify those who are ruinously unprofitable. And now you have a choice: You can work to make them profitable--i.e., raise their prices or cut the costs associated with serving them--or get rid of them.

On the flip side, you've also identified customers that make up the majority of your profits. Don't just use that information to send them a nice thank-you note; consider exactly what it is that makes them profitable. Can you turn other customers into better ones? How can you find new customers like the most profitable ones you already have? And what do you need to do to keep them?

After running through this exercise the first time, make it a regular task (quarterly is a good frequency to shoot for). This way you can catch problems before they seriously affect your business; for example, a longtime great customer who suddenly turns into an unprofitable one. That's one client you want to nurture, not cut.

Copyright © 2012 Entrepreneur Media, Inc. All rights reserved.

Sacrificing Your Business Ethics. Is it Worth It?

Are business ethics in danger? A 2011 report from the Ethics Resource Center found that "ethics cultures are eroding and employees' perceptions of their leaders' ethics are slipping." Employees are experiencing increased retaliation against whistle-blowers as well as more pressure to break rules.

This is really not a surprise. When the stakes are higher, such as they are in today's tough business climate, people may feel more pressure to act unethically to produce results, whether it's lying to customers, bad-mouthing competitors, or undermining co-workers.

That kind of behavior can cause significant problems with morale and could even lead to legal issues. It is critical for business leaders to take a stand when it comes to ethics. To follow are some tips to do help you do so.

Make your expectations clear. 
Teach employees what you mean by ethical behavior -- there's no simpler way to do so than to write down your expectations. Include your expectations when it comes to ethical decision-making in your employee handbook or in other documentation that employees receive during their first days on the job.

In addition to mapping out the behavior you expect, give employees some guidelines to help them when it comes to making ethical decisions, including when they should turn to their managers for guidance and how to report unethical behavior they see around them.

Enforce your policies. 
When ethical breaches happen, there should be consequences. If your top performer is cheating on an expense report or lying to customers, you're not just tolerating the behavior -- you're teaching your other employees to be unethical, as well, he says.

The behavior will likely multiply when others see what you'll overlook. For example, if your top performer is lying or mistreating others, it's likely only a matter of time before he or she does the same to you.

Be your own change agent. 
The best-laid ethics policies won't matter if you don't walk your talk. Employees watch you for cues about how they're expected to act. When you cut ethical corners, they notice and are likely to think the behavior is okay.

Instilling ethics into your organization is probably going to cost more than you want to pay, says Josephson. It's tough to be a model citizen and rein in behavior that, while helping your business earn, isn't on the up-and-up. In the long run, however, the damage that ethical lapses can cause may cost you far more than letting go of an unethical employee or some bad business habits, he says.

Do you have an employee that took it too far and hurt your business? We'd love to hear your story.

Courtesy of entrepreneur.com 

Scale Your Company without Shedding Core Values

Most start-ups are looking to grow. But once success hits, how can you scale your company without shedding the shared values and culture that helped make you successful in the first place?

As you move beyond you initial start-up stages, here are four ways that to strive to keep your small business values as you continue to grow:

Keep a small-business owner's perspective. 
When you are a really small business, it is easy to empathize with the pains felt by your small business customers -- be it paperwork keeping them from the work they love, to struggling to grow their own businesses. As you grow, it's critical that you continue to see things from the small business owner's perspective.

Empathy is important in more than just customer support. From marketers to product design and quality assurance, you want your employees to all be able to step inside the small business owner's shoes and then focus on how to make their lives easier.

Build a foundation of shared beliefs. 
Every business has its own culture, whether you define one or not. It doesn't mean that all of your employees must think exactly the same way as management does. But by creating a set of shared beliefs, everyone has a framework for how to set priorities, make decisions, treat customers, and treat each other.

To keep your company's core beliefs fresh in everyone's mind, consider writing them down somewhere highly visable. For example, online retailer, Zappos, has the 10 core values of the company written on every staff member's nametag. Whether you do this or not, the actions of your company's leaders will always speak louder than any words in the corporate manual.

Create open channels of communication. 

When your company is small everyone wears multiple hats and experiences the business from multiple dimensions. As a company grows, communication can become a labyrinth and employees get pigeonholed into one or two roles.

Develop company culture outside business hours. 

If a company expects employees to love its customers, the company must love its employees. Include a lot of activities outside of the office -- in fact, fun should be one of your values. For example, one weekend every year, the entire company and their families could take a group vacation. 

Courtesy of CNNMoney

Estate Planning Task List

Estate planning will ensure that your loved ones know your wishes -- and that they're cared for in the unlikely event of your death.

While many of us like to think that we're immortal, the only two things in life that are certain are death and taxes, to paraphrase Ben Franklin. Not only is it important that you have a plan in place in the unlikely event of your death, but you must also implement your plan and make sure others know about it and understand your wishes. Lest, as Franklin also said, "by failing to prepare, you are preparing to fail."

If you've procrastinated on your estate planning, here's a list of tasks to get you going in the right direction:

Must-do No. 1: Inventory physical items.
Go through your home and make a list of all items worth $100 or more. Examples include the home itself, television sets, jewelry, collectibles, vehicles, guns, computers/laptops, lawn mower, power tools and so on.

Must-do No. 2: Inventory non-physical items.
Add up your non-physical assets. These include things you own on paper or other entitlements, including brokerage accounts, 401k plans, IRA assets, bank accounts, life-insurance policies and all other insurance policies such as long-term care, homeowners, auto, disability, health and so on.

Must-do No. 3: Make a list of credit cards and debts.
Make a list of open credit cards and other debts. This should include auto loans, existing mortgages, home equity lines of credit, open credit cards with and without balances and any other debts. A good practice is to get a free credit report once a year and make sure you close out any credit cards that are no longer in use.

Must-do No. 4: List organizations you belong to and charities you support.
If you belong to organizations such as AARP, The American Legion, veterans' associations, AAA auto club, college alumni groups, etc., you should make a list of these. Include any other charitable organizations that you proudly support or make donations to. In some cases, several of these organizations provide accidental-death life insurance benefits (at no cost) for their members and donors, and your beneficiaries may be eligible. It's also a good idea to let your beneficiaries know which charitable organizations are close to your heart.

Must-do No. 5: Send a copy of your lists of assets to your estate administrator.
When your lists are completed, you should date and sign them and make at least three copies of each. The original should be given to your estate administrator (we'll talk about him or her later), the second copy should be given to your spouse or another loved one and placed in a safe deposit box, and the last copy you should keep for yourself in a safe place.

Must-do No. 6: Review IRA, 401k and other retirement accounts.
Accounts and policies in which you list beneficiary designations pass via "contract" to the person or entity listed at your death. It doesn't matter how you list these accounts and policies in your will or trust, because the beneficiary listing will take precedence. Contact a customer-service representative or your plan administrator for a current listing of your beneficiary selection for each account. Review these accounts to make sure the beneficiaries are listed correctly.

Must-do No. 7: Update life insurance and annuities.
Life insurance and annuities will pass by contract as well, so it's important to contact all life-insurance companies with which you maintain policies to ensure that your beneficiaries are listed correctly.

Must-do No. 8: Assign transfer-on-death designations.
Many accounts, such as bank savings, CD accounts and individual brokerage accounts are unnecessarily probated every day. Probate is a costly and avoidable court process in which assets are distributed according to court instruction. Many of the accounts listed above can be set up with a transfer-on-death feature to avoid the probate process. Contact your custodian or bank to set this up on your accounts.

Courtesy MSN Money 

Does Your Business Exude Trust?

There are many different sources of trust. Not every business can effectively draw on every source, but there's no business that can't be strengthened by drawing on some of them:

Authority: 
doctor, lawyer, accountant, police officer, fireman

Affinity:
shared background, experience, philosophy, fraternity

Credibility:
factual basis for trust

Longevity:
years in business, in the community

Celebrity:
being known or being known for something

Familiarity:
reassuring omnipresence

Frequency:
the more often heard and seen, the more easily trusted

Second-party transferal:
earned, engineered, borrowed, rented, purchased endorsement

Place:
geographic or target market; being for a certain customer

Demonstration:
seeing is believing

People trust for the wrong reasons. By understanding how people actually come to trust, based on the above sources and others, you will be able to deliberately manufacture maximum trust.

People have an underlying, ongoing anxiety and angst about nearly everything -- from the news they watch, to the car they drive, from the food they eat to virtually everybody from whom they get advice, services, and products. In this environment, trust is a huge advantage. But few advertisers, marketers, or sales professionals focus on this advantage. Instead, they drift to cute advertising, low prices and discounting, or rely on product-centric presentations. This is why trust-based marketing can be such a powerful tool. You'll leave your cluttered and competitive marketing environment and, via a road less traveled, appear uniquely attractive.

Certainly the more significant a purchase is to a buyer, the more consciously he seeks a trustworthy seller or provider, but you can't ignore the role of trust in just about every act of commerce.

A big breakthrough in your approach to trust-based marketing will be forcing yourself away from rational, logical thought about why your customers would or should trust you. Instead, if you can "decode" how they really process you and the ideas, information and propositions you present, you'll find yourself holding a new key to the vault.

One of the main sources of trust is "pass along." You trust somebody because somebody you trust trusts him. It's passed-along trust.

Targeted investors handed their money over to Bernie Madoff and his epic Ponzi scheme voluntarily. And most who did so were sophisticated and wealthy individuals, managers of family fortunes, and paid administrators of universities' investment portfolios and pensions. All had access to competent financial, tax and legal advisors. Yet they handed wealth to Madoff. None could explain exactly what Bernie did with their money or how he consistently generated above-par returns. Trusting Madoff was irrational, so why did so many who should have known better? Because someone who they knew and trusted, trusted him. Yes, he served on the board of the Nasdaq stock exchange and had offices and trappings of wealth manufactured with the stolen money. But at the core, Bernie perpetuated his scam thanks to passed-along trust.

This reveals something very powerful about selling inside the fortress walls of a closed community like the very wealthy. Their fortress walls are their reliance on peer-provided information. They trust each other and distrust all others. But once the fortress is penetrated, with just one insider inhabitant, it is no longer as a safeguard for the other inhabitants. In a small, clannish industry or segment of an industry, the business-to-business marketer, the consultant, the software developer, the "expert" of any sort needs only the trust of one or a few well-known members, and all others' defenses against him disappear.

And the harder it is to gain the trust of anyone in such a community, the more viral it becomes, and the more valuable its viral nature. This is why it is so worthwhile to gain the trust of key centers of influence within any target group in which you seek to develop a clientele, and why it is worthwhile to invest in securing that trust.

Courtesy of Entrepreneur Magazine

Is Entrepreneurship For You?

Starting your own business can be an exciting and rewarding experience that offers numerous advantages, such as the ability to be your own boss, set your own schedule and make a living doing something you enjoy.

Becoming a successful entrepreneur requires sound planning, creativity and hard work. It also involves taking risks because all businesses require some form of financial investment. To begin evaluating whether or not owning a business is right for you, consider the personal characteristics and qualities that can help improve entrepreneurial success.

Anyone Can Learn How to be an Entrepreneur

Entrepreneurs often have similar traits and characteristics. Here are some of the qualities that can go a long way in bolstering business success. If you don't have all of these traits, don't worry. Most can be learned with practice.

• Creative
• Inquisitive
• Driven
• Goal-oriented
• Independent
• Confident
• Calculated risk taker
• Committed
• Avid learner
• Self-starter
• Hard worker
• Resilient (able to grow from failure or change)
• High-energy level
• Integrity
• Problem solving skills
• Strong management and organizational skills

Businesses are built on ideas. In fact, the first step to starting a business is to come up with an original idea. Therefore, entrepreneurs must be open to thinking creatively. Are you able to think of new ideas? Can you imagine new ways to solve problems? Do you have insights on how to take advantage of new opportunities? Many people believe that some individuals are just born with creative minds, while others are not. This might be true, but you can learn to be more creative if you want to become an entrepreneur!

One approach to improving creativity is to research and learn as much as you can about the things that interest you. New ideas can come from reading or by talking to others who have the same interests. Another way to spark your creativity is to think about a problem and picture different ways to solve the issue. Once you have an idea, think it through and determine if it is a reasonable option. If it is, try it. If it isn't, keep thinking. Don't limit yourself. Be open to a variety of possibilities and your creative mind will naturally form new ideas.

To keep your creativity flowing, use these helpful hints:

• Look for new ideas in a variety of ways
• Keep the process simple
• Start small
• Try, try again

Courtesy of U.S. Small Business Administration

Let Your Employees Breathe

After you've surrounded yourself with the best talent you can find, creating an environment that stifles open communication can render that investment useless.

Perhaps your employees are afraid to give you honest answers about your business or feel like they need to agree with every idea you have (no matter how ill-advised). If that's the case, your business could be suffering because you're not getting the value of their expertise, creativity, and insight. A few ways to get your team comfortable with telling you what you need to hear instead of only what they think you want to hear.

Don't overreact.
It's never fun to hear bad news or smile while someone is telling you that your latest idea--well, it's pretty bad. However, if you are argumentative or combative every time someone else delivers criticism, you're going to stifle honest feedback. Pay attention when an employee is speaking to you and refrain from becoming defensive. If you feel like you can't respond favorably or even neutrally, thank the person for speaking up and say you'd like to discuss the matter more later. Taking a break before you respond will give you some time to calm down and be more objective about the feedback.

Welcome criticism. 
It may seem obvious that you're open to suggestions, but you have to tell your people it's okay to be honest with you. During meetings, invite feedback in a general way and emphasize that employees are also welcome to give their opinions -- no matter how critical they are -- in private. Some may feel uncomfortable criticizing the boss in front of others.

Be aware. 
Pay attention to what's going on around you and take your cues from the environment. If no one has come to you with ideas or concerns lately or if you walk into a group and it suddenly goes silent, the problem could be you. Make sure you approach employees individually -- and in a nonthreatening way. Consider having coffee with one or a small group of employees every month to discuss ideas, which can create an informal and more comfortable atmosphere.

Five Essentials for Your New or Existing Business

Small business owners must effectively manage the legal aspects of running a business. Startup operations consult with legal professionals to ensure successful completion of corporate filings and other regulations. Established organizations are often faced with legal matters that require knowledge of small claims or arbitration. Whether a company is just starting out or has been in business for years, basic legal guidance is a necessity in today’s small business community.

Your Business Structure
The Small Business Administration recommends that business owners choose an ownership structure to operate their business. Ownership structures legally establish a company as an official business. Common structures, such as partnerships, limited liability companies and corporations, provide business owners with legal protection. An appropriate business structure not only offers certain tax benefits, but it also provides business owner’s personal protection against lawsuits or liability claims from clients or other parties.

Law Suits - Legitimate or Frivolous
Consumers file lawsuits against small businesses everyday. Some lawsuits are legitimate while others are frivolous claims against business owners in an attempt to collect monetary damages. According to the American Bar Association, in an attempt to limit and/or prevent frivolous lawsuits, Congress proposed the Lawsuit Abuse Reduction Act. The act is designed to discourage claims that have little or no legal merit. Small business owners can protect themselves against potentially devastating lawsuits with a thorough understanding of the different legal aspects of their industry and strategies in place to mitigate potential liabilities before they become a concern.

Complying with Labor Laws
Small business owners must proactively comply with labor laws and fair employment practices if they have employees. The U.S. Department of Labor established the Fair Labor Standards Act to protect employees from unjust wage and work hour practices of employers. Small businesses should become familiar with applicable employment laws to avoid penalties and possible lawsuits filed by employees. The Department of Labor provides compliance tools business owners can take advantage of to ensure they are in compliance with laws that affect organizational operations.

Make Sure Your Business is Protected
Many small business professionals are required to invest in liability insurance to protect them in the event they cause harm or injury to a client or customer. Medical professionals must maintain malpractice insurance in case their negligence harms a patient. Other professionals, such as insurance agents, must carry valid “errors and omissions” insurance to protect against claims from their clients. A variety of insurance exists to protect different aspects of a business. Insurance protection is a necessity for building structures, employees and customers that visit a business establishment in person.

Considerations
Small businesses are subject to several regulations on a local and federal level. In addition, small business owners are obligated to consider how their business practices affect customers, employees and others within their community. It is necessary for business owners to consult with legal counsel or at least become familiar with the legal issues that can have a profound effect on the success of company operations.

Preventive Medicine Saves Anguish Later

People don't want to think that an accident or illness would prevent them from saying what they want — or don't want — when it comes to their future medical care. We tell ourselves: I have plenty of time to take care of those things later … if I get sick … when I'm older.

But things do happen in our lives that are out of our control. Your family and friends need to know how you want them to handle situations if you're too ill to tell them. If they're left guessing, a conversation can quickly disintegrate into a confrontation. The fallout can result in guilt, uncertainty and arguments. Take these steps to ensure this doesn't happen if such a situation should arise:
 
Know what you need.  
You'll need to draw up three documents, often referred to as advance directives. 

Draw up a living will and review it every couple of years.

• A living will alerts medical professionals and your family to the treatments you want to receive or refuse, and under what conditions. This will only go into effect if you meet specific medical criteria and are unable to make decisions.
• A health care power of attorney delegates a spouse, trusted family member or friend to make health care decisions for you if you are unable to do so. This document is also referred to as a health care proxy, appointment of a health care agent or durable power of attorney for health care. Be aware that a regular durable power of attorney only covers financial matters.
• A letter of instruction outlines any special requests you'd like to be carried out, such as plans for a funeral and names of people to contact. It also should include important phone numbers, such as your employer and your insurance agent or broker. Some people also include a list of meaningful possessions they'd like to give to certain loved ones. This is not a substitute for a will, but it helps clarify your intentions and feelings.

Put it in writing.
A living will and power of attorney are legal documents, but you can draw them up yourself. A letter of instruction is not technically a legal document. Many people opt to hire an attorney. You may want one, so they can apprise you of any relevant changes in the law that might affect your document. Most eldercare lawyers charge fixed rates, so you should be able to find one within your budget.

Sit down with your family. 
Especially the one who you've designated as a health care agent, and explain what you've decided. Give them a copy of your documents and have your doctor put one in your permanent medical record.

Review your papers every few years. 

Keep them in a safe, easily accessible place such as a secure file cabinet. If your family situation changes — through the arrival of grandchildren, for example, or a divorce — you may want to make changes.

Best Practices for Building Your Board of Directors

Entrepreneurs who want to take their business to the next level may eventually come to the conclusion that they need a board of directors. But what does it take to form an effective one?

To follow are some great tips for recruiting and retaining a board:

Look into the future:
Think long term and recruit directors who can govern the company you aspire to grow into rather than the small business you might be now.

Find a go-to person:
Have at least one director who understands boards and governance. Don’t rely solely on the lawyers and accountants to have governance skills.

Create job descriptions:
Establish a clear job definition for directors (executive and non-executive) and define the role the board will play in strategy, risk management, etc.

Do not play favorites:
Insist that all directors recognize their duty to the company as a whole (or all of the shareholders) rather than play a limited role of safeguarding the interests of one shareholder — even if it’s your biggest investor.

Include a variety of flavors:
Build a team that possesses a range of skills and diverse backgrounds in order to get different perspectives on each strategic discussion.

‘Yes Men’ (or Women) need not apply:
Select directors who would quit the board if they disagreed with a course of action you were taking.

Lean toward like-mindedness:
Seek consensus on all decisions, not majority voting, and be sure that all directors know how to assess issues from the perspective of the stakeholders and what is right for the company.

Draw that line in the sand:
Be clear about the differing roles of the chairman and CEO — and don’t try to combine them in one person.

Remuneration requires research:
Pay a fair and responsible equivalent, and seek expert advice if you need it.

Boardroom hierarchy: Remember that the CEO reports to the board; be ready for a challenge and embrace the collective wisdom and enhanced discipline.

What advice do you have for creating a board of directors? Add to this list in the comments below.

Smart Tips for New Small Businesses

Save up as much money as possible before starting.
All too often, people go into business without any savings, exclusively using loan money from friends, banks, or the SBA. They except to be able to start paying the loans back right away with their profits. What these business owners don't realize is that it can take months or years to make a profit. And once a lender discovers a business isn't as profitable as expected, the lender is likely to call in the loan or refuse to renew it for another year. Often new business owners then have to take out home equity loans or use credit cards to pay off their loans (which puts their home and credit rating at risk).

A better plan is to save up as much of the needed investment money as possible, including your living expenses for the first year, or even two. Odds are that your business won't be profitable for one to two years. Even if you get plenty of business coming your way -- and your customers pay you on time, which isn't always a sure thing -- you'll want to be able to invest most of that money back in the business for space, equipment, advertising, and insurance needs.

Start on a shoestring.
Think small. Don't rent premises if you can work somewhere else, and don't hire employees until you can keep them busy. (You can hire independent contractors or temps in the meantime.)

People who start their small business on the cheap, often in a garage, den, or some other scavenged space, and create their first goods or services with more sweat than cash, have the luxury of making their inevitable rookie mistakes on a small scale. And precisely because their early screw-ups don't bury them in debt, they are usually able to learn and recover from them.

Protect your personal assets.
When you go into business for yourself, you are usually personally liable for all judgments and debts that the business incurs. This includes business loans, taxes, money owed to suppliers and landlords, and any judgments against the business as a result of a lawsuit. If you don't protect yourself, a creditor can go after your personal assets, such as your car and your house, to pay for these debts.

While you can protect yourself against lawsuits by buying business liability insurance, this won't help you with business debts. If you will be running up big debts, consider forming a corporation or limited liability company (LLC). Just one person can form either of these types of businesses.

Understand how -- and if -- you will make a profit.
You should be able to state in just a few sentences how your business plans to make a substantial profit. For starters, you need to know your costs: how much you'll spend purchasing inventory, paying the rent, compensating any employees, and covering what is likely to be a surprisingly long list of other costs. Then you can figure out exactly how much you need to sell each month, for how many dollars, to cover those expenses and have an adequate profit besides. These numbers are all you need to create a "break-even analysis."

Make a business plan, no matter how short.
Understanding your profit numbers and creating a break-even analysis is the first step in making a business plan. For most small companies, the key portions of a business plan are the break-even analysis, a profit-and-loss forecast and a cash flow projection. (Projecting your cash flow is key and will make or break your company: Even if your business is getting plenty of work or selling its products, if you're not getting paid for 90-180 days, you're not going to survive unless you've planned for it.) With a cash flow spreadsheet in place, as well as a profit-and-loss forecast, you can tinker with your business idea and improve it before you start -- and continue to use them after you start.

Creating a business plan also allows you to determine what your projected start-up costs are (how much money you'll need to save) and what you marketing strategies are (how you'll reach customers to make sales). If you can't make the numbers work on paper, you won't be able to make them work in real life.

Get and keep a competitive edge.
Building a competitive edge into the fabric of your business is crucially important to long-term success. Some ways to get this edge are by knowing more than your competitors, making a product that is hard or impossible to imitate, being able to produce or distribute your product more efficiently, having a better location, or offering superior customer service.

One way to hold on to your competitive edge is to protect your trade secrets -- confidential information that gives you a competitive advantage in the marketplace. Examples of trade secrets include customer lists, survey methods, marketing strategies, and manufacturing techniques. To protect your trade secrets under the law, you need to take steps to keep the information confidential. This includes marking documents "Confidential," using passwords to protect computer information, using nondisclosure and/or noncompete agreements, and limiting access to employees with a reasonable need to know the trade secrets.

Another way to keep your competitive edge is to react quickly to bad news. Once you see that your business faces some kind of adversity, you need to come up with a plan to deal with it immediately. This may involve moving your offices, introducing a new product or service, or developing a better way to reach customers.

Put all agreements in writing.
The laws of your state require you to put some contracts and agreements in writing:

• Contracts that will last longer than a year.
• Contracts that involve the sale of goods worth $500 or more.
• Contracts that transfer the ownership of copyrights or real estate.

Even if not legally required, it's wise to put almost everything in writing, because oral agreements can be difficult or impossible to prove. This includes leases or rental agreements, storage agreements, contracts for services (such as consulting or electrical work), purchase orders or contracts for goods worth more than a couple hundred dollars, offer letters of employment, and employment policies. Get in the habit of getting and giving receipts for all goods, services, and deposits, regardless of how much.

Hire and keep good people.

Your goal should be to hire and retain truly excellent employees -- not just reasonably competent ones. A highly competent and truly enthusiastic employee is at least two and sometimes even three times as valuable as a person of average skills.

To create a stable and happy workforce, it's essential not only that your employees (and independent contractors) believe they are being fairly treated, but that your business is worthy of respect. Employees and contractors who like their work will represent you well on and off the job. And customers will more likely be loyal to an upbeat business -- and are more likely to recommend it to their friends.

Pay attention to the legal status of your workers.
When you hire workers as independent contractors, make sure they shouldn't really be taxed as employees. The IRS can impose substantial penalties against you for not withholding taxes and paying taxes for a worker who is really an employee. The IRS and other agencies are likely to think that a worker is an employee rather than an independent contractor under any of these conditions:

• The worker works full-time or nearly full-time for you.
• The worker doesn't work for anyone else.
• The worker provides services that are an integral part of your operations.
• You control how the worker does the job and provide detailed instructions and training for the worker.

One way to help avoid trouble is to have the worker sign a written service contract, or independent contractor agreement.

Most employees you hire will be "at-will" employees -- subject to being fired at any time and for any reason (except for illegal motives such as discrimination). It's important to preserve your at-will rights because they protect you from having to prove that you have a valid business-related reason to terminate an employee. Don't make any promises to prospective or current employees that you are offering a permanent job or that they will lose their job only if they perform poorly, because this will limit your ability to terminate the employee for other reasons, such as personality conflicts or finances.

When hiring an at-will employee, have the employee sign an offer letter that makes it clear that the employment relationship is at will. Except for high-level executives, you shouldn't have employees sign an employment contract -- this can limit your ability to alter the terms of employment as your business needs change and subjects you to higher legal standards.

Pay your bills early and your taxes on time.
In the real world, where a reputation for keeping one's word is a hugely important asset, a good strategy is either to pay your bills up front or pay them early. You gain trust, build a positive credit profile, and have a built-in safety net if things go badly. These benefits outweigh any interest you might earn by holding onto your money until the last possible minute.

Most importantly, pay your payroll taxes on time, especially the portion that you withhold from your employees' paychecks. The IRS and state tax authorities can hold you personally liable for these taxes, plus stiff penalties, if they're not paid. This is true even if you operate your business as a corporation or LLC or if your business goes bankrupt -- you will still be personally and legally on the hook to pay back payroll taxes.

Have you started a business and made a mistake that could have been prevented? Help others by sharing your story below...

Starting a Business? Must Know Employment Laws

Start-ups and emerging companies are frequently the targets of lawsuits by employees and former employees. Investors and board members can be personally liable in certain situations and these claims can result in losses that can ruin an investor’s investment and cripple a start-up. Entrepreneurs need to know the important steps they must take before hiring employees or independent contractors to stay in compliance with the law.

The following are some tips for start-ups to help minimize the threat of litigation and protect their intellectual property assets.

Be Careful Hiring Independent Contractors
Most people who perform work for a company have to be classified as employees. Only those who meet stringent legal tests can be hired and paid as Independent Contractors. Generally, the person must have an independently established business, do work for others, be paid on other than a salary or hourly basis, be free from direction and control of the employer, provide their own tools and workspace, etc. If these tests are not met, the contractor will be considered legally to be an employee and be eligible for benefits, overtime, worker’s comp, etc. This can be a very costly error for a company to make.

Have a Confidentiality / Non-Disclosure Agreement

Many businesses succeed because of a unique or novel idea, device, method, formula, technique, process or business model. Protecting this confidential information is critical for most businesses. However, many start-up and emerging companies overlook this significant risk by not obtaining a confidentiality/non-disclosure agreement from employees or contractors. A confidentiality/non-disclosure agreement helps establish protection for certain types of information under state trade secrets acts, and can protect other information under contract principles.
The confidentiality/non-disclosure agreement should state with specificity the types of information the company considers its confidential and proprietary information, i.e. cost data, customer lists, general financial data, inventions, product specs, etc. The agreement should also specify the circumstances under which the confidential and proprietary information can be used (i.e. in furtherance of the company’s business) and should prohibit any other use or disclosure of such confidential or proprietary information.

Consider a Non-Compete or Non-Solicitation

In some states, such as Oregon and California, there are stringent restrictions or prohibitions on non-compete agreements. In other states, such agreements are easier to obtain, but still certain precautions must be taken. First evaluate whether a non-compete or non-solicitation is needed for your business and if so, for which employees and in which states. The agreement should be carefully drawn and approved by legal counsel.

Hire the Best Employee

To find the best applicants for a particular job, the employer needs to use some creative advertising methods. Don’t just advertise in-house or through the local newspaper or one on-line source. Consider advertising in national or regional professional or trade journals, minority newspapers or magazines. Use a headhunter if needed. Contact local colleges or specialty trade and business schools. If your recruiting plan is narrow, you will not get the most diverse and best-qualified applicant pool.

Understanding and Dealing with Discrimination and Harassment

Discrimination is making decisions based on differences. Not all discrimination is illegal. Discrimination is illegal in the employment context when an employer makes an employment decision impacting the terms or conditions of employment – hiring, promotion, demotion, firing – on the basis of that employee’s membership in a protected class – disabled, male, female, black, white, etc. Harassment is when a work atmosphere is not free from treatment based on protected class status. It does not matter if it makes the employee blush, cry, smile or quit – it is still harassment, and it can still get you in trouble.

• Employers can prevent harassment by:
• Enforcing the company anti-harassment policy
• Talk about the policy on a regular basis in meetings
• Remind employees how to report harassment
• Stop harassing behavior whether someone objects or not
• Do not engage in any improper behavior yourself

Employers must promptly respond to all complaints of harassment. Even if the employer has not received a complaint, but supervisor or management personnel suspects that harassment is occurring within the workplace, the employer should respond swiftly, even if the complaint is vague or mentioned off-hand; even if the complainant says he/she doesn’t want you to do anything; you must act.

Provide a Policy Handbook

There are certain laws that require notice to employees. This is most easily done in an Employee Handbook. Handbooks should include policies regarding:

• “At-will” employment;
• Equal opportunity;
• Harassment and discrimination;
• Leave laws;
• Expressly state that employees are not guaranteed a particular schedule or a minimum number of hours each week or any length of employment;
• Summary of benefits – generally only, plan documents control;
• Required local, state and federal notices/policies/procedures; and
• Work rules/conduct.

Do not include:

• Probationary period;
• Progressive discipline; or
• For “cause” termination.

Discipline and Evaluation of Employees

One of the most difficult and unpleasant tasks of being a supervisor is the task of counseling, coaching and disciplining an employee. Usually coaching is a first step to dealing with performance problems or rule violations. Generally, disciplinary action follows either a clear violation of company policy or prior discussions with the employee about a particular problem. Principles of effective coaching, counseling and discipline are:

• Describe the problem behavior, including what policy is being violated and how the employee’s behavior is impacting the Company and coworkers.
• Explain the disciplinary action you are taking and why.
• If there is an excuse or your facts are challenged, investigate the matter further.
• Clarify future improvements needed and set a specific follow-up date.
• Express your confidence in the employee.
• Document the session, including the employee’s feedback and explanation.
• Copy the documentation to the employee and the file.

Know Wage and Hour Law

Wage and hour law can be complicated and confusing. One of the most common mistakes made by employees is improper classification of employees. Whether or not an employee is entitled to overtime pay depends on whether they are “exempt” or “non-exempt.” There are only three narrow categories of white-collar exemptions with specific criteria required: Executives (supervisors), administrative employees, and professional employees. In addition, outside sales professionals and certain highly paid computer professionals may be exempt. Each job description has to be carefully analyzed against the legal test. The exempt employee must be paid on a bona fide salary basis regardless of hours worked. All other employees are non-exempt and must be paid hourly and paid overtime.

Train Your Managers and Supervisors

Nothing causes companies more employment-related headaches than mistakes by front line managers and supervisors. Train every manager or supervisor to:

• Properly interview an applicant (including what not to ask).
• Ensure that all paperwork on a new employee is properly completed and submitted at time of hire (job application and resume, minor work permits, U-4’s, I-9’s, signed Handbook Acknowledgement form).
• Properly discipline and regularly evaluate employees.
• Don’t tolerate what is inappropriate workplace conduct (not “just” harassment and discrimination, but also conduct that is unprofessional, immature, or indicates a lack of anger control).
• Know how and when to document inappropriate workplace conduct, report it, investigate it; and preserve any evidence.
• Know how to report any work-related injuries or incidents (slip and falls, assaults, shopliftings and robberies) and preserve evidence.
• Be familiar with wage and hour issues.
• Consistently treat employees equally.
• Memorize the following mantra when it comes to counseling and coaching employees: IF IT ISN’T WRITTEN DOWN, IT DIDN’T HAPPEN (document, document, document!).
• Memorize part II of the mantra: IF IT IS WRITTEN DOWN, MAKE SURE IT’S ACCURATE, only facts (not legal conclusions), dates, times, names, conduct, penalties, notice to employee of what will happen in the future).
• Know when to call an H.R. consultant or legal counsel.

How to Terminate

If an employee is not meeting expectations or completing a corrective action plan, do not be afraid to terminate the employee. If your performance evaluations and corrective action plans have been done properly, it can be a constructive parting for both you and the employee. However, before you decide to terminate an employee, you should carefully consider the decision and circumstances. Make sure your facts are accurate.

• Make sure there are no surprises.
• Be civil, concise, and compassionate.
• Respect the person’s dignity.
• Be truthful when giving the reasons for termination.
• Support your decision with facts and documentation.
• Have a witness present.
• Meet with the employee in a private, controlled environment.
• Retrieve all company property, e.g. laptops, etc.
• Consider having someone escort the employee out of the office.
• Know the rules for final paychecks.
• Cut-off all electronic access.

Does Your Small Business Need an Attorney?

Many small businesses pay too little attention to the legal side of their business, but that can be a big mistake. One wrong move or oversight can put you at risk, jeopardize your company and cast a pall over things for a long time. This isn’t meant to scare you, but to simply put you on the alert to the fact that most times preventive medicine is far less costly and stressful than facing the repercussions of a decision you “thought” was correct.

It may not be apparent, but there are many ways a lawyer can add value to your new business, from keeping you on the legal straight and narrow to providing broader, strategic business advice.

Follow these guidelines, keeping your vision in mind, and you will be ready when it comes to decide on hiring an attorney for your new business.  

To Hire an Attorney Or Not?

The best attorneys prevent problems, help you make key foundational decisions about the structure and organization of your business, and help you make strategic moves and deals that are crucial for your success. If you have lingering questions about the particulars of company structure or are starting a business that you hope will quickly become a large-scale enterprise, you probably should have an attorney guiding you through the startup process. Attorneys understand the legal implications of every kind of new business. They can help you select an appropriate structure and can help you cope with nuances in legal forms and the law that you might overlook. Just imagine finding out a year down the road that you’ve caused yourself grief by omitting some key legal clause or caging yourself into a suboptimal business structure – a sobering thought.

Understand the Specific Legal Needs of Your Business.

Another factor that should help you decide whether you require the services of a lawyer is the nature of your business, products and services.

For example, if you’re starting a business based on some new, high-tech product that you’ve developed, you better have a patent attorney working with you every step of the way. If you’re trying to get your brand trademarked, an attorney specializing in publishing and marketing would be invaluable.

Some kinds of small businesses may be deceiving in this regard. If you have a scarf with a cool design that you want to manufacture and sell in stores, you need to look past the scarf-making and marketing alone.  Make sure that your designs are legally protected, or soon you may see them everywhere. You want to make sure that your intellectual property is rip-off-proof.

Find a Great Attorney for Your New Business.

The best way to find a reliable and trustworthy attorney is through word of mouth. Whether your friends know someone, or your accountant, insurance agent or business partners recommend someone, referral is the best way to go.

Interview a handful of prospective lawyers and make sure you feel comfortable putting your dream in their hands. Small business owners should insist that their attorney has some business experience. Have a list of questions ready and don’t settle. When you’re interviewing, ask them about their fees and billing plans.

Make sure they understand what kind of business you want, and that they have your best interests in mind.

Demand a Lot From Your Attorney.

This is one of those business partnerships where you can anticipate high value-added. In fact, you should reasonably expect your relationship with a good lawyer to deepen and broaden into one of the two or three most important partnerships that you have as an entrepreneur and business owner.
Beyond the legal checklist, attorneys can help you see the broader picture, given their training and experience. A good attorney can provide a whole new spectrum of ideas, contacts and specialists to help you grow your business.

Look for an attorney who’s a deal maker, capable of being an “upside” thinker rather than one who’s only focused on the downside risk. “The worst thing is a lawyer who says, ‘You can’t do that.’ Rather, they should say, ‘You can’t do it that way,’

Expect to Pay Them What They’re Worth.

An attorney’s startup fees will vary depending on the business, size and geographic location, the experience of the attorney, the details of their service, and your financial situation. Some attorneys may be willing to do the first consultation for no charge, but expect to pay at a billable hourly once the meter is running. Some cases may be worked out on a project-fee basis.

The Bottom Line.

Attorneys can be a great source of advice and partnership when you’re starting a business or navigating legal landmines. But make sure you feel comfortable and can afford his / her services before you begin.

Get Ahead of Your Estate Planning

No matter your net worth, it's important to have a basic estate plan in place. Such a plan ensures that your family and financial goals are met after you die.


An estate plan has several elements.
They include: a will; assignment of power of attorney; and a living will or health-care proxy (medical power of attorney). For some people, a trust may also make sense. When putting together a plan, you must be mindful of both federal and state laws governing estates.

Taking inventory of your assets is a good place to start.
Your assets include your investments, retirement savings, insurance policies, and real estate or business interests. Ask yourself three questions: Whom do you want to inherit your assets? Whom do you want handling your financial affairs if you're ever incapacitated? Whom do you want making medical decisions for you if you become unable to make them for yourself?

Everybody needs a will.
A will tells the world exactly where you want your assets distributed when you die. It's also the best place to name guardians for your children. Dying without a will -- also known as dying "intestate" -- can be costly to your heirs and leaves you no say over who gets your assets. Even if you have a trust, you still need a will to take care of any holdings outside of that trust when you die.

Trusts aren't just for the wealthy.
Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death. They also allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and publicity of probate court, which administers wills. Some also offer greater protection of your assets from creditors and lawsuits.

Discussing your estate plans with your heirs may prevent disputes or confusion.
Inheritance can be a loaded issue. By being clear about your intentions, you help dispel potential conflicts after you're gone.

The federal estate tax exemption -- the amount you may leave to heirs free of federal tax -- changes regularly.

You may leave an unlimited amount of money to your spouse tax-free, but this isn't always the best tactic.

By leaving all your assets to your spouse, you don't use your estate tax exemption and instead increase your surviving spouse's taxable estate. That means your children are likely to pay more in estate taxes if your spouse leaves them the money when he or she dies. Plus, it defers the tough decisions about the distribution of your assets until your spouse's death.

There are two easy ways to give gifts tax-free and reduce your estate.
You may give up to $13,000 a year to an individual (or $26,000 if you're married and giving the gift with your spouse). You may also pay an unlimited amount of medical and education bills for someone if you pay the expenses directly to the institutions where they were incurred.

There are ways to give charitable gifts that keep on giving.
If you donate to a charitable gift fund or community foundation, your investment grows tax-free and you can select the charities to which contributions are given both before and after you die.

Source CNN Money

Best Practices for Your Business

Today's small business owner is confronted with new business problems and opportunities on a regular basis. Running a company requires the ability to look outside the business for solutions, ideas, and best practices. However, borrowing ideas and best practices can be wrought with danger. Learn what big business already knows about benchmarking best practices and how to effectively borrow or steal ideas, tactics, and strategies.

What is a Best Practice?
A best practice is the process of finding and using ideas and strategies from outside your company and industry to improve performance in any given area.

Big business has used best practice benchmarking over decades and realized billions in savings and revenues in all areas of business operations and sales. Small business can reap even greater rewards from best practices.

Benefits of Best Practices for Small Business
Reduce Costs:
Small companies often do not have the deep financial pockets of big business to "re-invent the wheel". By learning what other companies have successfully done, a small business can save money without testing new ideas.

Avoid Mistakes:
Solving business problems on your own can result in costly errors. Learning what others have done can keep your business in business.

Find New Ideas: 
Adopting the "Not-Invented-Here" attitude can spell disaster for small business. Learn to borrow the best from beyond your company.

Improve Performance:
When your business looks for best practices outside your business, a wonderful thing happens. You raise the bar of performance and set new standards of excellence to propel your company forward. How to Bake a Best Practice Cake?
 The methodology for best practice study is critical. This is where most small businesses fail. It is like baking a cake. You need the exact ingredients and recipe to create the same result. This also applies to business.
 For example, you learn of another retailer running in-store seminars to drive traffic and sales. Instead of rushing out to try the new idea, you'll need the recipe. What results did the retailer achieve? And how did they achieve it?
 After careful, probing you discover the in-store seminars have increased traffic and sales by 6% and 12%, respectively. Also, you find the key ingredient is to make attendance confirmation calls to all the seminar attendees the day before or else attendance drops to zero. After finding all the steps to success than you are ready to effectively implement the idea in your company

Steps for Best Practices

• Identify one business process or service to improve. (Product delivery)
• Look for one metric to measure. (Late Shipment %)
• Find competitors and companies within your industry and outside your industry.
• Collect information on the successful, best practices of other companies.
• Modify the best practice for your situation. 
• Implement the process then measure the results.

Remember to survey companies of all sizes. And the time to complete a best practice study doesn't have to take months. A few weeks of literature research and telephone interviews are often enough for small business.

Do you have examples of best practices that you have used in your business and can share with others? Please share below...

The Basics of a Good Business Plan

A good business plan has two goals: It should describe the fundamentals of your business idea and provide financial data to show that you will make good money. Beyond that, the content of your business plan depends on whether it's for potential investors or a financial projection just for yourself.

How Will You Use Your Business Plan?
Depending on whether you're trying to attract investors or are creating a blueprint for your own use, a business plan can take somewhat different forms.

Attracting Investors
If you will use your business plan to borrow money or interest investors, you should carefully design your plan so that it sells your vision to skeptical people. Normally this means your business plan should include:

• persuasive introduction and request for funds
• statement of the purpose of your business
• detailed description of how the business will work (including what your product or service will be, whether you'll have employees, who will supply your goods, and where you will be located)
• an analysis of your market (who your customers are)
• an evaluation of your main competitors
• a description of your marketing strategy (how your business will reach plenty of customers and fend off your competitors)
• a résumé setting forth your business accomplishments, and
• detailed financial information, including your best estimates of start-up costs, revenues and expenses, and your ability to make a profit.

Together, all the parts of your plan should reveal the beauty of your business idea. You want to show potential lenders, investors, or people you want to work with that you've hit upon a product or service that customers really want. In addition, you should prove that you are exactly the right person to make your fine idea a roaring success.

Get Help If You Need It
Because your business plan will be submitted to people you don't know well, the writing should be polished and the format clean and professional. Your numbers must also be accurate and clearly presented. However, not all business people are great writers or mathematicians. Consider paying a freelance writer with small business savvy to help you polish your plan. Similarly, if you are challenged by numbers, find a bookkeeper or accountant to provide needed help.

Funding the Venture Yourself
If you're not looking for outside money, your financial projections will be the most important part of your business plan. These projections will tell you the cost of your products or services, the amount of sales revenue and profit you can anticipate, and, perhaps most importantly, how much you'll have to invest or borrow to get your business off the ground.

Because you won't use your plan to ask for money, you can create an informal business plan that omits some of the elements listed above. For example, you don't need to worry so much about making a sales pitch or a slick presentation, and you may decide to skip the résumé of your own business accomplishments, but think twice before leaving out too much. Any new business will need to introduce itself to people -- for example, suppliers, contractors, employees, and key customers -- and showing them part or all of your business plan can be a great way to do it.

Financial Projections
Forecasting the finances of your business may seem intimidating or difficult, but in reality it's not so bad. Good planning consists of making educated guesses as to how much money you'll take in and how much you'll need to spend -- and then using these estimates to calculate whether your business will be profitable. Here are the financial projections you should make:

• A break-even analysis. Here you'll use income and expense estimates to determine whether, in theory at least, your business will bring in enough money to meet its costs.
• A profit-and-loss forecast. Next, you'll refine the sales and expense estimates that you used for your break-even analysis into a formal, month-by-month projection of your business's profit for the first year of operations.
• A cash flow projection. Even if your profit-and-loss forecast tells you that your business will have higher revenues than expenses -- in other words, that it will be profitable -- those numbers won't tell you if you'll have enough cash on hand from month to month to pay your rent or buy more inventory. A cash-flow projection shows how much money you'll have -- or how much you'll be short -- each month. This lets you know if you'll need a credit line or other arrangement to cover periodic shortfalls.
• A start-up cost estimate. This is simply the total of all the expenses you'll incur before your business opens. If you need to pay off these costs during the first year or two of business, they should be included in your month-to-month cash-flow projection.

Again, no matter who your audience is, you should be as thorough as possible when calculating your break-even analysis and profit-and-loss forecast. The last thing you want is to experience the very real misery of starting a business that never had a chance to make a solid profit.