Category Archives: Finance

Increase Your Small Business Profits

As a small business owner, you know that sales, alone, aren’t an indication of your business success. The true measure of success is your business’ profits. True, increasing your total profit for the year usually requires increasing sales, but here’s the rub: if you’re not careful, the cost of increasing sales could lead to decreased profit margins or even a loss. So how can you boost your small business profits this year? Here are eight strategies to fatten up your bottom line.

1. Attract new leads with information marketing

Today’s customers are hungry for information. They want to educate themselves before they talk to a sales person or make a purchase. Providing them with that information can make your business more profitable because it helps you win the customers’ attention, contact information and ultimately their orders. Do it by offering information-packed downloadable special reports, white papers or checklists for free. The information doesn’t have to be long. It just has to be informative and promoted with an attention-getting headline. Promote the giveaway on your website and through social media and require at minimum an email address to gain access to the information. Be sure the giveaway includes a call to action to turn the lead into a paying customer. And don’t forget to follow up on the leads.

2. Use the leads you already have to get paying customers

No matter how you get your leads, if you’re like many small businesses, you don’t follow up on them as much as you should. In fact, chances are you only follow up on the leads you believe are hot leads, and then you may only follow up once or twice. The problem with that approach is two-fold. First, you waste the marketing dollars you spent to get the lead. Second, it keeps you from having ongoing communications with prospects who could become customers. Those possible customers include individuals who are just starting to research their intended purchase, and those who are ready to buy, but who have other more pressing things demanding their attention when you call. Ignore them and you’re likely to lose the sale to a competitor.

To solve the problem – and increase your profits this year – formalize your lead follow-up procedures. Have a plan for following up with the hot leads. List the steps you’ll use to stay in touch, including what to do if you don’t get a response after the first call or two. Plan how you’ll handle leads from customers who don’t appear to be ready-to-buy. Decide how you’ll keep in touch, what information you’ll send them or point them to. Have everything written and scripted out, and automated as much as possible so you’ll easily be able to start the process for each new lead. If you don’t already have it, develop a monthly or twice-monthly email newsletter that you can send out to all prospects who have asked for information about your products and services. The newsletter will let you stay in touch with and convert luke warm, not-yet-ready-to-buy prospects into paying customers.

(Sponsored link: Business Know-How uses and recommends Constant Contact for email marketing.)

Related article: Why salespeople don’t followup and what to do about it

3. Increase order size and/or frequency

The math on this is simple. If you have 100 customers who each spend $50 within one month, you take in $5,000. If you get those same 100 customers to spend $70 a month, you take in $7000 for the month – which translates to more profit for you without increasing your marketing budget. To get order sizes to increase, learn (and train your employees) to upsell and cross sell. If you’re a physical therapist, for instance, you might encourage patients to buy stretch bands, icepacks and other equipment from you so they can continue their exercise program at home. You might also be a reseller for nutritional supplements. Fliers in your waiting area and placing posters where patients will see them while doing therapy can all help sell additional services without your therapists having to “sell.” If you sell products through an online shopping cart, add a function that automatically suggests related products to the shopper.

Related: How to get customers to buy more

4. Boost operational efficiency

The way you’ve “always done things” isn’t necessarily the best way to be doing them now. And, change could give your profits a significant boost.

For instance, what actually gets accomplished at those weekly meetings you hold? Try cutting back on them, freeing your time and your staff’s time to spend on other, income-producing tasks. If there’s information all staff needs to get from you, send it to them in email or set it up on a cloud-based document sharing system.

When was the last time you interviewed different vendors to see if you can get better prices or terms on the inventory or raw materials you buy? Or asked your current vendors for better pricing? What about your merchant account provider? Your phone service? (If you’re still using a tradtional phone line in an area with good cable or other VOIP service, you could be wasting thousands of dollars a year.) Cutting your costs without cutting quality gives your bottom line a nice boost.

Related: How to avoid paying too much for business expenses

How about your inventory system? Is it automated? Or is it manual, labor-intensive and prone to mistakes? While putting in inventory and order management software can be a fairly expensive project, if you do significant sales volume, the initial cost will be offset by the longer-term savings in employee time, and inventory accuracy.

What about all those reports your staff is creating, printing out, and handing to you… the same reports your administrative assistant later files in a file cabinet? Do you really need them printed and filed, using up ink/toner, paper, and file cabinet space (and therefore floor space)? Could they be stored on the cloud instead? Or, for that matter, do you really need those reports at all? And what about the orders or emails they are printing out and saving (in more filing cabinets) “just in case”?

These are just a few of the ways small businesses can increase efficiency. One way to find inefficiencies: write down what you do every day, along with why you do it, the time it takes and the results of doing the task. Ask your employees to do the same thing. Eliminate the activities that aren’t necessary. Another way: ask your employees to suggest better ways of doing the work they do.

5. Keep your employees happy

The process of hiring and training new employees takes time and money. Avoid that cost by doing what you can to retain your existing employees. Over the long run, having engaged, knowledgeable employees will increase your bottom line. You do not, necessarily have to hand out large raises. While you should keep pay competitive, small changes like a coffee machine at work, flex-time hours, a discount or a bonus for making sales will help your employees to feel valued. If they feel valued and rewarded for their work, they are more likely to stick around.

6. Offer maintenance contracts

Maintenance contracts and warranties can add a healthy injection of new capital into your business. After someone buys a product, they want to know that it will work. You can reduce some of their worries by offering maintenance contracts or warranties. In addition to bringing in additional revenue for your company, this will also help to create an ongoing relationship with each client that walks into your business. Before you launch a maintenance contract program, carefully work out the numbers to be sure you charge enough for the contract so that providing service or replacements to maintenance contract customers won’t put you in a money hole.

7. Expand to a new area

A small town may only need one cafe or supplement store. If your small business has already reached market saturation in your area, then consider expanding into a new sector. Before you decide to branch out, you will need to research the area first. How many similar businesses already exist in the area? What is the population density? Will overhead costs be similar to your current storefront?

If you are not quite ready to set up shop in a new town, consider setting up an online storefront to sell your merchandise.

8. Talk to your employees and customers

Your employees are your front line and connection to your customers. They have personal insight into what your customers want and current inefficiencies in your business. Ask them to share these insights! They may be able to make suggestions for new products, product changes, or ways to streamline operating processes.

Make sure you personally interact with customers at some point, too. Work a cash register, answer incoming customer calls, send out surveys to customers. Ask questions to find out if they are satisfied with your company’s products and services, and also be sure you ask customers to tell you what you could be doing differently and what they’d like to buy from you that you don’t now sell. Their answers will help you see ways to continue to boost your business and your bottom line.

Lower Postage and Shipping Costs

The US postage and shipping rate increase for 2016 will take yet another nip out of small business’ budgets and profits. The significance of the increase for any individual business depends, of course, on the amount of mailing and shipping they do. Although the cost of a first class letter remains unchanged at 49 cents, Priority Mail and Priority Mail Express have increased an average of 15.6%. Businesses of all sizes should be focusing on keeping their mailing and shipping charges as low as possible.

Here are 14 practical ways for small businesses to minimize their mailing and shipping costs.

Avoid sending documents by US mail. Use email instead. If your customer agrees, consider sending invoices, proposals, presentations, contract terms and even signed documents via email. (Many office printers can scan documents and save to PDF format. So to send a signed document just print it, sign it scan it, save it to a PDF format and send it as an email attachment.

While you’re sending email to customers, include a PS at the end of the email with a promo and link to your website. For example, “PS I thought you might want to know about the special we’re running this week on green and blue widgets.”

When you do send invoices by mail or ship merchandise to customers, insert ads and promotions for other products and services you sell. The ad gets to ride along for free as long as the weight of the paper it’s printed on doesn’t bump the cost of the mailing into the next rate range.

Get a scale. Weigh each piece of mail to determine the exact amount of postage for each piece you mail, then use the exact amount of postage required. If you use stamps, keep stamps in several denominations on hand.

If you’re mailing a document that weighs less than an ounce, fold it to fit in a standard business size envelope instead of mailing it flat. Postage for the business size-envelope is significantly less than the postage for mailing the same document in a 9 x 12 envelope.

Use standard sized envelopes and postcards. You’ll be charged extra postage for odd-sizes.

If your designer suggests very heavy stock for a mailing, get a sample of the paper and envelope you’d mail and weigh it and find out what it will cost to mail the piece. If the weight of the document increases postage, ask the designer to choose a lighter weight alternative.

Send a postcard instead of a letter. Sending a standard size postcard first class saves about 30% over the cost of sending a first class letter.

RELATED: Why Postcard Marketing is So Effective

Use bulk mail if you regularly mail quantities of letters.  Bulk mail is a term the Post Office uses for both first class and advertising mail that is sent in bulk qantities. Items sent as bulk mail require a permit and cost less per piece to mail. Check with your local postmaster to find out about costs and mail preparation requirements to determine if getting your own permit is practical for your business, or if it would be economical to use a third party mailing service to prepare and send your bulk mail.

Consider Every Door Direct Mail (EDDM).  EDDM is a relatively new service from the Post Office which can save small local business money if they want to mail to residents in their service area. What it does is allow you to send mail to every mailing location in an area you specify, which can be narrowed down to just a mail carrier’s route, if desired.  A “retail” version of this service can be used without getting a mail permit. Read this step-by-step guide for using EDDM for more information, or talk to your local postmaster.

Clean you house mailing lists to eliminate bad addresses and duplicates. When you mail to a bad address you lose the cost of the postage and the cost of the mailing piece

Consider Priority Mail if you want to make an impact, but don’t have to have a document  or package delivered overnight. Depending on the shipping location, Priority Mail may only cost a few pennies more than regular parcel rates.

Save on boxes and mailing envelopes. If you plan to ship an item by priority mail, consider using the boxes and mailing envelopes provided by the Post Office and other shippers. They’re sturdy and free. One caveat: weigh those boxes and envelopes. In some cases the priority mail boxes are heavy enought to bump the mailing price up to the next level, making it more expensive to use the free box than it would be to purchase a box and ship priority mail.

If you sell information products, offer a downloadable or cloud-based version of the product or training material at a reduced cost.  You’ll save the postage and handling.

Prepare a Price Quote

It seems so simple, doesn’t it? What’s so hard about giving somebody a price quote? The truth is that there’s a lot more to think about than just the number because a price quote is so much more than just the price. It’s a window into you, your business, and what the customer can expect if they do business with you. Savvy customers can find a lot of information in your quote well beyond price. Here’s how to do it right.

Before the Quote

You receive a call, e-mail, or a customer comes to your store asking for a price quote. They simply say, “Can you give me a quote on some repairs I need on my home?” Before you prepare the quote, get to know your customer. If you’re in the contracting business, you’ll probably end up at their home but first, qualify them.

Do you handle the type of home improvement or repair they’re looking for? Do they need it done within a certain time frame and can you meet it? Where is their home? Is it within your service area? Don’t waste their time or yours if it’s not a job you can do, it’s not a product you stock or service, or if it so far outside your area of expertise that you can’t get them top-notch service.

RELATED: How to Get Customers to Tell You What They Want

Next, if you have to go to their home, like in the case of our contractor, follow some basic rules. First, show up on time. Be a person of your word. If you say 2:00, be there at 2:00. If another job holds you up, call or text as soon as possible and let them know. Also, call or text when you’re heading to their home. That gives them a heads-up but also helps to make sure you don’t show up to find nobody home.

Look professional. That doesn’t mean suit and tie unless that’s considered professional attire in your line of work. In the case of our contractor, keep an extra shirt and pants in your truck that are clean, fit well, and make you look polished. It won’t matter to some people but looking clean and neat is a big deal to some of your potential clients or customers.

Finally, ask all the questions you need to put together an accurate quote. Will the customer be purchasing the paint for the rooms they want you to paint, or will you be purchasing it? How many high hats do they want in the ceiling of the finished basement, and how many light switches will they want and where will they be located? Who will be responsible for painting the new deck the customer wants you to build?  This helps you and shows your customer that your attention to detail is alive and well. It also helps prevent disputes over what was supposed to be done for the price you quoted.

Along the same lines, practice and polish your general sales pitch. Tell your potential customer about you, your company, what makes you better than your competitors, and the basics of how you do the job. If it applies, have some pictures to show them, offer to give them names and numbers of references, and let them know that you’re licensed, bonded, and insured. (Or any other designation that comes with your line of work)

At the end of the conversation, make sure you have multiple forms of contact in case one doesn’t work. Let them know when to expect your quote and deliver on it. Don’t be late. You don’t want your customer thinking, “if she can’t get me a quote on time, how will the job go?”

The Actual Quote

Each different type of business will have different information but in general, your quote should have more than just the price. Send along some written information about your company—the same things you talked about in your general sales pitch.

Make the quote official. Don’t write it on a piece of paper or simply send a price in an e-mail. Have a quote form that looks official and polished. Remember, everything communicates a message about you and your company. The form should have your business name, any licensing numbers, logo if you have one, and all of your contact information.

Itemize your quote. List all the details that were agreed to. Nobody wants to see a number without knowing how you came to it. You don’t have to reveal all of your secrets—like wholesale pricing or anything, but if there are materials and labor, break those into line items.

In the case of our contractor, if multiple rooms need work, itemize each room so the customer has options. If you really want to service your potential customer well, give them multiple options. Maybe what they wanted will be out of their price range. Without asking, quote them at a level that fits their budget. That’s going to take more time but your competitors might not be quick to do that.

Give them a hard and fast start and completion date. If you really want to stand out, let them know that if you’re late finishing the job, they get a certain percentage discount.

Consider leaving some room to negotiate. You might quote 5% higher than you normally would in case you have a client that wants to haggle. Along those lines, let them know that if they get a lower quote, you would like a chance to match it.

After the Quote

Once you give them the quote, ask them when you should follow up with them. Your customer wants to see that you’re serious about working with them. They might wait for you to contact them just to see if you’re serious. If they don’t give you convenient time to contact them, send a note in 5 to 7 days.

KNow More About Multple Streams of Income

You have your business, and it’s doing well. Something inside you is pulling you to something else, though. It’s not that you want to start a second business, you just want to do more with the business you have now. Multiple streams of income will give you that something more you’re seeking. Not only will it be in the same industry as you are already in, but it can significantly increase your income.

Teach an Online Class

This is a great way to position yourself as an authority in your industry. Hold classes that have to do with the products and/or services you sell. You can use a website such as Udemy to run your class or advertise it on your website and hold the class via phone, email, or Skype.

You make money by charging people to take your class. You can offer learning materials such as documents, videos, and audio files. People love valuable content, and they will pay for it.

Starting this alternate stream of income can be cumbersome in the beginning as you get the platform and materials together. However, once it is set, you won’t have to do much every time you hold the class.

Write an eBook

Many businesses choose to offer additional content than what’s on their website to make extra money. When you write an eBook, you can sell it on your website, Amazon, or other websites people browse for electronic reading materials.

You make money off every eBook you sell. If you sell it on your site, you will receive 100% of the price. If you use Amazon or another site, you will have to give them a cut of the price of the book. Usually, people find this to be worth it since sites selling eBooks have a lot more traffic, so there’s more opportunity for them to sell.

This is another option that takes a lot of work in the beginning, but once it’s done, you don’t have to do anything else. Many people do this as their main business, but it’s doable as a side one that goes right along with your current business. The benefit is that your eBook will likely interest people who would be interested in your services and/or products, which could end up increasing your revenue in that way as well.

Sell Products/Services Related to Your Current Business

Many people expand their business by offering more. Let’s say you are currently selling hair services for your salon on your website. You’ve received a lot of business from it, so you decide to offer the hair care products you have in your salon. Now, you not only earn money from new clients who find your website and choose to come see you, but you also make money from the sales of the products.

Think about what you could sell in addition to your products or services. If you’re already selling products, think of services you may be able to offer people. It doesn’t have to be services offered offline. Get creative and think of services you can offer online, and you’ll really be busy with making extra income as everyone turns to you for not only your products, but also the help you provide.

Affiliate Marketing

If you do not want to offer additional products or services, you can become an affiliate. Affiliate marketing involves taking products or services people sell and market it for them. You receive a commission when they receive a sale from your marketing.

Many sites exist to help you become a successful affiliate marketer. The following are the most common ones that have products and services for you to sell and earn commission.

  • ClickBank
  • AvantLink
  • CJ by Conversant
  • Amazon
  • ShareASale
  • FlexOffers
  • RevenueWire
  • LinkConnector
  • OneNetworkDistrict
  • AffiliateNetwork

You can also browse websites with products and services your audience would like, and then see if the owners have an affiliate program. If they don’t, contact the owner to ask. Many people are more than happy to offer a commission for any sales you bring their way.

There’s so much more you can do with your business. When you’re ready, go ahead and get started on an alternate stream of income. You can do as many as you have time for, which means your income potential is limitless.

Let’s Learn About Income Tax Basics

We live in the post-recession economy. Along with more skepticism over the future of the economy, many have bought into the gig economy—where people take individual contract jobs rather than working for a larger company. Some might call it the American dream but if you don’t plan correctly, it could turn into something of a nightmare.

The Facts

A study by authors from Princeton and Harvard Universities found that the number of freelancers grew from 10.1% in February of 2005 to 15.8% in late 2015. Computer jobs hold the most freelancers but customer service, medical, and writing industries attract many as well. Freelancers beware—you might be setting yourself up for financial turmoil if you don’t think of yourself as a business owner. It has to do with taxes.

Taxes

As a freelancer you have to pay taxes just as you would if you worked for a larger company but with one important caveat. You’re responsible for all of the taxes. What you may not know is that when you are an employee, your employer pays half of your total Social Security and Medicare taxes. Thus, as an employee of someone else’s business, you paid 6.2% of your salary (up to the taxable maximum) for Social Security tax, and a 1.45% Medicare tax, (combined total, 7.65%.)  Your employer was required to match those payments. Thus, your total contribution for Social Security and Medicare (your payment plus the employer’s) was 15.3%. And, of course, you also had money withheld from your paycheck for income taxes calculated based on the information you provided your employer on a W-4 form. As a freelancer, you have to pay both parts of the Social Security and Medicare taxes. Instead of paying  the government your income tax plus 7.65% (combined Social Security and Medicare tax), you pay income tax plus 15.3% (minus any deductions or credits) That 15.3% is called a self-employment tax.

Determining the total amount of income tax, Social Security and Medicare taxes you’ll owe for the year isn’t easy. You have to take into account your income, your tax bracket, deductions, and credits. If your business is relatively stable, simply look at last year’s tax return and take numbers from there. Or, a very rough estimate is to take 35% of every dollar you make, put it in a separate account and use it to pay taxes. If you are required to pay state and city income taxes, don’t forget to calculate their cost for the year, too.

Tip: When determining the rates you charge your customers, don’t forget about those extra taxes you’ll owe. Too many freelancers don’t charge enough for their services because they don’t take taxes into account.

Estimated Taxes

The IRS isn’t going to allow you to hold onto the money you owe them until tax time. In most cases if you will owe more than $1,000 in taxes at the end of the year, you have to make quarterly estimated tax payments. If you file as a corporation, your threshold is $500 but most freelancers should pay attention to the $1,000 number.

How Much Should I Pay?

If you owe estimated taxes, how do you know how much to pay? If you use tax preparation software like TurboTax, it will tell you what it believes your estimated taxes will be based on your previous year’s tax return. The IRS also has forms and worksheets to help you. Aim for 100% of your previous year’s taxes or 110% if you will earn more than $150,000.

Estimated taxes are due quarterly—April 15, June 15, September 15, and January 15 of the following year. There are exceptions to these dates but you would almost certainly have an accountant advising you of those dates if that was the case. Be sure you pay your estimated taxes on time. If you don’t, the IRS will charge you a penalty.

If you don’t want to pay your taxes in 4 quarterly installments, there are a few other ways. First, if you receive a refund on your taxes, apply it to your estimated taxes. Second, if you or your spouse are  employed by other companies, you can ask your employer to withhold additional taxes from your paycheck each week. (You’ll need to file a new W4 and fill in line 6 to indicate the additional amount you want withheld.) To come up with the amount to withhold, divide your estimated tax by the number of paychecks you will receive and have them without that amount. For example, if you plan to have a tax liability of $7,000 but you get paid from an employer once per month, have them withhold and extra $583.34 from each paycheck.

Learn more about estimated taxes at the IRS website.

Deductions

The great thing about owning a business is that your expenses are deductible. Nearly every purchase you make that directly goes to the operation of your business will reduce your taxable income. Everything from office supplies, to mileage, to the use of a home office will land you deductions and reduce your tax burden. Beware—you don’t want to exaggerate or take deductions you can’t prove. If you’re audited, the IRS will ask for receipts and substantiation of all of your deductions. Learn more here.

Employees

First, let’s be careful with that word. An employee is somebody on your payroll. You have to withhold taxes and even pay part of their tax burden. Remember the self employment tax above? You have to pay it. When possible, freelancers prefer to hire contractors (other freelancers) because the employer doesn’t have to worry about the taxes. It all falls on the contractor.

You don’t get to choose. How you use that person determines if they’re a contractor or employee. For example, do you control what the worker does and how they perform their job? If the answer is yes, they’re an employee of your company. Before hiring help read about this at the IRS website.

If you hire a contractor, and they make more than $600 per year, you have to file form 1099 reporting their wages. If they’re employee, you file a W-2 form.