How to do business 14174

HOW TO DO BUSINESS The entrepreneur's encyclopedia for starting, funding, growing and exiting a business.

GENE KONSTANT

Gene Konstant Southern California’s Most Popular Small Business Trainer 1985-2014 Gene Konstant. All rights reserved. Distributed as an e-Book and in a printed format. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

Published by Pisker Press Post Box 836 – Dept. 4 Palm Desert CA 92261

How to contact the Author / Publisher

The author is a business consultant, coach & trainer for start up and growing owner-operated businesses and is a frequent speaker at sales conferences, management development programs, trade associations, franchisor and marketing group meetings.

He is not an attorney, accountant or tax preparer, and does not offer or provide professional advice. Every person and situation is different and decisions should be made after securing advice from licensed professionals.

The ideas presented in this program are the result of fifty plus years active involvement in business as an owner-operator, consultant, trainer, coach, and executive and are the result of that experience.

He is available for speaking assignments and may be contacted directly or through any recognized speakers bureau.

V.14194

How This e-Book Works

Periodic updates at no charge – Business practices, federal, state and local laws, technology, market conditions, the competitive environment and people’s experience keep changing making printed books obsolescent as soon as they are printed.

This book is continually and regularly updated – by addition, subtraction and substitution – reflecting changes in all of those variables.

This book is very much reflective of my own experience and education – even after 51 years in the consulting – training business I’m still learning new things.

There are no page numbers in this e-book because of that continuing flex in the material. Subjects are included in a logical sequence with a simple numerical code indicating it’s place in the text sequence.

When updated changes are distributed they are numbered in sequence and that material should be inserted or exchanged at that point in the ebook.

Completion exercises specific to your business – If you received this e-book as a result of attending my training events there is no charge when you email the completion exercises to me for a one on one discussion applying the material specifically to your busess.

PiskerGene@aol.com

Contents 1.

2.

3.

4.

5.

6.

Feasibility Business Planning Mastering the Financials Legal Structures People and Work Sales and Marketing

1 Before You Even Begin –

FEASIBILITY

1.

FEASIBILITY- BEFORE YOU EVEN DECIDE TO START A BUSINESS Table of Contents 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09

Owning a Business - The 3rd American Dream.

How Do You Know You’re Entrepreneurial?

Staring or Buying a Business.

Independent Business or Franchise?

The Real Purpose of a business.

Sources of FREE Help So Good They’re Worth Paying For. 10 Things To Do Before You Start Or Buy A Business.

Funding Your Search.

Organizing And Managing Your Search.

1.10

Start By Thinking About Getting Out.

1.01

Owning a Business - The 3rd "American Dream" When you’re born and raised in America certain ideas become almost intuitive ways of thinking.

They're part of our culture. Three of these ideas form a kind of short string of ideas about how we hope – or expect - a part of our life to play out.

The first American dream is to own your own home.

And it has come to pass that a higher percentage of Americans own homes than any other country … and our homes are significantly larger than the homes of most people in most other countries.

In Ireland for example the average home size in the 1980's was about the same size as an American two car garage - and the average Irish family was larger than an average American family.

The second American dream is to build up a retirement fund of some kind. That might happen by investing in the stock market, bonds or mutual funds, or having a 401K plan, a Roth IRA, own a rental property or two – or a business.

The third American dream is to go into business for yourself. Many people believe they can do that because they really know how to do their jobs well … or believe they do … and think they're smarter about how to do their work than their boss. They're often right.

What most of these people don't understand is that succeeding in business has almost nothing to do with knowing how to do your job. Owners hire workers who know how to do the job … owners need to know how to run a business and that involves a completely different knowledge base and a very different set of skills to apply that knowledge.

Plumbers, electricians, car repairmen and dog walkers in business rarely fail because they don't know how to do their jobs - they fail because the don't know how to do business … how to operate a business effectively.

Before anyone actually decides to start any business they would benefit from going through a series of preparatory experiences to confirm that [1] they know how to do their job … [2] they know how to run a business … [3] they have the skills required to apply their knowledge … and [4] they are involved in a business concept that will actually make money and grow in value.

1.02

How Do You Know You’re Entrepreneurial?

The federal government has been studying business in America for 75+ years and they’ve developed a list of characteristics which identify entrepreneurial people. Nobody fit’s the list 100% but it does offer some helpful ideas you may find reassuring.

A - First born child (male) Because of the different way children in a family are raised, it’s the first born who is usually entrepreneurial. If the first born dies, the second seems to move up (as Jack Kennedy moved up when his older brother Joe was killed in the war).

We used to talk about the first born boy but that started changing in the 1960s' and today more than half of the new businesses are started by women, and more than half the franchises too. Perhaps the best way to break through the glass ceiling is to own and operate your own business.

B - Foreign born: one-both parents born abroad.

It seems those of us who have been here for several generations know all the reasons why the American dream is no longer true - while those who more recently came from a place where there wasn’t a chance in a million find one chance in a hundred pretty good odds.

C - Smarter than average.

Whether it’s academic or ‘street smarts’, entrepreneurs tend to have it. As a group we are smarter than average - but we tend to be smart at what we’re interested in and not very interested in the rest. Our intelligence is directed, focused subject specific.

D - Good sense of humor.

Not only do most business owners have a good sense of humor, it often tends to be rather sarcastic and acid - perhaps because we use humor to burn off tension. People refer to black humor or gallows humor.

E - ADD, ADHD, Dyslexic or Learning Disability.

Because we/they cannot operate effectively in what others call a ‘normal’ environment, people who are ADD and-or dyslexic often have to organize and control their working environment in different ways.

That’s not something you can do well as an employee working for someone else so you may decide to start your own business and create your own systems.

F - Not gamblers - editors.

Some people think ’entrepreneur’ is the French work for gambler. It’s not. Entrepreneurs tend to think of them-selves as good researchers, able to collect and interpret a lot of information and make decisions in which they have a high degree of confidence. That’s not gambling - that’s editing.

1.03

Starting Or Buying A Business.

The choice open to most entrepreneurs is between starting a business from scratch or buying an existing business. The choice depends on what objectives you have, what kind of work you find exciting and what you want to avoid.

If you have an idea for a product or service … a unique concept or look … you want to be personally tested in the marketplace and prove you’re right, then it makes sense to start from scratch. Buying an existing business will be too limiting in almost every situation and a franchise is completely unsuitable.

On the other hand if your focus is to own a restaurant, accounting practice, print shop, gift store or to be a plumber then buying an existing business might accelerate your success because you can take over the existing base someone has already established and modify it over tme to reflect your own objectives.

[Every library has several different books by different authors all with roughly the same title - Buy a Business Using None of Your Own Money. Read the book and discover the wonderful opportunities in leveraged buyouts including seller financing, taking over existing bank accounts, customer lists and a going business’s history. It's a great education and it's free.]

1.04

Independent Business Or Franchise?

Once again you face two simple alternatives.

Franchises are great if you want to tap into an existing market selling a known product following a proven method. Whether it’s McDonalds, Buick Motors or Holiday Inn - selling a known product to an existing marketplace following a proven method reduces risk and offers many benefits.

On the other hand you might have just blended your own bucket of spices that make your friend chicken taste better than anyone else's - even you-knowwho’s. If doing your own thing your own way is your major goal - if doing that is what you mean by 'winning' - then the disciplines of a franchise and the penalties for failing to abide by their rules and systems will put you into the poor house or a grave.

Neither opportunity is attractive.

1.05

The Real Purpose Of A Business.

Many people start a business because they have a passionate desire to do a specific thing. For some that involves feeding people; for others it's fixing their cars. One of my clients has 400 rental port-apotties and I married into a family of Certified Public Accountants.

Almost everyone reading this wouldn't want to do any of those jobs - those meal cooking, car fixing, accountants wake up in the morning and can't wait to get to work. The odds are you would hate it. Me too.

I have an unusual opinion about what a business is all about that some people find very attractive. Some others think I’m nuts. Take your choice – I believe a business is a vehicle to get out of life what you want to get out of life.

In other words my first decisions need to be (1) what kind of person I want to be and (2) what kind of live do I want to live? What kind of person, man, husband, fater did want to be? After I answer those questions I can decide what kind of business will let me become that person doing those things.

For example - I live in Palm Desert California and teach about 100 college classes every year. Each class is 90-125 miles from my house. Double that distance for the round trip. People ask if I drive home every night. I confirm that I do.

When they ask me why I drive home every night I explain that teaching is what I do (and I love it) but being a husband and father is who I am. I start and end every day at my home in my bed with the

goddess and with the dog sleeping on the floor my side of the bed because that’s what I am about. That is my priority.

I know too many men who were too dedicated to their business so they could get rich and gain power who discovered they were a stranger to their family the dog barked at that stranger when he got home and he wound up working for fifty cents on the dollar when the judge in divorce court hit the gavel and gave half of everything to his ex-wife.

So here’s the exercise for you to complete before you do any of the other preparatory actions we’re outlining. Take some time to think carefully about yourself - your life. Think about your family and the people and causes that are important to you. Then start outlining on paper the kind of person you want to be and the kind of life you want to live. Define priorities and objectives. List the characteristics you hold dear which you want other people to think of when they think about you.

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Exercise 01.05 List eight words or phrases that describe your life as you would like it to be. ___________________________________________________ _ 1 ___________________________________________________ _ 2 ___________________________________________________ _ 3 ___________________________________________________ _ 4 ___________________________________________________ _ 5 ___________________________________________________ _ 6 ___________________________________________________ _ 7 ___________________________________________________ _ 8 ___________________________________________________ _

Do not think of this exercise as a trite, 'touchy feely' process. We know that people find what they're looking for; that by defining your desired results you program your subconscious gyroscopes and that these simple lists become the checklists against which we measure and evaluate future results.

Now find a business that lets you do those things and become that kind of person. After all - wouldn’t it be terrible to succeed in business and become something other than the kind of person you set out to become?

Here is a second real purpose for a business. In my opinion A business is an appreciating asset which provides the owner operator current income, a return on investment, tax benefits as well as a way to build net worth.

1.06

Sources Of FREE Help So Good They’re Worth Paying For. Give up the idea that if it’s free it’s not worth anything. There’s a lot of great information and help available free (or virtually free) if you know who has it and why they‘re giving it away.

A - The internet in general and Google in specific are incredible sources of information available 24/7 from virtually any spot on earth available in any language you can imagine.

B - Business Opportunity and Franchise Shows appear annually in every larger city. The parking usually costs more than the show's admission and you’ll go home with grocery bags filled with literature and free samples. It’s a great way to explore a hundred or more opportunities in an afternoon.

If you really like unsweetened non-dairy soy milk faux chocolate almost like ice cream, it’s a winner!

C - Bookstores are flooded with books on every imaginable kind of business. Whether it’s selling on eBay or making home crafts and selling at street fairs, catering businesses, starting out as a party planner or poodle grooming everyone’s getting rich writing a book telling others how to get rich.

Don’t buy the books - just copy the titles and check your local library to get a free copy you can read.

When you decide what you want to do you can invest in one or two books you’ll actually use.

D

www.sba.gov is the federal government's Small Business Administration home page for business owners and you’ll have the same look on your face that my dog has going into PetSmart.

E - The intergalactic web is like quicksand - just visit the first home page and wander around and you'll be sucked into every informational nook an cranny online F - Visit the magazine section of any public library and skim several magazines that focus on business opportunities of all kinds. some of the best are Business Startup (the #1 for sure) / Entrepreneur / Forbes / Inc. / Money / Salesman’s Opportunity G - Visit the local Small Business Development Center (SBDC) listed in the federal government listings in the white page phone book and collect their free literature on starting a business. Talk with their free counselors.

Similar to SBDCs are Women's Business Centers (WBC's), CHAROS (Hispanic women), Vic's (veterans), BAC's and BIC's (information libraries affiliated with or independent of a college). They're all variations of a theme - providing help and support to business owners. Find them all.

H - Local college continuing education / community service departments offer a menu of excellent classes on a variety of subject. Before you decide to enroll in a class ask the school if you can contact the instructor for some ideas.

I - Telephone the city clerk’s office and ask them to mail you a copy of the city ordinance regulating various kinds of business to start educating yourself about government rules and regulations.

J - The research department of public libraries have industry specific magazines for a wide range of

industries. Skim through them to get a feel for the industry, what’s going on in the industry and whether it’s something you want to know more about.

K - Call your local Chamber of Commerce and ask for any information they offer about starting a business in your area. Often they host trade shows or prepare economic forecasts which will be useful to you.

L - Local area business (economic) development agencies issue annual reports on the business needs and opportunities in the community which might give you some interesting leads for selecting the right industry or finding a specific business in the industry you home in on.

M - Look in the classified section of newspapers under ‘business opportunities’ and find out what kind of business are for sale and make some general conclusions abut the economic health of your area.

If there are a lot of businesses for sale it usually suggests a slowing economy, some significant change in the cost of doing business or complying with regulations, or that older business owners are retiring at a similar time. Perhaps a major company is shutting down or cutting back and it’s suppliers are shutting down.

If there’s a lot of help wanted adds it‘s a more positive indicator of a growing economy - especially if they tend to cluster in a particular industry.

1.07

Ten Things To Do Before You Start Or Buy A Business.

A - Reduce your outstanding debts, especially your credit card balances, starting with the highest interest and largest amounts. You want get to the point where less than 30- 33% of your approved credit limit is in use on any credit card. But don’t close the account. Available credit that’s not used is good for your credit score and a helpful reserve for your business.

B - Bring all accounts up to date including alimony, child support and taxes, pay off any liens and then to build a protective cushion, pay each regular monthly payment one month in advance.

C - Read any library book explaining how to buy an existing business - especially the section on financing and deal structuring. Even if you’re starting a business not buying one - this is great information to understand.

D - Develop a simple written outline of what kind of due diligence you will do and develop a list of appropriate questions.

E - Subscribe to at least two FREE trade publications in your industry of choice. These are listed online and in the Directory of Publications in the research department of any public library. Read each (monthly) issue completely.

F - Recruit a Board of Advisors made up of a business attorney, accountant, risk management specialist (business insurance), a banker and someone you know who is reasonably successful in his/her own business. Meet with them periodically and report to them regularly.

G - Stay away from most business brokers who are (in my opinion) too often commission driven real estate agents who really know very little about buying or selling a business and don’t understand deal structuring. Too many are out for a quick, easy commission and often screw up the deal.

H - Before you start looking for a business draft a list of requirements the business must meet and could meet - walk away from any deal that doesn’t fit those parameters.

I - Clear your personal credit before you get into this process. Too often personal credit and business credit are the same thing (sole proprietorship and general partnership). You want to come from financial strength not weakness. Today 85% of all businesses are sole proprietorships and most of the remaining 15% are partnerships, which sets the stage for financial disaster 100% of the time.

[Real the section of legal structure BEFORE starting anything.]

K - If your conscious intent is to (1) prevent personal liability, (2) slash taxes, (3) facilitate future capitalization and (4) simplify eventual transfer of ownership, my opinion is that the corporation is currently the only legal structure to do that. Sole proprietorships and partnerships are the worst!

1.08

Funding Your Search.

Here’s some good news. The internal revenue code provides that research about starting or buying a business can be an expense that is deductible from your taxable income even if you decide not to go into business.

Be smart - ask your tax preparer how s/he wants you to record your expenses, including mileage and meals, to start building a file of future tax deductions.

1.09

Organizing And Managing Your Search.

As you go through this book you will be continually reminded that planning is the first step in everything you do - and planning boils down to defining the result you want to achieve.

Organizing your search by clearly defining the results you want to achieve helps you build some parameters that bring that definition into focus. In Section 2.00 Business Planning you will see something I call a one-sheet … it’s a simplified one page document to use to guide activity before you’re ready or able to start drafting a plan. It’s a useful management tool for you to prepare as you begin your process and a great thing to hand someone when they ask you about what you‘re doing.

For many it is all the business plan they ever really need.

1.10

Start By Thinking About Getting Out. You’ll be so busy getting started that the last thing you’ll want to think about is getting out - but getting out is an inevitability. In business we call it "exit planning" and every entrepreneur exits the business.

Goes broke and abandons it Gets tired and leaves it Gets sick and abandons it Gets divorced and loses it Gets rich and sells it Get dead and dumps it on someone else Gets smart and gives it to the kids Gets wise and sells it to the kids to fund retirement Hits the lottery, buys a Jaguar and takes up with a redhead So it really does make sense - even as you’re beginning - to think about the time when you will want to get out - or when you have to get out. I learned a great lesson on this subject from my dad who was a pioneer radio broadcaster and the biggest guy in the country at what he did.

I was with him at some event when I was about 15 and someone asked me if I was going to follow in my father’s footsteps. Before I could answer he said “Oh no … by the time he’s grown up there won’t be a need for what I do. He’ll find something else he can do better.”

Dad handed me my exit plan and he was right - by the time I was grown up the market didn’t need what he did and I had to do something else.

2

BUSINESS PLANNING

The REAL Key to Success

2.00

UNDERSTAND BUSINESS PLANNING Table of Contents 2.01 I Love Iit When A Plan Comes Together.

2.02 Who says you need a written plan - and why?

2.03 Who wants to see your plan and what are they looking for?

2.04 Finding sample business plans to read.

2.05 Another reason for having a written plan.

2.06 Different plans for start-ups and existing businesses.

2.07 Start up business plan.

2.08 Plan for an existing business.

2.09 The valuable one-sheet.

2.10 A simplified system for developing the content 2.11 Great business plan consultants and software programs 2.12 What do you mean I’m not done?

2.01

I love it when a plan comes together.

Starting a business is all about shooting off your mouth to a lot of people about what you’re going to do - and then having to do it so you don’t look like a total jerk.

Except that there’s a lot more zeros in the paperwork so we don’t call it ‘shooting off your mouth’, we call it 'planning' - because that’s what a plan is and that’s what a plan does.

Business plans are usually created two reasons A - Plans are written as a tool to motivate a source of cash, credit or other economic value to support the business. That means they loan it, invest it, or make stuff that's worth cash available instead of the cash itself.

B - Plans are written to develop and manage a sales and marketing concept that will produce the income necessary to maintain the business and - perhaps make the owner rich.

Just over ninety-eight percent of all business owners think they can do that in their heads. That’s why they don’t have a written business plan. Less than two percent are smarter than that and actually have a written planning document - under two percent.

Maybe that explains why the average business exists for about eight years … why abut 30% of the businesses fail in the first 36 months … why it takes the average business 9 to 18 months just to break even … why so many people become discouraged during the early start up phase that they don't exist long enough to be included in the count of business that fail.

Whatever motive you have for writing a plan capitalization or management - every business plan outline has a similar structure. That’s because everyone who creates outlines goes back to federal government research as their starting point. Any differences in the various outlines you find are really issues of style and language among the authors, not content.

The five parts of a business plan are Generic overview (followed by) Financial estimates Sales and marketing plans Operations and personnel (followed by) Concluding summary After the plan is written, a 1page Executive Summary is drafted and placed at the front of the document as a kind of ‘teaser’ which is intended to motivate people to read the whole plan. In real life most people only read the executive summary nobody ever actually reads the plan. If the executive summary catches their interest they may advance to actual discussion.

CAUTION: If you give your plan to your friends andor family members to read, they will usually tell you how good it is. They want to encourage you because they like or love you - or don't want to make you mad. I don’t think you should believe anything that any of them says. Especially your mother. You’re her baby sweetheart and she likes everything you do.

Give the document to someone more objective.

1.02

Who says you need a written plan - and why?

The smartest somebody who knows everything knowable about business in America is the Small Business Administration - www.sba.gov. They know the most because their power to get and analyze information is unlimited and they have all the money they need to do whatever they want to do.

Based on 75 years of research they have determined that having a written business plan is the single most reliable predictor of business success - and not having a written business plan is the single most reliable predictor of failure.

Based on that assumptions' truth, I think you can expect that anybody with any brains will ask to see your written business plan before they consider any kind of support or relationship with your start up or growing business. If they're not smart enough to ask, don't think you're lucky. Consider that they may not be as smart as you need them to be.

Makes sense huh?

2.03

Who wants to see your plan and what are they looking for?

Common sense tells me that I could write a more effective business plan if I knew (a) who was going to read it and (b) what they wanted to see in the document. Knowing that would help me write a more effective document.

Lenders want to know how will you pay me back and if that doesn’t work how will you pay me back?

And if THAT doesn't work …?

Investors want to know how rich will you make me how fast?

Landlords want to know you be a good long term tenant who pays on time and looks good on the tenant roster.

Vendors ask will your business be a good long term customer for my products or services?

Key Person wonders why should I give up what I've got to risk coming into your deal … and how can I explain it to my spouse?

Strategic Ally asks what do you bring to the table that I want or need and why do you want or need me?

Acquirer needs to know if the opportunity comes to sell your business for top dollar the acquirer is going to want to absorb your trade secrets - the things you do differently than your completion that makes your business unique and which creates the top dollar value of your business.

Management - If none of the preceding seven factors

was present in your business, you would still need a written planning document to help manage your business.

The process of putting your ideas on paper demands you think them through in such detail that when the time comes to write the document it flows smoothly from your brain onto paper. There’s no shortcut to the process.

The act of writing is a committing behavior which produces a document that holds you accountable even if nobody else sees it or knows what’s in it. This is the same principal that tells you to write down goals & New Year's resolutions.

Since I started in business in August of 1962 I have written a series of business plans which represent my maturing and evolution in my business. As a practical matter nobody knows what’s in my plan but me. On certain specified dates I’m called upon to measure and evaluate my performance against my written objectives. If I meet my goals nobody knows it but me - but I know and the feeling I feel is amazing.

If I don’t meet my goals nobody knows it but me but I know it. I hate it. Even after all these years, every time I tell this story in a class I get goose bumps on my arms when I reach that last thought. I hate the idea of not achieving what I committed myself to achieve.

That feeling) is classic entrepreneurial thinking.

Exercise 02.03 Identify the first two of the eight business plan readers you need to consider and why they are numbers one and two 12Now identify the next two business plan readers and why they are numbers three and four 34-

2.04

Finding sample business plans to read.

The odds are you’ve never seen a business plan much less read one and have no idea where to find a plan to read.

To make things trickier, nobody wants to read a plan for a business that failed - that’s not inspiring - but nobody will show you a plan for a successful business that’s still using it’s plan to succeed. What can you do?

Here are several (mostly) FREE sources Read the sample business plans in any 'how to write a business plan' book in the library.

Go to www.SBA.gov/starting/indexbusplans.html and read sample (general and industry specific) business plans on their web site.

Visit www.IRS.gov and order the FREE CD called Taxes which includes sample business plans and also order the CD called Resources 2010 which includes business plans in it’s menu of helpful information. (New edition issued every year.)

Contact the trade associations for your industry and ask them if they have a sample business plan for a start up business in that industry. (Google search) Trade publications in your industry may also have sample business plans available for your use.

(Google search) Some library research departments have a seven volume publication available called The Handbook of Business Plans. Each volume includes 20-30 actual plans for going businesses (company identity is

disguised so you cannot use their plan to complete against them). Find a sample plan for your industry.

Each volume has it’s own index and not all libraries have every volume so make a note of which volumes you’ve seen and phone other library branches before you visit them to examine the volumes you haven‘t seen.

Visit www.bplans.com Interactive business plan help is available at www.bplan.com/prodguide.com.

Business plan software www.planware.org/busplan & www.info@planware.org.

Business plan template at www.finance.com.

Business plan help at www.liveplan.com.

(This kind of information changes continually. Please advise me of any changes as well as your suggestions for addition. PiskerGene@aol.com.)

2.05

Another reason for having a written plan.

The simple truth is despite all the promises about computers creating the paperless office, we make, use and keep more paper than ever before. Anyone you speak with is going to ask you for a copy of your plan to put in their files because business operates in a billion file folders in a million file drawers in thousands of offices.

If they ask for your plan and you don’t have one they’ll suggest you "reschedule the meeting until your plan is available" - but the truth of the matter is you had your opportunity and you weren’t prepared so go home - you don't know how to play the game so you're out. This isn’t the movies - it's business - and in real life there are few second chances.

Another frustrating element is this. Everyone will ask for the document but nobody will ever read it. In the early 1980’s I raised over $500 million cash for start up business and realty ventures. The people I worked with were so skilled they could flip through the pages of a plan once and tell you which version of which software you used to write the plan.

But they rarely read one plan in a hundred. All they did was flip the pages to make sure there was some writing and put the plan on the desk top. Then they started to talk with you. Here's why.

If you paid someone to write the plan for you, in many cases you couldn’t explain why you choose the choices you choose or even where the choices came from. If why you did one thing instead of another you really wouldn’t know - because a writer decided for you. That’s all lenders and investors need to find out. Next! You’re out! Go home. You had your big

opportunity and you weren‘t prepared.

They are not going to use their money to fund your education - you must come to the table knowing what to do, when and how and why to do it.

2.06

Different plans businesses.

for

start-ups

and

existing

Obviously there are going to be some differences in the plan for a start up business and the plan for an existing business. We know most businesses begin without a written plan. Some survive the first year or two and then they need outside money to move to the next level and every source they talk to asks for a written plan.

Think about it. The business is in trouble or it’s growth is limited because it didn’t have a plan. Now it needs money to survive or grow. The money sources will demand a plan as a precondition to any serious discussion. Money sources won’t let the business owner continue to do what got him into trouble in the first place.

I refer to these after the fact plans as ‘retroactive business plans’ because they’re written after the fact and they need to make it appear that wherever the business is after two years is just about where the owner expected it to be. Obviously you wouldn’t write a plan that projects huge success while you’re trying to raise survival money. You would look foolish.

2.07

Start up business plan.

Searching through many business plan outlines at a SBDC/Small Business Development Center I selected a particular outline because it offered several useful things for me to discuss in a live class but this outline is as good as, and no better than, any of a dozen others I examined. so the first thing for you to understand is this - any outline you like will do the job.

It is helpful if you find a particular outline that you like better ‌ one where the author seems to speak your language. But that’s not vital. If something is in an outline you think should be omitted, drop it. If something is missing - add it. If you want to move it - move it.

The outline is not the Ten Commandments chipped in stone. As a matter of fact there are three versions of the Ten Commandments involving eleven different commandments.

While the questions in the outline appear to invite a specific answer it may be more productive to view them as a discussion topic where you can provide a deeper insight and more detailed analysis.

Part 1 - Self Assessment and Business Choice A - Evaluate yourself objectively and recognize your strengths and weakness.

Hopefully you won’t offer one of those terrible answers where you acknowledge that you work too hard and are overly dedicated to your grand purpose - the one that consumes your very being. Readers will put on their waders when they see that kind of

answer.

The question wants to see if you understand yourself and if you recognize that a behavior may be productive in one situation and not at all helpful in another.

I am easily bored and I often get my work done in a series of work sessions rather than one long blast.

That’s why I stayed away from languages and advanced math in college. I don’t do twenty math problems and five verbs every night.

A critic might suggest that because I have a short span of attention I might be thought of a immature.

I’m smart enough to know that I cannot sell immaturity as a job skill - instead I explain I am quick witted, adaptable, flexible and can handle multiple priorities.

The behavior is the same but the hourly rate is much different - if I sell my definition instead of the other.

B - Why should you be in business for yourself?

You might suggest that ever since you were a small child you have had a burning desire to (whatever) and that would excite many of your plans' readers.

My truth is that I have to work for myself because I can’t work for anybody else. I have tried it several times and I just cannot do it. I know that when I was a little boy not one of my friends had a parent who went to work. All went to the businesses they owned and they ran them.

Maybe I can’t work for someone else because I wasn’t raised in an environment where I did it

growing up and never saw it as an option in my life. I never had a paper route, shined shoes, mowed lawns, walked dogs, waited tables or did any of the other things little boys do to make money.

Instead I did deals.

C - How does the business fit your strengths and avoid your weaknesses?

Among the reasons I do what I do are these - I can write … I can speak to a room full of strangers ... I know good stories and I know how to tell them … I know the subject … I enjoy doing it … people encourage me to do it by hiring me ... and once the program is over I had no long term responsibility.

D What does the product / service do to satisfy the customer?

Do you deliver the goods? Are customers satisfied by what you do? Are they satisfied enough to come back again and again? do they send you referrals?

E - How will you be capitalized?

How much money (cash and credit) will you need to get started and where will it come from? When and why will you need more? Where will that come from?

What about contingencies?

unexpected

problems

and

F - Who are your competitors and what are they selling?

I find it is stunning to recognize how little most small business owners know about their competition. That has to be fixed immediately.

From one perspective, your competitors are other businesses who do the same thing you do in the same area. That’s true for auto repair, barbers, dog walkers, jewelry stores and dentists.

From another perspective the alternative to a three scoop double chocolate ice cream cone might be a piece of coconut cream pie - something that amends the customers destination or objective..

If the alternatives to a Hawaii cruise vacation might be a week in Las Vegas or a diamond wrist watch, how does the travel agent for the cruise line compete?

You need to identify your specific competition (other barbers) and alternative competitors and figure out how you will compete against them all. Make a list a big list. Then go back and do more research and make the list bigger.

G - What are their strengths and weaknesses?

This requires that you do more thorough and specific research on your competition ‌ something almost no small business owner operator does. It is honest, moral, legal and ethical to conduct competitive analysis on your competition. Business espionage is illegal.

To collect (public available) information on each of your competitors get or make copies of yellow page advertisement in each local phone book; newspaper advertisements from local papers; product catalog(s) price list(s) - wholesale / retail brochures - products / services annual report (if a public company) free product samples

promotional handouts (trade shows) press releases newspaper reports new product announcements information from vendors / suppliers (gossip & rumor) direct mail (get on their mailing list) examine their web site(s) physical inspection of their location(s) regulatory agency status complaints (active or past) required filings department of corporations - is it active and in good standing litigation reports (public record) credit checks (‘backgrounders’) membership status / Chamber / BBB / trade association interact with their personnel - buy something by mail order / telephone / web site - and then return it for refund or credit visit their trade show booth conduct a Google search

H - How is your business unique?

Carefully defined events, attitudes, knowledge, disciplines and other elements all work together to make you one of a kind - a unique person and a unique business. It is up to you to define the image the marketplace sees and your job to provide systems to help your personnel consistently reflect this image consistently.

For example - I do a lot of sales training. Many others do too so I have many competitors. I don’t know who most of them are and most of them don’t know who I am either. But we compete.

The single biggest subject in sales training is ‘overcoming objections’. More trainers are hired more often for that subject than any other. I don’t talk about overcoming objections (because that’s what all

my competition talks about), I talk about preventing objections in salesmanship (nobody talks about that). The subject and my title referencing the subject intentionally separate me from the herd in a way that - in almost every case - is in my favor because given the option, most people would prefer to prevent a problem than over-come it.

The selling language says ‘don’t tell me how to win an argument with my wife … tell us how to prevent the argument. there’s genius in that!” Virtually everyone who hears the idea immediately agrees and that tends to get me the job instead one of my competitors who speak effectively but who speak about a less desirable subject.

I - Analyze the marketplace.

You can get data that helps you define your marketplace (free in most cases) from a variety of sources including the Department of Commerce and the Department of Labor, Chambers of Commerce, Economic Development Agencies, and business research departments of major banks, and every industries trade associations and magazines.

This information can be used to help define the potential as your first step in defining your market objective … what share or the total you want to capture. Or you can define an simple objective such as “I will be the biggest volume ford dealer in suchand-so county.”

Sometimes it isn’t possible to know the size of the marketplace and some other (internal) definition is more appropriate. “My objective is to sell as many of the 2000 working hours available each year for the highest average dollar value.”

Knowing there are (50 working weeks and 40 hours per week) 2,000 working hours per year we set out to sell as many hours as we can for the highest hourly rate possible - recognizing that selling 100 hours @ $100/hour is generally a better way to earn $10,000 than selling 1,000 hours for $10/hour.

Consider if $100/hour is a competitive rate in your market area is that is too far from reality to be a salable approach?

(Refer to the material in section 2 on pricing, especially the reference to price, cost and value.)

Part 2 - Sales and Marketing A - What’s the difference between selling and marketing? Which one will lead your effort? Do you have the ability to create and manage your own system or will you need to bring a consultant on board to help you, or hire a professional to head up this function for you?

Here’s a pretty good truism: If you can do everything needed to start and grow a successful business except the ability sell what you produce, you should get a job working for someone else. You have a valuable skill someone will gladly hire - but the odds of surviving in your own business are against you.

When I say this in a class or a speech someone usually comes up to me and suggests I don’t understand their situation. They tell me they are an importer and they will have jobbers. Or they are manufacturers with wholesalers. Or they will be distributors and will have jobbers. Or they‘re in network marketing and will have a down-line.

To which I reply - “and who will sell them on that?”

B

Understand your marketplace thoroughly conducting (primary and secondary) research.

by

For some businesses your market area is a circle 25 miles across. For others it is the daily flow of traffic flowing past their location. For others it is users of a particular product or service, a specific brand or model. You have to know who your potential customers are as the first step in the selling process.

Research is the process of collecting the data that helps us develop those definitions and systems.

Primary research involves actually collecting and interpreting data while secondary research involves interpreting data collected by other sources. Most small businesses don’t have the knowledge or money to do primary research so most of us do secondary.

Knowledge or intelligence is the result of interpreting data - until it is interpreted data has no meaning and is therefore relatively useless. Here is a simple demonstration of how meaningless data is given meaning through the application of method and analysis - a series of random numbers.

5-7-3-7-2-6-3-6 Without some interpretation you’re looking at something that is meaningless while I capture significance in these numbers because I know that at five feet nine inches tall and measuring thirty seven - twenty six - thirty six, Christie Brinkley fits my vision of a very attractive woman.

C - Quantify the marketplace and your position

within it.

Since it’s impossible to know how many people are teaching how many business classes within the 120 mile circle that represents my geographic market area, I define my objectives in other ways - one of which is to deliver at least 100 college classes every year (that’s a reduction from the 200 per year I did for about 20 years).

A second objective is to maintain my claim that nobody does more classes on more business subjects for more southern California colleges than I do.

Nobody!

These objectives are simple definitions which are easy to monitor and easy to verify - and in achieving them I assert a powerful energy into my target market.

Have you ever heard of Avediz Zildjian? He was, until his recent death, the successor manager of his family business. They make cymbals. In fact they are the number one cymbal maker in the world. and have been - continuously - since the early 1600’s.

The odds are you don’t know them because the don’t need you to know them - but I bet everyone who reads Drummer magazine knows them. Being known isn’t as important as being known by those who need to know.

D - Identify your competition and how you will sell against them.

Selling isn’t war but it is combat. It is a competitive experience and in most cases there’s only one winner. Effective selling is about selling more than your share.

In deciding how you will sell against competition you have to know what they sell - price - financing - quality - durability - service - prestige / aura and decide whether if you will focus on some point of difference or perhaps focus on the fact that you are even more of whatever they are.

In the 1960’s the Chrysler was the top of the line until they came out with the Imperial. Their own product - the Imperial - eroded the market strength of their market leader to the detriment of both.

Similarly, in earlier times the Packard was the best car made in America and sold quality and prestige then destroyed themselves with a lower priced lesser quality product called the Packard Clipper which erased the prestige of owning a Packard.

It is common for a basic product like men’s underwear to be sold in several different stores.

Jockey briefs are sold at Wal-Mart, K-Mart, Target, Sears, Mervyns, the May Company and other retailers. How much price difference is there among these retailers and is the price difference enough to explain why some stores sell more product (per store) than others?

Can you visualize a different channel of distribution being the significant difference in the marketing effort for similar products? When I first began asking the question there was no Home Shopping network, No eBay and no internet. As the market changed the answer to the question changed.

For example, you can go to a large retailer like Sears, Lowes or Home Depot and buy brand name quality tools, or you can visit a tool retailer … or place your business on the route for a Snap-On truck jobber to visit your location every few days or order from an online distributor who then ships or delivers tools to you. What would motivate various buyers to choose one of these vendors over the others?

E - Quantify your performance At some point you must establish some kind of numeric target that can be used to evaluate and measure your performance even if the primary criteria are not quantitative. For example, your goal is to develop a healthful cookie for health conscious people to eat - but you still have to target how many cookies you need to sell to break even, or profit.

F - Develop a marketing strategy Small simple differences may produce big differences in results. Longer hours … staying open on Sunday … accepting credit cards … offering delivery … being bi, tri or multi-lingual in an area of diversity might be all the difference it takes.

One of my client is located in a multi-cultural area and advertises in English, Korean, Cambodian and Spanish. Being proactive rather than reactive is a major variable in producing success.

Many business people proudly tell me that most of their customers are referred by word of mouth - and that is an excellent indicator which I respect. But I do ask the question - What do you do to make the word of mouth happen - or do you trust to sweet goodness it will happen by itself?

Most replies acknowledge they do nothing to make word of mouth happen so I drive the nail in the coffin with two more quick questions Does that mean you are completely dependent upon non-predictable behavior to produce the money you need to pay your bills? (and) Are you telling me that in the face of a lot of guaranteed billscoming in over the next several months, you have little or no guaranteed income to pay them?

My intent is not to embarrass anyone but I know that everybody has guaranteed bills coming in every month for as long as it’s going to take to pay off their mortgage… pay off their vehicles … pay off their credit card balances … retire alimony and child support … send their kids to school … keep the dog fat and healthy and I think it is critical to do as much to produce some guaranteed income as it was to produce guaranteed bills.

When I returned to California in 1980 I had many classes, tapes, books and speech presentations I was ready, willing and able to sell. I knew there were thousands of people who wanted to start and grow a small business and thousands more already in business who wanted to do better. They were hidden in the white pages of them phone books for San Diego, Orange, Los Angeles, Riverside and San Bernardino counties.

Looking at the three foot stack of those white pages I knew I didn’t have the money, skill or know how to find and sell my needles in that haystack so I had to do the kind of problem solving for myself I normally did for my clients.

I needed to find someone who (1) would do all of the work …(2) invest all of the money and …(3) take all of the risk of finding people for me to sell. I connected with every college in those five counties and identified who offered continuing education community service programs in owner operated business subjects and formed a strategic alliance with over forty of them.

Part 3 - Organization and Operations My dad was a successful business owner with a soft sense of humor. Although he had several employees the business was all about him - he was the product in the same way a singer or comedian is the product of the business.

Over this desk he placed an index card on which he carefully hand lettered the words - I’m the boss - and you’re not! (This before Chevy Chase.)

That note clearly identified the chain of command and the lines of communication in clear and simple terms. Unlike the military or a huge corporation, there weren’t layers of people passing along the message and interpreting the meaning at every step in the process.

That’s a good model for a small business .Everyone talks to the boss and the boss talks to everyone. if there Similarly trade associations, franchisors, business are partners each has defined areas of authority and responsibility and the other partner doesn’t stray over the line.

If the business has several locations there’s an onsite manager at each and s/he talks to the boss.

The boss doesn’t talk to the employees without the manager present and employees don’t talk to the boss.

As a consultant I try to define one contact person to whom and from whom I receive all communication. If I don’t have that centralized communication problems almost always arise. That’s why in the old days we sent people copies of documents to people and today we send cc and bcc emails.

A - Select the legal structure for your business.

State laws govern the process of starting & operating a business. The details vary from state to state but the broad patterns are the same.

There are four legal structure choices available Sole proprietorship Partnership General Limited Limited Liability Company / LLC Corporation (Tax treatment governs the following choices) Close Sub S Non-profit - 501.C 3 This is the first decision you make when starting your business because all the decisions that follow are governed by this choice.

B - Establish goals - short and long term.

Simply defined, a goal is a specific and achievable result attached to a due date. We use goals as a statement of purpose and to have units of measure

to assess our progress. We write them down because the act of writing serves to commit us to their achievement.

In the process of defining, we also establish a sense of finality and closure. When we achieve the goal we know we did it - we know we don’t have to chase it anymore. We may need to maintain it but we achieved what we set out to do.

It isn’t unusual for people to establish different and bigger goals as they come close to achieving their current goals. That happens because they recognize the potential is greater than they first understood and that the larger opportunity is within their capability … it’s something they can do.

C - Define the tasks that need to be done.

Even if you’re going to be a one person business (as I am) you need a broad understanding of all the different things that need to be done to make your business work.

On one sheet of paper (1) define the task, (2) list the equipment and supplied needed to complete the task and (3) outline the work sequence needed to complete it.

D - Group task menus into job descriptions.

Grouping several tasks together creates a simple job description that includes detail about what is to be done … how it is to be done … and what is needed and available to do it.

This understanding is directly applicable to recruiting and selection, training, performance assessment and compensation levels.

E - Identify task you don’t, won’t, can't do.

Anything that must be done must be done by you or someone else. If you’re not going to do it you need to figure out how to find someone else to do it for you and how you’re going to pay them.

In some cases you may identify things that should be done which you won’t do and cannot afford to pay someone else to do and so you make a conscious determination to ‘let it slide’ - but now it’s not a matter of falling though the cracks, it’s a conscious decision.

F - Design patterns.

the

reporting

and

communication

Too many businesses / managers spend too much time and money keeping track of information they never use. They need to get out of that business. But certain information is critical (some of it required by law or government agencies) and that needs to be identified and organized in a simple way. Outline the tracking systems for that critical information.

G - Risk management Every business faces a variety of risks and need to consider how it will respond to each one before there’s a problem.

Systems plus staff training will help resolve many of these items though various forms of insurance may be required to protect you and the business in other situations. Where I live in the southern Californian desert we can see the San Andreas earthquake fault line. We live on a hillside just below the fire line in an area of

perpetual drought. You bet I back up my computers - daily - off site.

H - Define your exit strategies.

Different problems require different solutions. Your job is to prepare for them as part of the starting your business planning. people don‘t like to think of it but you can be hit by a drunk driving though a red light as easily the first month you’re in business as the twentieth year - don’t wait until you can afford it or comfortable.

Part 4 - Finance I paid a high price to learn about business financials - I married into a family of CPA’s. You will learn a lot of specifics in Section 2 but the most basic idea is this You should be financially literate when you start your business and build on that knowledge as your business grows and you get more experience. If you don’t meet the basic entry requirement when you start, you would be smart to delay your beginning until you really are more prepared.

Literacy means that you can read, understand and apply what a (1) balance sheet and an (2) income statement tell you to the operation of your business; understand (3) cash flow, credit and collection and (4) pricing for profit and finally - are prepared to (5) bring in new money quickly when/if it is needed.

A - Determine the return on investment needed to justify the investment and make a profit. One of the purposes of a business is to make a profit and that happens after all the operating costs and other obligations are met.

B - Estimate personnel costs. People need to eat and aren’t willing to wait very long to get paid. The few people who are willing to wait usually have husbands or wives who aren’t willing so you need to have an accurate estimate of your people costs and have enough cash on hand to pay them while recognizing that the average business will not break even for nine to eighteen months.

C - List the real and personal property needed for the business. Space, utilities, machines and equipment, supplies, inventory and more is required to start and operate a business. It all costs money and most of the money needs to be paid before you can unlock your doors and start doing business.

Capitalization is the process of determining how much capital will be needed to do that - where and how to get it - and making sure enough capital is on hand to begin the process, including an allowance for contingencies (which means ‘bad guesses’).

D - Estimate monthly cash flow for the first year This is a job for an accountant and presents in accounting format your estimated income and expenses for the first year. This presentation helps predict when you will need infusions of capital and how much - and provides a backdrop against which you can measure and evaluate actual performance.

E - How will a short-fall be met and carried In business, it is not negative thinking to estimate the various bad things that can happen and prepare a response for them … it’s good management. Now your job is to take the estimates from item D Estimate Monthly Cash Flow - and prepare a

solution to each of the possible negatives that projection identified.

Think of it as making a first aid kit for the ‘I’m starting my own business and don’t want to have any problems’ trip.

F - Prepare a plan for raising the needed capital.

Each state has similar but different laws regulating the process of raising money for a starting and growing a business. Assuming you’re incorporated, the web site of the corporation agency will be your source for state specific current data.

In my opinion, Guerrilla Financing by Gerald Blechman and Jay Conrad Levenson is the best book on financing for beginners to read because unlike most of the books on this subject, it’s understandable and accurate to the marketplace.

Skip the section on traditional financing unless you're dealing in multi-millions. First, read the section on nontraditional financing, starting with angel financing. Every bookstore should have it and it’s just under $15 - and worth buying for your business library.

[05/2014 I understand this excellent book has just gone out of print so buy a new-used copy a.s.a.p. When a new alternative is available I'll let you know.

Part 5 - Building an Advisory Team Entrepreneurs tend to be lone wolves - egocentric and uncomfortable letting others know how much they don’t know. Ignorance is bliss - and these are happy guys. People driven by their ego try too hide

their ignorance from others; people driven by a desire to succeed depend of using other people’s experience.

The Board of Directors is an administrative management tool of the corporate form of business.

A Board of Advisors is a dynamic propellant in the engine of a successful start-up.

The four advisors every business must have Attorney at law - a business attorney who already has - or has had - clients in your industry; Accountant - a CPA or enrolled agent familiar with accounting procedures in your industry and tax laws and their application in your industry; Risk management - an insurance agent whose focus is business insurance not home, health and accident.

Banker - At regular intervals in the life of your business you will want to harvest services and knowledge that is beyond the basic banking relationship. You cannot harvest what you haven’t planted and nurtured so start setting the stage as you begin your business.

To have a friend you need to be a friend and if you want a friend at the bank s/he needs to be your friend before you have the need.

There are some others who might be helpful to add to these four Advertising agency Equipment financing specialist

Store design architect Key vendor Major customer Successful entrepreneur These advisors are not paid for serving as an advisor and have no legal liability. They are an informal support group - their power is informal. Success is ultimately a team effort. No one does it alone. No (wo)man is an island - if s/he builds bridges reaching out to others.

2.08

Plan for an existing business.

Read the sample business plans’ questions and what they are trying to get at and how you might answer them.

Before starting to write your first draft I think you should audit your business status - describe your business objectives and discuss where you are now in relation to those objectives. That puts clear starting points into your conscious mind at the very beginning of the process.

A - Executive Summary (Write this last; it's a teaser to motivate readers.)

B - Business Description What business are you in? What is your product / service and how is it different (i.e. better) than the competition?

How is your business organized - what legal structure is in place?

Who are your customers?

What is the market potential of this business? (This may be expressed in external terms - We will be the largest Ford dealer in Miami - or internal terms - I will sell at least 1000 of my 2000 working ours for an average of $100 per hour.

Management team - examine skills and experience as well as recognizing individual weaknesses.

How does the company work - how do you manufacture what you make ‌ distribute what you distribute ‌ deliver whatever service you provide?

Summarize your businesses personal work experience.

history

and

your

Explain any financing already in place - investment, loans, options, leases and other financial obligations.

C

Market Analysis

Develop an outline of the market potential for your product or service, who the customers are and how you might reach them effectively. Define their need and how you satisfy it.

Provide research about your competition - who they are and what they sell - and explain how you compete against them.

For example, I had a client who sold industrial fasteners. A major competitor based their sales effort on low price. We did not defend on price - we sold traceability, which is a critical element in selling to the Department of Defense. Whether the fastener is used in a space vehicle or an air to ground weapons

system, the DOD wants to know who made and who handled that fastener from the point of manufacturer until it is put into the product.

For more information on how to conduct market research refer to Section 2.

D

Advantage(s) of Your Product / Service.

In order to succeed every business must be different than its competition in some way that benefit’s the customer. Merely being different is not enough - you have to be different in a way that is better or more effective in meeting the needs of the customer.

The different can appear to be a minor difference but their results are significant in achieving the purposes of the business – Your gas station is on the right side of the street when people are driving home from work – Your liquor store is open until 2 AM Se habla Espanol - Korean, Polish or Yiddish You deliver – Credit cards accepted - and until you understand what that difference is and why it is critical, you have nothing to sell and the market doesn’t need you because we have enough gas stations … enough liquor stores … enough lawyers … enough Amway distributors … enough color consultants.

E

Market Strategy

Having a marketing strategy means you have a concept that drives your promotional, marketing and sales activities in a process where each action is cross referential to every other action and everything you do represents a different piece in the same puzzle.

When I returned to California I had to re-establish my business in an area where I was relatively unknown. I quickly determined there were more people interested in starting or growing a business in the five counties of southern California than I could process and I needed to figure out a different way to identify my needles in a haystack of nine million people.

I thought it would be smart to have someone else do all the work ‌ spend all the money and take all the risk of finding me people to sell and I created a marketing strategy that depended on others to retail my programs and products to their public as I provided my training and products as a wholesale provider.

I collect contact information on the people who actually hear me speak at a meeting or train in a classroom and all of my labor and money is invested in generating repeat business from people who already know who I am and what I do and liked it enough to ask for information about more.

F - Operations Outline how you do whatever you do. This is especially important if your plan is intended to generate money (investment, loans, strategic alliance, consignment products, vendor credit etc.)

You don’t have to reveal your secrets or explain your

proprietary systems but you do need to indicate that they exist and how they are integral to the business.

G - Management and Organization Readers need to know who your management team is, what their experience and skills are and how each one fits into the whole. And readers need to know these key people are there for the long term.

Who owns the business (sole proprietor, partners, limited partners, LLC or stockholders); what is their ownership interest, how and how much are they compensated?

Who is on your (corporate) Board of Directors and / or Advisory Board? Are they compensated - how and how much? What other business interests does each hold?

H - Timing What is the future of the industry - especially in the context of what is the long term need for your product or service. Businesses based on dwindling supplies of raw material, vulnerabilities to foreign sources of supply, changing regulations, obsolescent technology can survive if they recognize the threat in advance and build a plan to handle it.

Consider drawing a pert chart or flow chart indicating the sequence of activities and a projected time-line.

Small farm operators in America bought small tractors. As agri-business has shut down small farms the need for small low cost tractors dwindled.

But the small tractor technology was exactly what small farmers in Asia and Africa needed and those

products continue to sell well there.

Sadly many pesticides which are banned in the United States are sold and consumed in huge quantities abroad. So we are indirectly poisoned but someone’s making money doing it!

I

Financials

Since January 1 - April 15 is tax time, you can assume that's when your accountant will charge the highest hourly fees so it makes sense to try to shift these discussions to the off season.

The key issues to discuss are Tax filings for the past 3 years Balance Sheet (annual / quarterly) past 3 years Profit and Loss Statement (annual / quarterly) past 3 years Accounts receivable (aged) Pricing formula Breakeven analysis Cash flow projections Long term financial obligations (notes, leases, mortgages etc.)

How much do you need now?

How much will you need over the next 3-5 years?

When will you need it?

How much will you need?

What will you need How much money (cash and-or credit) are you looking for?

Four things to think about An investor is usually more motivated to fund a machine that can be reclaimed and sold to recapture some of the investment than s/he might be to fund a

direct mail campaign where nothing can be claimed if the campaign fails.

Contingencies - what if you under-estimate the need? Do you have a what id plan in place?

What compensates an investor? Cash income or appreciation of stock isn't the only payment many investors are looking for.

I often get phone calls from my class alumni telling me an investor wants to put $100,000 into their business. They ask - how much ownership (stock) should I give them? My answer explains that the investor isn’t buying stock with his money; you are buying his cash and paying for it with stock. So the answer to the question is “how much ownership (stock) do you want - or have - to pay to buy the cash you want?

J - Capitalization One of the objectives of most business owners is to ‘get rich’ - which is to say they want to build their net worth. (See Section 02.00) If the investor we just talked about invests the $100,000 and receives 30% of the issued stock it means 100% of the stock is worth $333,000.

The founding owner has the remaining 70% ownership which is now worth $233,000. His original investment was $75,000 cash plus sweat equity (unpaid labor) worth about $50,000 - so his $125,000 investment has nearly doubled in value.

If he started the business four years ago his appreciation (increase in value) is around 20-25% per year and that’s a much higher return than the stock market, bonds or most other investments.

His business is a good site for his investment capital.

So the question becomes how much can this new $100,000 investor hope to earn in the next four years? Will his rate of return be more ‌ similar ‌ or less? Prospective investors want to know.

K - Exhibits Depending on the specifics of the business it may be helpful or necessary to include one or more exhibits to document or amplify the content of the plan.

Corporate Minute Book (up to date) Marketing studies - internal / external Patent - Trademark documents Licenses permits - registrations etc.

Drawings - blueprints - schematics - diagrams Photographs Resumes of key people Contracts - strategic alliances / permit to use Titles - leases - options As a broad generality it can be very helpful to refer to industry specific data and demonstrate your deviation from the norm in ways that create advantages or benefits in your favor.

Your cost of sales is about 5% less than industry average because your level of repeat and referral business is higher than the industry average.

Your food costs are about 1.5% lower than industry averages and almost all of that savings becomes added profit.

Because of superior cash flow management your accounts receivable pay 7 days faster than industry average and your uncollected accounts are 7-8% lower in amount.

The information serves as a powerful plus in your favor because (1) the numbers document your higher than industry averages performance and (2) actually knowing this information demonstrates that you are more competent than the typical manager (who does not know or even consider this information).

2.09

The valuable one-sheet.

As I begin the new business project I want to develop a simple tool that helps me define and organize the project and manage my activity - which I can also hand to someone who might ask me “gene - what are you doing … what’s this project you’re working on?”

Here is my one-sheet for a project I am working on right now as I write this book. It clearly reflects the results I intend to achieve and the methods I will use to achieve the objective. It is a committing document because I will be able to measure my performance against my stated intention and confirm that I met the objective - or failed.

Sample One Sheet - Next pageBMMI Online MISSION I teach entrepreneurs “how to do business” by providing subject-specific training programs and cutting edge information that empowers them to (1) develop specific answers to their questions; (2) to clearly define their objectives and (3) to achieve those objectives through the application of purposeful and disciplined action.

VISION I envision entrepreneurs world-wide accessing my affordable training 24/7 in a variety of easy to use formats matching their best learning style.

STRATEGIC OBJECTIVES 1 To develop a comprehensive menu of training products; 2 To position myself as a wholesale publisher of general and industry-specific training programs to a network of retailers including franchisors, publications, trade associations, colleges and other vendors; 3 To promote training materials to the public through the BMMI brand.

TACTICS 1 To joint venture with a technology company that provides the computer systems needed to manifest the business; 2 To build a network of retailer partners to promote and sell these co-branded products to their (member/reader) publics; 3 To build a network of industry-specific alliances for whom we develop programs which are appropriately certified with accrediting agencies; 4 To focus on our primary marketplace - I.M.CHAN (Illinois, Michigan, California, Hawaii, Arizona and Nevada); 5 To maintain contact with every student/visitor to our site to become their preferred source for business skills training.

POLICIES 1 All training programs must be effective - which means students know what was said, understand what was said and can apply what was said, in their own business; 2 Every program offers cutting edge ideas - clearly presented - and specific to the subject; 3 Every product is guaranteed to satisfy every customer, every time; 4 When we update a training program, we will exchange the new version for the prior version at (virtually) no cost.

GOALS 1 To add at least one organizational sponsor every quarter, and accelerate to one a month; 2 To qualify for regulatory approval/certification for industry specific programs in every state through co-sponsorship alliances with locals; 3 To establish a “cash cow” business by creating an operating structure that is easily maintained by others, applying the instructions provided in my Operations Manual; 4 To own and operate the business as a “sandbox” that is effective, pleasurable and profitable in its’ activity, systems and results.

2.10 A simplified system for developing the content.

© Gene Konstant 2008-2014 | All Rights Reserved

First, people are always worried about what to say.

Then they worry some more about how to say it.

Because most people communicate better when they speak than when they write, I suggest the best way to develop the actual content language for their plan is to talk to yourself. Don’t talk too loud or you’ll confirm your family’s worst fears. But when you actually speak the words - not just think them - you hear the sound of the words coming out of your mouth. If they don’t sound right they won’t read right.

The structure of your self-talk is simple - and based on five words you already know and understand.

Strategy the result or results you intend to achieve Tactic the methods you will use to achieve them Policy the reasons why you will achieve them Procedure the break down of who does what how to get the job completed Goal units of measure to evaluate performance Your self-talk reduces down to this structure “To achieve going to use (policies) by these ways (goals).”

these results (strategic objectives) we’re these methods (tactics) for these reasons having these people do these things in (procedures) to achieve these results

2.11

Great business plan consultants and software programs.

There are some fabulous software programs available to help you write your plan. Even some of the $10 CD’s available in the big box office supply stores are very good - and there are several excellent programs ranging from $75-150.

Many business plan class teachers are for hire as plan writers and they are very good too. Consultants are very tempting because they present an opportunity for you to solve a problem by writing a check and going back to doing what you like to do.

Do not hire a consultant to write your plan - do not buy high priced software to write your plan.

You have to write your own plan yourself for the same reason you cannot hire a personal trainer to do the exercises for you. If you want to lose weight and tone your body you need to do the exercises.

There are two different reasons why you have to do it yourself First - at some point in the writing the software or consultant will say “there are three ways to do this red, white and blue. Pick one.” In some future discussion the (lender, investor, landlord etc.) person on the other side of the table will ask you why you picked blue and you won’t know the reason and will have to ask for time to call your consultant to find out.

The consultant, of course, will send you the answer and an invoice for answering the question. The person on the other side of the table won’t send you anything because s/he not going to fund your education.

Second - because you are absolutely unique … a one of a kind person … when you come to the same situation as the software presented, you will determine there are five choices, not three . . . and they aren’t red, white and blue. They’re red, white no blue - green, orange and purple. And you will select purple for whatever reason and determine you will stick with purple until a specific time or event at which time you will evaluate the results purple produced and either stick with purple or abandon it and switch to some other option - perhaps orange for some other reason justifying it as the second option.

And when the person on the other side of the table asks what you choose and why you won’t need to call and pay any consultant. You will know why you did what you did. and that’s the point.

The ultimate result of writing your plan yourself is that all the factors and choices, plusses and minuses are in your brain where they need to be not in the mind or file folder of some software or consultant.

You must be the boss of your deal!

I tell the people in my classes that if you were a professional athlete you would go to spring training camp before the start of your season. The reality is that entrepreneurs don’t have spring training.

Entrepreneurs have ‘write a business plan’.

2.12

What do you mean I’m not done?

Writing a business plan is - among other things - an activity that qualifies you to play the game at the professional level. I tell people it is the equivalent of anteing up in Las Vegas. When you sit down at the table there’s no guarantee you will win - but if you don’t throw the ante into the pot they won’t deal you any cards.

The benefits that result from the process of writing the business plan will hopefully convince you that writing is a beneficial process and the good results you get from the business plan will give you good results that motivate you to do more planning on paper. That’s the theory.

If your business is small and stays small, the simple business plan may be all you ever need . . .except for some periodic tweaking to keep it up to date. But it’s likely that as your business grows and your knowledge and understanding expand you will begin to recognize that the business plan merely introduces the discipline to your experience and you will recognize the need to do more planning on paper.

01.12 A

Financing A business that is driven by financing will eventually recognize the benefits of pulling the financial section out of the business plan and expanding it to represent the growing needs of the business. For example If financing is a critical element in the manufacturer’s ability to sell cars, they need to address financing issues unique to each international market where they distribute their vehicles. The laws of ownership, regulations about financing interest rates, recourse for non-payment of the debt, laws regulating collection processes modify in each country of the world.

When GM decides to distribute automobiles in Cambodia they need to provide their dealer network financing support or they won’t sell any cars.

1.12. B

Sales Products that are sales driven need expanded marketing plans to define and manage the operations. What do you have to do to build a network of product sellers representing a new food supplement?

The answer to that question is dramatically different if you wholesale to health food stores, to organic grocery retailers or to network marketers distributing through a down-line.

1.12 C

Personnel As part of your growth plan you intend to buy products manufactured offshore in countries that have few if any labor laws protecting workers and no restrictions on pollutants and contaminants. The products are intended for the health care industry.

1.12 D

Yellow Page Advertising Just as planning on paper becomes your habit, you begin planning ads on paper as a default discipline, and when the time comes for you to develop a simple print ad for the local yellow page phone book you begin to establish specific objectives for that advertisement including performance standards and an estimated (computed) ROI needed to justify repeating the ad the following year.

3 Mastering The Financials

3.00

MASTERING THE FINANCIALS Table of Contents.

3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 3.11

How I got so smart about the financials.

Financial literacy Your silent partner How entrepreneurs get paid So what does financial literacy mean?

The Balance Sheet The Income Statement Cash flow - credit and collection Pricing for profit Capitalizing the business Quick cash when you need it

3.01

How I got so smart about the financials.

The truth is I never liked the financials. I’m good at math and can do a lot of computation in my head most people do on paper. But accounting, balance sheets, break even analysis, profit and loss statements are all things I never found very interesting.

I come by it naturally. My grandfather owned his own business and he didn’t like it. My dad owned his own business too - and he didn’t like it. I started my own business in 1962 and I wasn’t much for those financials either. So I was raised in an environment of not caring much about business financials.

But life has a sense of humor and at the right moment in my life I met and fell in love with a little girl I married - her whole family were school teachers and CPA’s. Every family gathering had one table of civilians talking sports and politics and another table of CPA’s talking about depreciation schedules and tax regulations.

(In case you’re wondering, I can tell you that accountants are like that all he time. There’s nothing you can do to help them. They really like talking about that stuff.)

But the simple reality is you cannot spend a big part of your life with these people and not learn something from them despite your best efforts. The truth is they really knew how to do accounting and were excellent business people … street smart ... good teachers and motivated to smarten me up.

3.02

Financial literacy Early in my education my father in law explained that operating a small business is a lot like being the ringmaster in a three ring circus. Everywhere you look different things are going on and it’s your job to direct and manage them all - all at the same time.

Much of what’s going on occurs in the language of words and some of what’s going on occurs in the language of numbers. We know some people are better at words. Others are better at numbers. But the key point is this You cannot be illiterate in either language and hope to survive - forget about getting rich!

And that’s the truth. You must be literate in both languages in order to survive and since most owner operators are not literate in the language of numbers we need to define what literacy means and help you become literate in the pages of this book.

3.03

Your silent partner It doesn’t matter if your business is full or part time.

It doesn’t matter if it’s a sole proprietorship, partnership or incorporated. Every business has a silent partner called the Internal Revenue Service (IRS) and no successful business owner operator takes any action without thinking about the tax implications of the act.

Truth be told, the tax code isn’t very interesting and most people approach it in an adversarial way. They see it as the enemy’s rule book and expect everything they read to work against them.

But it doesn’t have to be that way. My father in law gave me a powerful understanding of a helpful alternative attitude. What he said made a lot of sense - and a lot of money. He said Read the tax code like it’s the play book of the other team. Find out what they will let you do and how they will let you do it. The tax law is your instruction manual telling you how they will let you make and keep money. They’ll tell you how they will let you get rich.

Understanding that concept motivated me to begin reading the articles in the newspaper about changes in the tax laws. I started to pay attention to all of the industry specific information I found in various industry publications. Over time I found all kinds of ways to deduct from my taxable income various expenses that I used to pay with after tax dollars.

If the business buys or leases an automobile and tells you - it’s employee - to drive it, the cost of the vehicle, insurance, gas and maintenance becomes deductible.

I am 6’3” tall and weigh about 205 pounds. I’m a big person. and when I stand on a stage in front of a large audience with whom I’m speaking, I look pretty large. Large enough that I don’t want to look any larger. So I have about 18 custom tailored suits which have a back pocket in the pants to carry my handkerchief, and a breast pocket in the jacket so I can put a handkerchief for a splash of color. Other than that, I have no pockets.

I have seams and flaps - but everything is sewn shut - because a suit with pockets is clothing and a suit without pockets is costuming - and costuming is deductible.

And here’s the punch line; I own four … tailored … tuxedos. They are my work clothes. I am a different kind of clown and that’s my clown suit and it is completely deductible.

You see the United States has what’s called a voluntary tax system - and I volunteered you to pay my share. Thank you very much - and keep up the good work.

3.04

How entrepreneurs get paid.

Hopefully you understand that making money working for someone else is a different process than making money working for yourself.

About 85% of all workers work for somebody else.

They have a single income stream and are paid for what they do. As long as they do - they get paid; when they stop doing they stop getting paid.

Their payment can be computed in different ways and may be called different things, but it’s all based on what they do.

Salary Hourly Piece work Commission Project fee Royalty Earn-out People who are self employed receive four income streams instead of one - and instinctively you understand four income streams are better than one even before you know what the four are.

Three of the four income streams represent direct income and one source is indirect and whatever amount the business owner operator makes in a year that amount is the total of these four components.

03.04 A

The Value of Your Labor.

Just as the employed person must be paid for what s/he does, the owner operator must be paid for what s/he does. Labor has value and must be

compensated. That value is an operating expense of the business and must be paid.

It’s important to say that for several reasons. Some of those late night infomercials that talk about getting rich for $39.95 actually tell you that all you have to do is sell your stuff, collect your money, pay your bills and everything that’s left is yours stressing the word everything as if there was going to be a fortune on the table.

In fact the average business doesn’t break even for 9 to 18 months - so there’s not going to be anything left on the table for a long time and frankly I’m not willing to work that long and not get something for it.

It may be that you have a co-owner (partner) who also works in the business. Even if you work the same number of hours (which isn’t likely) the value of what you do will certainly not be equal - which means that one will always earn more or less than the other. You may be equal in your ownership (5050) but you will never be equal in the value of what you do.

You should also understand that the nature of the business may require you accept less than you are worth for a while - but there must be some added benefit to compensate for that willingness to be underpaid. Perhaps you will earn interest on the value of the deferred compensation. Or you will earn stock in the corporation. Or the ability to feed your family from the restaurants kitchen.

If you’re really willing to work for free - come work for me. I have more to do than I can get done and I really need the help. And I promise I not only won’t pay you a dime, I’ll charge you for parking and

coffee. You can trust me!

Many years ago I was called by three brothers who co-owned a convenience grocery store in east Los Angeles. They were hard workers and couldn’t figure out why they were barely profitable when they thought they should be making some money.

I quickly determined they were feeding their three families - and their parents - off the shelves of the store. If you totaled the value of their ‘off the books’ consumption you would find they were making a very good profit.

03.04 B

Return on Your Investment / ROI. Whether you invested cash or items worth cash, you have invested value in your business and whatever that investment value is, it too must earn a return on investment - otherwise there’s no motivation to make the investment. Why would you invest in a high risk start up business when you could deposit your investment in a saving account, certificate of deposit or treasury bill and get a guaranteed income?

So the real issue is not should you earn a return, the real question is how do you compute how much return you need to earn? Here’s how to compute that answer.

Whatever the no risk rate is when the investment is made, must be multiplied times 7 and times 5 to compute the high-low range. If the no risk rate (saving account, CD or T-Bill) is 5% annual rate, then 7 X 5% = 35% 5 X 5% = 25%

- the investment needs to generate 25 to 35 percent annual return on investment for each of the first two years in business to compensate (justify) the investment.

Don’t ask whether you should budget 25 or 35 percent. If you were the investor would you want the lower rate or the higher rate? Well you are the investor and you damn well can be sure you want the higher rate.

But suppose that income higher rate just doesn’t work in your financial projections. What do you do when the compensation you have to pay isn’t available in the projected operating budget? You have three options - and they’re all good choices.

First - give it up. Not every idea is economically viable and if the concept can’t make enough money it doesn’t make sense to do it.

If you saw the movie Titanic you remember that, at the end of the film, the ship sinks. Do you still want to ride on the boat? Smart people don’t start a business they know cannot survive.

Second - figure out some other way to do it that does make enough money to compensate the investor and pay its’ other bills. There is more than one way to skin a cat and if you’re hell bent to have a skinned cat, go to it.

Third - sometimes wonderful marketing can overcome the usual limitation of the numbers. Any fad falls into this category. Whether it’s Beanie Babies at Christmastime or Michael Jackson’s sequined glove or hula hoops, fads defy accounting formulas.

About 18 months ago Apple Computer had just sold it’s 100 millionth iPod. They sell for $99 to $499 per unit - they cost about $14 to manufacture. That‘s a pretty good techno-fad.

Exercise 03.04 B In April of 2010 the no risk rate was about 1.5%. Compute the return required to compensate an investor in this economy.

3.04 C

Value of Your Management.

Incidentally - we need to talk about executive compensation for a moment. This formula helps you determine the value of your management and owning a business is about making money and making more money because you took a bigger chance and pulled it off. We are a capitalist society and this is capitalism at work.

I want to suggest we might insert some sociology into the equation too, if only to put things into perspective. Nobody complains when the business owner operator makes five or ten times what the average worker makes. Even twenty or thirty times as much.

In 1982 the average CEO earned 25 times what his average employee earned (and in 1982 virtually all of those CEO’s were men) but in 2007 the top CEO’s

earned 260 times what their average worker earns.

Today the earn even more - and that might be something worth reconsidering.

Now I know that kind of talk will make some folks call me a socialist or even worse - a liberal. But having survived the recent scandals of Enron and a host of similar debacles I acknowledge I have a problem with corporate officers harvesting billions (not millions, billions) in the name of shareholder value, at the same time they’re gutting the pension accumulations of thousands of their long time employees who depend on those funds for their retirement.

I find it offensive that a Wall Street wunderkind can rape the marketplace and then pony up a few hundred million to buy his way into societies good graces and use hundreds of millions more that he got to keep as part of a plea bargain to establish foundations (generally tax benefited foundations) to buy additional absolution - but that’s a personal opinion and not everyone agrees. ____________________________________________________ FYI - I stumbled upon a remarkable book at the library's fund raiser called "Compassionate Capitalism" by Rich DeVoss, co-founder of Amway.

Although our political values seem opposite I have never read such a 'right on the money' discussion of capitalism and it's ethical obligations to people and society. I recommend it to your attention. (Dutton Publishing 1993) _____________________________________________________ 03.04 D Perquisites Expenses.

-

Tax

Deductibility

of

Certain

My in-laws always told me this will never be the largest income source in your life but it will often be the happiest. It is the ability to deduct from your taxable income various life expenses. In effect, the business is underwriting some of the benefits of your improved lifestyle.

I already told you I have 18 tailored sits and four tuxedos. The business I work for (which I also own) tells me to wear them in certain work situations and like any employee I tend to do what my boss tells me to do. Of course, I am also the boss.

Now you know the secret of why so many business owners talk to themselves. We do it because it pays so well!

3.05

So what does financial literacy mean?

In my discussions with my father in law he provided a short list of four factors he thought represented the minimum understanding every beginner must bring to the table - and my own experience added a fifth to the list.

Be able to read, understand and apply the balance sheet Be able to read, understand and apply the income statement Cash flow - credit and collection Pricing for profit Capitalizing the business Let me be clear - this isn’t all you need to know. This is what you need to know to get started. Once you get started you will be motivated to learn a lot more.

If you don’t bring this much basic understanding to the table you’re really not qualified to begin playing the game.

That does not mean that lacking this knowledge means your business will fail and you will lose all your money. It simply means that you’re starting to play the game of business with too much going against you and it would be a good decision to invest in more education and preparation.

3.06

The Balance Sheet Every business has to report its income and pay taxes on any profit the business generates. In order to prepare that tax information your accountant will have to produce a Balance Sheet and an Income Statement. These are the two basic documents of every business and often referred to as ‘the financials’.

The balance sheet answers the question “how are you doing?” When you hear the word ‘balance’ you’re supposed to immediately think of a balance scale the kind you see in the movies about traders doing business in the far east in the days of Marco Polo.

Resembling the letter ‘T’ the scale usually has a cross rod with a pan of some sort at each end. A known weight is put in one pan … dropping that side downward … as the thing being measured is placed in the other pan, restoring the balance. When the pans balance we know there is as much (known) weight on one side as there is product being measured on the other.

Looking at a simple balance sheet printed on paper recreates this visual with assets listed on the left side and liabilities on the right. (A longer balance sheet is printed in a single column and you have to imagine the balance scale.)

Assets is the accounting word for what you have … the value of everything in your possession and owned to you in the future.

Liabilities is the accounting word for what you owe … the value of everything you will sooner or later pay or deliver or transfer to someone else.

Somebody might decide that assets and liabilities

should be equal in their amount and that the pan scale would be in balance. But they would be wrong because a fundamental motive for being in business is to have more than you owe - that difference being called your net worth, capital or equity.

If you bought a house for $100,000 (asset) and still owe $60,000 on the loan (liability) you have $40,000 equity.

The process of ‘making money’ or ‘getting rich’ involves building net worth by boosting your equity until some future date when you decide to cash it all out and retire.

A convenient memory hook is the word A = L + E (assets = liabilities + equity.)

Before we even look at a sample balance sheet we can recognize how the document answers the question “how are you doing”.

This year I made more than I spent and my business make a profit so I’m doing good.

Last year my net worth increased by $8,000. This year it grow by $10,000 so I’m doing good and getting better.

In 2005 my equity was $11,000. In 2006 it was $14,000. In 2007 it was $18,000. In 2008 it was $21,000. In 2009 it was $23,000. I am doing well and getting better, year after year.

The balance sheet can also indicate developing problems.

In 2005 my net worth grew $2,000 to $21,000. In 2006 it grew by $2,000 to $23,000. This year it’s

growing by $500 - that’s not so good.

I have about $10,000 invested in my home-based business and I made about $2000 last year - that’s a 20% return on investment. This year my return dropped to about 5%. I could have made a higher return in the stock market or a saving account.

Maybe it‘s time to shift my investment from my business to something with a higher yield.

To the casual eye the assets and liabilities may seem to be listed in random order but in fact there is a logical sequence to their position. While the detail of the sequence might shift slightly from industry to industry the basic pattern is consistent.

The best asset to have is cash - “cash is king” says the traditional wisdom - and cash is listed first. The next item listed is the next item to become cash current accounts receivable are almost cash and therefore are listed second.

Inventory can be expected to become cash before raw material can be made into inventory to be sold for cash, so inventory appears higher in the list than raw materials.

In the accounting language ‘current’ means one year or less. In real life owner operators think in terms of 30 - 60 - 90 days.

Supplies (like brochures and staplers) will be used up sooner than phones or copy machines so supplies are listed higher than equipment. Buildings last a long time and are at the bottom of most lists except for the land upon which the building rests.

“Under all is the land …” says the real estate industry, and it’s true. As long as a building may last, the land underneath it will last even longer.

Liabilities are presented in a similar logical order with this exception. There is no such thing as negative cash so the first liability listed is normally current accounts payable.

If you want to solve a financial puzzle try to think of an example of negative cash. What I think of is overdrawn checking accounts where the checks have been issued to the payees. That's negative cash in my book!

Before we examine a sample balance sheet I want to surprise you - there’s no numbers on the sample.

Most people see a sheet filled with numbers and go brain dead. They worry about the math - adding and subtracting and wondering if the math is correct.

The math isn’t important.

The first step is to understand the concept of the form and recognize what it’s trying to tell you. Until you’re comfortable with the concept the numbers are intimidating. Once you’re comfortable with the concept - the numbers are incidental.

Let’s look at a sample balance sheet -

Your Company Balance Sheet as of December 31, 200____________________________________________________ ASSETS LIABILITIES Cash $17,500 Current Payables $ 9,175 Accounts Receivable $ 8,250 Equipment Payable $31,500 Note Receivable $12,000 Taxes IRS $19,000 Inventory $46,000 Reserve for Warranty $ 5,000 Note Receivable $12,000 Inventory $46,000 Supplies $ 4,500 Vehicles $62,500 Furniture & Fixtures $12,750 _______________________________________________________________________________ Total $163,500 $ 46,675 ________________________________ EQUITY / CAPITAL $116,825 ________________________________________________________________________________ $163,500 $163,500

That’s not so scary is it? And if your accountant sent you a piece of paper with a balance sheet on it, you would understand that the document is using the language of numbers to tell you ‘how you’re doing’ and part of the answer to that question appears in the growth of your equity that is reflected in this report and part of the answer appears in comparing this report with prior years reports to determine an overall pattern.

I think many business owner operators are math adverse and when they get a balance sheet once a year, don’t understand it and don’t know what to do with it, they usually put it into a desk drawer and never look at it again. I think that’s a mistake.

In my opinion I would want to get my financials at least once a quarter and would feel even more in control if I got them every month. I understand it’s going to cost a little more in accounting fees but I rather recognize a developing problem while it’s still small enough to correct easily than hold off for a full year only to discover a massive trauma that could put me out of business.

My diabetic relative checks blood sugar several times a day. I get a blood test every 90 days and once a year go through a battery of medical tests to monitor a medical condition that I’ve developed over the years.

I believe people when they say ‘out of sight - out of mind.’ If you don’t know what’s going in your business or in your body you’re out of your mind!

In the first year or two that you’re in business you’re paying off a lot of one time start-up expenses and it takes an average of 9 to 18 months before a start-up business breaks even. (I bet nobody told you that when you were getting started.) So there’s going to be a delay before you actually start making enough income to pay yourself a living wage (income sources A and B) but when that time comes you will want to plan carefully to accumulate that surplus income (the value of your management - C) as net worth that collects over time and makes you rich.

But wait! Remember your silent partner - the IRS? If you collect that surplus income as cash received as personal income it becomes an ice cube that shrinks dramatically as it passes through the blast furnace of the Internal Revenue Service, so we need to think about ways to insulate it before it becomes taxable so we have the whole amount added to our net worth, not what’s left after taxes.

Remember - we have a voluntary income tax system that offers us wide latitude in organizing ourselves in relation to the tax laws. You are free to pay as much as you want - and you have the option of learning the tax laws as they apply to your industry and doing what they tell you to do the way they tell you to do it so you can make and keep money. You can

3.07

get rich following their rulebook.

The Income Statement (aka Profit and Loss Statement) The second of the two basic documents is the income statement - also called the profit and Loss statement - which answers the question “what are you doing?”

This is an amazing document because it accurately tells the reader what’s going on in a business and that information can be organized on a monthly, quarterly or annual basis to make it even more useful.

The big secret is that it’s written in a special kind of code that some people know how to read and many others don’t. Those who don’t know how to read the code find out the truth - but those who know how to read the code learn the truth and a whole lot more.

Your Company Income Statement December 31, 2013 __________________________________________________ Gross Sales Income - Cost of goods Sold = Gross Profit*

$425,000 $205,000 $220,000

Officer Salary Employee Salaries Vehicles Conventions and Tradeshows Advertising and Promotion Telephone/Fax Charges Postage and Shipping Insurance Legal and Accounting Employee Taxes Profit (pre-tax) - Taxes (Federal and State) Net (after tax) profit

$ 75,000 $ 27,500 $ 19,500 $ 18,000 $ 15,000 $ 12,000 $ 6,000 $ 6,000 $ 6,000 $ 22,000 $13,000 $ 5,000 $ 8,000

*

All operating expenses are paid from the gross profit.

When we talk about a business having two sets of books we rarely mean it literally (although the Chicago gangster Al Capone really did have two completely different sets of books - and went to prison for tax evasion not bootlegging, prostitution or bootlegging).

More commonly we refer to the idea that one can operate a business in ways that take advantage of elements of the internal revenue code which result in more expenses being deducted and the owner enjoying a nicer lifestyle by claiming various expenses as deductible items on the tax forms. ____________________________________________________ In section 5.00 we will discover that incorporating your business not only makes a lot of our current expenses tax deductible that aren't deductible now, but that the tax rate on that lower amount of taxable income is almost one third less. _____________________________________________________ For several years President Bush 43 attempted to erase what is commonly called the double tax on corporations but was unsuccessful. But it’s actually easy to avoid - not evade, avoid - the double tax.

I suspect an inexperienced person might look at this income statement and offer the following comment ’I see you grossed $425,000 but only made an $8,000 profit - that’s less than two percent. How do you explain that?

The sophisticated owner operator would reply ‘It wasn’t easy - but I did it.’

The first thing to understand is that the IRS code can require you try to make a profit … and in some cases may ask you to demonstrate that you’re really

trying. But the law cannot require that you make a profit. That’s why - and hang on to your hat because this one’s a killer - that’s why of all the corporations in America, more than half did not pay even one penny in taxes any of the last twenty years. Not one penny.

In the 1960’s corporate taxes represented about one third of the government’s gross national income. In the early 2000’s that has reduced to about 7 percent, and that 25% shift in tax payments has generally shifted to the middle class.

03.07 A Decoding the Income Statement’s code Let’s examine this Income Statement and see what secrets it may reveal to an experienced analyst.

Officer Salary The word is singular - one officer. S/he is claiming a $75,000 salary which is about one third of the available operating income (gross profit). Whatever this business is it seems to be about that one person doing whatever and expending money to support that effort.

Employee salaries Plural words suggest we have two or more people dividing $27,500 so they appear to be either two or more part timers and-or very low skilled - low wage workers. Maybe these so called workers are the owners child-children, working in the family business to earn enough money to pay their own way through college.

The children's income is taxed at a lower rate than the parents and the amount they are paid is a deductible business expense.

After all, the webmaster doesn’t have to be in the office to build and manage a company website and putting the kids to work teaches them the value of a dollar and reduces the tax bite on the business.

The kids can do work and earn $12,000 for college expenses with virtually zero personal tax liability, or the parent can work hard enough to earn $15,000, pay about $3,000 in federal and state income taxes and send the kid to school on the remaining $12,000.

Vehicles When the television commercials tell me I can lease a new Cadillac for $600 a month (12 X $600 = $7,200 annually) $19,500 for vehicle expense seems a bit high. I wonder if those kids at college employed by the business are driving company cars.

Conventions and Tradeshows Business meetings, conventions and tradeshows are usually held in great places like Hawaii, Las Vegas, Now Orleans or the Bahamas. Business trips are deductions. Vacations are taken wherever you can afford to go after you pay the taxes on your vacation budget. Take your choice - the tax deductible Bahamas or after tax Tulsa Oklahoma.

Telephone / Fax This isn’t an unreasonable amount for a business to pay for phone service but I do wonder if the kids away at college use the 800 business number when they call home asking for a few extra bucks, or use company provided cell phones.

Pre-tax Profit If you leave your accountant on his own authority he will do the books in the simplest way that doesn’t attract attention because he doesn’t want your audit

to expose his other clients to IRS scrutiny. I think you have to tell your accountant right up front that you want him/her to be aggressive in your behalf and to let you know about every opportunity there is to reduce your tax liability and build net worth.

I had the advantage of telling my account that if he didn’t please me I wouldn’t let him see his grandchildren (that’s a powerful argument to use on a grandparent) but if you didn’t marry into a family of CPA’s like I did I guess you will have to tell your accountant what you are looking for in the way of service and let him know if he doesn’t do it, his replacement will.

Return On Investment I think you want to be smart about monitoring the actual ROI your earning and when it begins to slip you need to find out why and make corrections or recognize the business climate is changing and it may be time to restructure the business financially.

The Surprise Finish I decided to keep the best for last. This business is about some guy who goes from state fair to home and garden show with his slicer dicer peeling potatoes and slicing cucumbers and making a bundle selling Chinese imports.

That $205,000 coast of goods sold … that’s his wife’s company. She’s the company that imports the slicer dicer and sells what she imports to his company to retail.

This family has two (incorporated) family businesses, one of which is the supplier to the second. Together the family is generating over $400,000 annual gross income and distributing various costs of living between two businesses and paying less in taxes

than a typical family grossing $50,000 a year.

3.08

Cash Flow - Credit and Collection My dad was a great businessman but was a messy desk guy. Some people teased him about it - but he always said it may be a mess but he could always reach into the pile and find what he was looking for.

Cash flow is the same thing. You need to have the cash you need when you need the cash because if you don’t have the cash you need when you need it, you really don’t have it.

There is a vital tension in every business that never ever goes away. You need to have the amount of cash you need to have when you need to have the cash to pay your bills. But cash is often taxable and any taxable cash you have needs to be converted into non-taxable cash as fast as possible - knowing it may need to be returned to cash in a hurry. (turning non-cash back into cash is called liquidity,) Your accountant should be a big help in teaching you how to collect your receivables promptly so you always have enough cash when you need it - and not a penny more.

03.08 A

Cash flow and accounts receivable aging Most businesses have accounts receivable. In order to do whatever the business does to create the receivable, the business had to spend some money.

So part of the receivable is replacing the money already spent to produce the receivable and the rest is (more or less) profit. In simple English - you’re in the hole until you get paid.

Some customers pay faster than others - call them good customers - and some pay slowly, very slowly, or not at all. You want to identify who is in each

category.

Here’s a crazy idea to think about. The best place for your slowest paying - never paying customers is to send them where they will do you some good. Send them to your toughest competitor. Make his life a living hell. - I’m not kidding.

There is a business truth that says the longer it takes to get your money, the less money you will get.

In other words, customers who pay cash or pay quickly will pay 100% of what they owe you but the longer you have to wait to collect, the smaller percentage of the total due you will receive.

Waiting to get paid melts the ice cube and the longer you wait the smaller ice cube you finally collect.

Think of it this way. When other businesses owe your business money you're actually an investor in their business who isn't getting any return on investment … unless you're charging them a fee of some kind until they make payment.

A simple presentation can reveal how much you have in accounts receivable as well as how long you’ve been waiting for payment.

Current 30+

120+

150+

180+

$12,852 $7,912 $5,080 $3,100 -- 0 --

60+

90+

-- 0 --

$875

I am concerned that we have a lot more receivables ($17,000) that are 30 days or older than we have current ($12,852) - are we providing financing to our customers without us actually knowing it?

Do you think there’s much chance you’re ever going to see that $875?

Because of ineffective cash flow management I suspect this business is having cash flow problems

and is having a hard time paying it’s own bills and there’s a good chance they are paying interest, service fees and bank nsf charges while trying to get things straightened out.

For nine years Cheri and I owned a publishing company. Our advertisers were all very large property management companies who were advertising large apartment complexes and commercial properties with us.

It didn’t take long for us to figure out that almost everyone paid our invoice in about 40 days. The internal processing system in every company seemed to be about the same. I rarely saw a payment faster than 35 days. Normally we received payment in 4045 days - and if we hadn’t been paid by the 50 th day, it was almost always going to be a problem.

So when I looked at the receivables aging chart and saw there was about $8,000 in receivables about 30 days old I had a rough estimate about where I will get the money to cover this weeks payroll and I know that $5000 over 60 days is going to be a problem for me.

Several years ago I was having coffee and pastry in a little bakery in Santa Ana CA that I like and was reading a story in the Orange County Register newspaper. A prominent businessman was about to retire at 65. He had been among the first (so called) Mexican bakeries to become really successful.

He supplied super-markets and restaurants and sold his product retail to the public.

The interviewer asked what surprised him most after all his years in business and his comment was to this point. He replied, “I never dreamed that after 35 years in business I would still be fighting the cash

flow fight every week to make sure I could meet my Friday payroll.�

03.08 B

Credit Many businesses have to extend credit to their customers if they want to make the sale. Who can afford to buy a house? Who can afford to buy an automobile?

Who can afford to buy a round at Starbucks? If you cannot provide financing to your customer - you cannot sell it.

In the olden times that meant a merchant had to have a lot of money and-or credit to be able to get the financing he needed to make or buy and sell product to the customers.

No more. Today there are companies whose business it is to finance your customers for you - so they can afford to buy what you sell without you having to fund the financing. These businesses are called third party financiers and credit card companies are the best example. It’s not hard to be approved to accept credit card payments (called 'merchant status') and have their money deposited into your bank account in 12-48 hours, for a small fee.

There are two important reasons why I suggest you use merchant status service to finance customer purchases First, the laws relating to credit granting and financing are fierce and I don’t want you to be exposed to the potential problems involved in establishing and operating your own credit department at the beginning of your business life.

Second, you will have enough demands on your money when starting a business. Once you’re over the hump and start to make some money, you can learn how to establish and operate a credit department - which can be a major profit center in itself. But don’t do it in the beginning if you don’t have to.

When you compare the fees for merchant status you will recognize there are three different elements in the equation and some providers will feature low price one while others feature low price on another.

You want to estimate your total monthly cost in a way that let’s you make apples to apples comparisons. To compare providers define a simple example and compute each vendors total monthly charge based on your example.

Accepting credit cards should increase your sales volume by virtue of making it easier for people to pay … especially if buying on impulse … to buy online, on the phone and through the mail. You also erase the accounts receivable, slow pay - no pay customers, labor costs processing invoices and statements and having to go to the bank to make deposits.

3.08 C

Collection If you took my advice and signed up for merchant status to accept credit cards then you don’t have any collection issues to contend with because all of your sales are cash sales.

There is a technique many people are not aware of that permits you to use a customer’s credit card to provide additional financing for their purchase.

Perhaps you have seen television infomercials selling a $90 product for three monthly payments of $30.

When someone orders the product the merchant processes the credit card for the total $90 amount removing that total from the customers available credit and guaranteeing your payment. Thirty dollars of the reserved $90 is processed immediately, $30 more in 30 days and the last $30 in 60 days.

If you decide you must provide credit financing to your customers for larger purchasers, try to negotiate an arrangement with banks or commercial finance companies and-or lease companies. Don’t invest your own money in providing customer financing until you are at the point financially where you can set up your own credit function and operate it as a profitable business. The people who own many retail stores also own the credit financing companies the store uses, creating another income on virtually every sale.

3.09

Pricing for profit This is one of the most important decisions every business owner has to make and it is one of the touch points where almost everyone makes serious mistakes.

The concept of pricing is very simple. A business pricing formula needs to meet two simple objectives First - prices must be profitable; and Second - prices must be competitive.

Profitability is basically a math problem. Being competitive is a function of simple market research of your competitions pricing. Each of the two elements is easy. The problem is you have to be both profitable and competitive at the same time and that is very difficult.

It becomes even harder than you expect because it seems that as soon as you finally work out a formula that works - something in the marketplace changes and your formula must be recomputed to meet the new reality.

To demonstrate the process of computing a simple pricing formula I have created a make believe business and given it a few characteristics you can use to compute a fee for services.

You have decided to start your own business as a dog groomer and captured some basic numbers to use as your starting point A - Based on your fixed expenses you must earn at least $35,000 a year to meet your obligations; B - You have located space you can rent in a local pet care center for $1,500 a month including

utilities; C - You have already invested about $5,000 in supplies for the business; D - Someone told you that you should allow 15% for profit; E - You’re budgeting 25% for miscellaneous operating costs; F - This is a full time effort and you plan to work 40 hours a week 50 weeks a year (with a two week vacation).

ASSIGNMENT: How much must you charge per hour for this business to meet it’s financial targets?

COMPUTE YOUR ANSWER HERE -

- NO PEEKING – COMPUTATION $35,000 $18,000 $ 1,500 $54,500

annual Income requirement annual rent expense $5000 investment X 30% ROI total annual income required

25% - miscellaneous expenses 15% - projected profit 40% - total Step 1 -We have computed our total known financial requirements total $54,500/year; and 40% of the total income is allocated for profit and miscellaneous expenses.

Step 2 - Since our income requirement is by definition 100% and we know 40% is dedicated to two items (miscellaneous expense and profit), then the remaining 60% must total $54,500.

Step 3 - By dividing $54,500 by 60 we find the value of one percent - which multiplied times 100 totals 100% of the income that must be generated. $54,500 / 60 = $908.33 X 100 = 90,833 = 100% The business must gross $90,833 per year (divided by) 2,000 working hours per year (50 X 40) = $45.41/hour. $45.41/hour is NOT the hourly rate that has to be charged.

Step 4 - This is why business owners get into trouble. They think $45.41 is the hourly rate they

must charge. It’s not. You have computed the average amount spent every hour.

As a practical matter there are many tasks that must be done which cannot be charged to a specific customer. Who do you charge to make a bank deposit or answer the telephone?

If you are able to charge one hour out of five to a customer then that one hour charge must bring in enough income to cover 5 hours of expenses at $45.41/hour --- $225/hour (rounded off).

If you are able to charge one hour in three to a customer than that one hour must bring in enough income to cover 3 hours of expenses at $45.41--$135/hour (rounded off).

Step 5 - A standard poodle takes 4-5 hours to groom. At $225/hour that’s about $1,000 for one grooming. Do you think you can sell that? How about a $600 charge (based on being able to bill customers for about 1/3rd of your time).

If the market cannot or will not pay the prices you have to charge, either you find some way to reduce your prices or you find a way to educate customers you are worth top dollar. or you go broke.

3.10

Capitalizing the business Most business owner operators know two ways to finance a business - loans and investment. There is a third source that offers marvelous advantages to those who understand it.

3.10 A

Investment The investor invests cash, credit and other items of value into a business in order to earn a return on investment through an ownership interest in the business. That income comes over time through the distribution of profit and appreciation in the value of their share of the business.

When you’re investing in a business in order to get work, people refer to it as buying a job. Investors aren’t buying a paycheck they mare buying a piece of an income stream produced by annual profits and appreciation in business value.

Some people refer to the ‘silent partner’ - an investor who holds ownership but is not involved in the management operation of the business. These investors are open to someone else doing the work and getting paid - even another investor. But the truth is, silent investors only stay silent when they get their money. When there’s no money, they stop being silent. They get loud in a hurry.

3.10 B Loans Lenders are motivated by the expectation that they will be paid back at interest over a fixed period of time. The decision to make the loan - as well as the price and terms - is a function of the credit worthiness of the applicant borrower.

Since almost every business is either a sole proprietorship or general partnership, lending decisions are based on the personal credit worthiness of the applicant as well as the protection they can offer the lender to reduce it’s risk.

A-

Applicants’ good FICO credit score - currently 675+; B - Net worth available in assets pledged to collateralize the loan; C - Independent income stream to retire loan if business isn’t able to; D - Insurance to protect lender against loss in the event of default In some situations lenders may become involved in operating the business to protect their interest.

3.10 C

Asset Based Financing Investors get permanent ownership. Lenders must be repaid - at interest. Wouldn’t it be exciting if there was a way to finance a business that did not cost owner-ship, for which you didn’t have to qualify and which did not have to be repaid? There is.

Asset based financing is based on the value of the asset itself which secures the obligation. there are at least five variations of asset based financing Pawn Renting Leasing Warehousing Floorplanning Pawn When someone has assets and needs cash, a pawn

broker will hold the asset as security for a short term cash loan at legally regulated interest rates. At the end of the term the borrower has three options repay the loan and interest and reclaim the asset; or pay the interest and renew the loan’ or do nothing in which case the pawn broker takes title to the asset.

Renting A short term arrangement to pay the title holder for the use of the property, vehicles, equipment, supplies or whatever. At the end of the term the possession reverts to the owner.

Leasing An arrangement where a lease company takes title to personal property (vehicles or equipment) which is leased for a fixed term, at the end of which the lessee is often able to purchase the item for residual or scrap value.

Warehousing When products can be identified or tracked by a serial (or similar) number, institutional investors may own inventory offered for sale by a retailer.

When an item is sold the seller pays the investor interest for the time their money was invested in the item. Usually the retailer tells the investor what to buy to replace the item just sold to maintain the inventory.

This financing is used for automobiles, printing presses, cameras and lenses, boats, motors and large machines.

Floorplanning Inventory that is not identifiable (such as office supplies, make up, hand tools and pet supplies) may

similarly be owned by an investor who charges interest for the use of their money.

For example, a drug store opens with $250,000 in merchandise to which $400,000 has been added.

Inventory shows there is $309,850 in inventory in the store. $250,000 + $400,000 - $309,850 = $340,150 = value upon which interest is charged.

3.11

Quick cash when you need it In my experience every business will need to raise quick cash sooner or later. If they have a problem, they will need quick cash to solve it. If they have an opportunity they’ll need to quick cash to harvest it.

Either way - quick cash is precious.

That means that as a business owner operator you must be instantly prepared to do whatever is required to bring in quick cash. In a word, you have to qualify for the cash. Being able to do that suggests that your Financials are current - annual/quarterly Taxes are current - no extensions Accounts payable are current Records are up to date and in good order personnel records real estate / equipment leases equipment maintenance records If the business is organized as a sole proprietorship or general partnership, that list of qualifies applies to everyone - including spouses. So do each owners’ personal financial responsibilities - such as Personal taxes Financial obligations [mortgages/vehicle financing/credit cards] Child support and alimony Personal loans and notes payable Many people are unaware of the many resources computer technology has created that makes it easy / easier for someone to find out all about you. If you want a quick education in finding your secrets Google yourself or visit the ‘social network‘ sites like You Tube. WwwIntelius.com is a popular tracking

database that will give anyone who wants to know more about you than you may want them to know, instant access to Public records -DMV - ownership / insurance / tickets / accidents / real estate - ownership /taxes / voter registration - address / political party / activity / utilities (water / telephone / power / home address / military service - conduct & discharge / city clerk - birth / death / marital status / criminal / gun ownership / name change / Credit report - employment history / police file / banking / credit /retail stores / vehicles / insurance / pension /investment / business - sole prop/partnership

4 Legal Structures and Business Systems

4.

Legal Structures and Business Systems Table of contents 4.01 Introduction 4.02 Selecting the right legal structure 4.02 A Sole proprietorship 4.02 B Partnership - General 4.02 C Partnership - Limited 4.02 D LLC / Limited Liability Company 4.02 E Corporation 4.02 E 1) Close corporation 4.02 E 2) Subsection S corporation 4.02 E 3) Non-profit 501.C3 corporation 4.02 F 1) How to decide which form to choose 4.02 F 2) How to incorporate FREE 4.02 F 3) Pocket tax free cash selling your business to your corporation 4.03 Flow of communications 4.04 Organizational chart 4.05 Personal organization 4.05 A Time management 4.05 B Telephone tracking 4.06 Contact management systems / CMS

4.01 Introduction In many different senses of the word ‘organization’ is a critical factor in the success of any business because it implies efficiency, economy, clonability, predictability and performance standards..

In business nothing should be done at random. There is a right way to do everything (and a lot of wrong ways too) - and that right way is whatever has been decided as the approved method. Where there is no approved method, the individual is free to make something up - and that rarely satisfies the stated objective(s) of the business.

Mervyns’ Department stores get kudos for customer service because their stated policy is ‘the customer is always right’ and anytime an employee isn’t sure what to do, the right choice is always whatever satisfies the customer. And the store management will always support whatever decision the employee makes.

Systems are an extension of organization - the behaviors that carry out / execute organization ... that make organization happen. Implicit in the process is the notion that everyone does the same thing the same way for the same reason - there is predictability as each person is held accountable for that consistency.

The process of organization and system making begins when the business shifts from concept to implementation and the first decision in organization begins with the legal structure.

4.02 Selecting the right legal structure The first decision that has to be made once the entrepreneur decides to start a business is the selection of which legal structure they will use. It is the first decision because every other decision flows from it.

Starting a business is regulated by state law - which means we have 50 similar but slightly different ways of doing it. Every state is overwhelmingly similar and this general discussion offers an accurate approach.

Every state offers the same four legal structures and uses virtually the same terminology sole proprietorship, partnership (two variations), LLC and corporation (three basic variations).

4.02 A Sole proprietorship Eighty-five percent of all American businesses are sole proprietorships because everyone says they’re fast, cheap and easy to create and you can always change later on. That’s absolutely true. But there’s more to it than meets the eye.

The word ‘sole’ means one - one owner, so a sole proprietorship is always owned by a single man, a single woman, or a husband and wife (married to each other).

Even though a husband and wife are two people physically, they are considered one person in the eyes of the law - which is why one cannot be made to testify against the other under the 5th amendment of the constitution.

A sole proprietorship can never have another investor because investors get ownership and there’s only one owner in a sole proprietorship - which limits most business owner operators to loaned money.

There is no legal difference between the personal and business assets or liabilities of the owner which suggests that all of the owners’ (personal and business) assets are at risk for any (personal or business) debt or obligation.

That liability may include the paycheck saving accounts and other assets of either or both spouses.

Personal credit worthiness is the criteria for any loan or other financing required by the business and the sale of the business usually involves the exposure of the selling owners’ personal tax records and all related documents.

4.02 B Partnership - General The general partnership (GP) is the next step in the sequence because it brings two or more people together in common ownership. In most states an oral agreement is binding although a written agreement is always safer.

(In some states a written partnership agreement may be recorded at the County Clerk’s office to create a public record of the relationship.)

The law assumes the partners are equal in their ownership unless they create a written document indicating they are unequal. Whether equal or unequal, partnership refers to the ownership of the assets and claim on it’s profits.

It is legal to agree that a partner may hold (for example) a 25% interest in the ownership but a 35% interest in the distribution of profits - and that agreement should be noted in a written agreement.

The income and other assets of any partners’ spouse are also encumbered by the partnership rules in most states because the husband and wife together are the partner.

A wife’s paycheck may be at risk if her husband has a home based business that cannot pay it’s bills.

And any partner is liable for all of the obligations of the partnership not just the portion corresponding to their interest in the partnership. That means someone who has a 5% interest in a partnership is liable for 100% of the obligations of the partnership.

In some states the individual interests of a partner may be sold or transferred (by gift, inheritance etc.) but in others the partnership must dissolve and be recreated which may result in the requirement to pay all debts and fulfill all pending legal obligations.

Partnership law is well developed and understood all over the world and getting answers to any questions you might have are readily available - often for free from a variety of sources including Local SBA or SBDC office; Chamber of Commerce www.nolo.com / Nolo Press publishes excellent do it yourself legal guides. Visit their web site and examine their book on forming a partnership and review their Q&A section. www.LegalZoom.com - a document preparation services operated by attorneys but not a law firm.

4.02 C Partnership - Limited At some point in history (1200 AD) potential investors began to express anxiety about taking on unlimited personal liability when they invested in a partnership and wondered if a vehicle could be created that limited their risk to their investment. Hence the limited partnership (LP).

Those investors whose only involvement in the business is by their investment are called limited partners and are only at risk for their investment.

Someone however must be involved in daily operations and that person is called the general partner - and s/he has unlimited personal liability.

(Details vary state to state so ask for legal advice or visit www.nolo.com / Nolo Press and find their book on forming a limited partnership in your state.)

While general partnerships are fairly simple to create, the limited partnership requires an attorneys service and is relatively more costly to create.

Whether general or limited, partnerships do not file IRS taxes - they file an information report indicating which partners have received how much distribution - which is taxed as personal income at the personal tax rate.

4.02 D LLC / Limited Liability Company The LP / limited partnership was an effective vehicle for hundreds of years. Many people invested their retirement savings in apartment complexes, office parks and strip malls hoping to ‘live high’ in retirement when in the late 1980’s and early 1990’s unusual events in the real estate market made limited partnerships that never should have had a problem go bankrupt and thousands of small investors were ravaged.

The limited partnership was disgraced and nobody wanted to have anything to do with limited partnerships - a term that became a dirty word in the investment community. Yet, there was still a need to raise money to fund real estate and business deals and money raisers went looking for something that would do the job.

In 1993 they found it - of all places - in Wyoming. An investment vehicle that did what a limited partnership did the way a limited partnership did it without using the dirty words ‘limited partnership’. The LLC / Limited Liability Company was born and every state adopted a similar money raising vehicle with a similar name.

What the limited partnership called a limited partner was now called a member; what was called the general partner was now called the managing member.

Everything else was virtually the same.

Once again income distributions were considered personal income and taxed at the personal tax rate.

4.02 E Corporation The corporation is generally considered the most expensive and complicated of the four available legal forms and shunned by most start up businesses. In my opinion this is a terrible decision and it’s fueled by people who know better.

Almost everyone - including accountants, bankers and lawyers suggest that forming a sole proprietorship is fast, cheap and easy and - if things go well - you can always form an LLC or incorporate later on. That is absolutely true and they can never get into trouble for telling you that.

The process itself isn’t terribly difficult but there are a lot of small steps involved A File Articles of Incorporation and pay a filing fee with the state regulatory agency (usually Department of Corporations or Secretary of State); B When you receive the approved Articles you send a notice for an organizational meeting to the founders; C Minutes of the organizational meeting; D Establish date for annual meeting F Elect corporate officers G Establish value of stock H Offer stock for sale I Sell and issue stock; J Create roster of stockholders K Authorize corporate bank account(s) L Order corporate seal M File director’s form and fee N Elect registered agent O Secure an EIN number from IRS P Register with state labor Department (if employees) Q Buy business license (if required)

You absolutely can do this yourself using the Nolo Press do your own incorporation book for your state or do it online.

3.02 E 1) "C" - Close corporation When you incorporate the default position is commonly called a C corporation - “C” stands for ‘close‘ meaning a small group of stockholders. The number varies from state to state but it’s generally 25 to 50 stockholders.

This status has to do with taxes. A ‘C’ corporation pays taxes on the profits at the corporate rate. When and if any profit is distributed to stockholders it is subject to a second tax - this time as personal income taxed at the personal rate.

This is the so called double tax problem corporations face. I tell everybody that if you’re smart enough to tie shoelaces you can avoid (not evade) the double tax and it is not a problem for a small business.

4.02 E 2) Subsection S corporation Your friends and mine at the Internal Revenue Service (remember, they‘re every business’ silent partner) came up with a special tax deal they offer to everybody. All you have to do is have your accountant file a form telling them you want to take the deal.

The IRS will forgive the tax liability on corporate profit (20%) in exchange for your agreement to pay the (28%) personal tax on whatever the taxable profit is.

Here’s why I think that’s a sucker bet for anyone to accept and here’s what you can do instead.

Assume the corporate owners (stockholders) also work

for the corporation (which is common in a close corporation); it would be foolish to pay the corporate tax on profit and then pay personal tax when you give yourself a bonus . You could - should simply pay yourself more personal income and avoid the corporate tax.

If you don’t need the income to live on, it makes sense to pay the lower corporate tax and let that cash remain in the corporate account instead of transferring it needlessly to your personal account and subject it to a second and needless tax.

What I would do - or talk to my accountant about doing - is this: I would accept the IRS deal in the start up years when the corporation is losing money because there is no corporate tax liability on losses and by passing the corporate loss to each stockholder it shields some of their otherwise taxable personal income from taxes - which reduces their total personal tax bill.

Then, when the business starts producing a profit (typically after 9-18 months) I would elect to go back to paying the lower corporate tax and leaving my money in my corporate account.

The process of accepting this pre-negotiated IRS deal is called an ‘election’ and your accountant will complete and file the required form for you and, at the appropriate time, will process your election to return to C Corporate status, (There are limits on when and how often you can switch back and forth.)

3.02 E 3) Non-profit 501.C3 corporation Another option available after your corporation has been approved is to elect to be taxed as a non-profit corporation, the most familiar of those forms being the

501.C3 charity organization. This is not a suitable structure for a business because it cannot build not worth for the owner; it does not make a profit (it makes a surplus instead); and about all the founder really gets is a job and pay check with some benefits … until the directors perform an execution and bring in a new director.

4.02 F 1) How to decide which form to select Instead of ‘fast, cheap and easy‘, I think the selection of the legal structure should be based on four other criteria that are - in my opinion - more important personal liability tax consequences quick funding when needed ease of transfer Personal Liability In a sole proprietorship, general partnership, limited partnership and the LLC (in most states) someone accepts unlimited personal liability. I don‘t see any investor accepting that burden and letting you off the hook - so I suspect you will be the one to bear all that risk and I think it would be smart to avoid it.

Tax Consequences The sole proprietor pays taxes on business profit at the personal income rate - currently 28%. So do partners in a general or limited partnership. So do the members of a LLC. Corporate profit is taxed at the lower corporate tax rate which is currently 20%.

When I ask my classes if they know what the difference is between the 28% personal tax rate and the 20% corporate tax rate they opine it is 8%. I explain that the rate is 8% and that is almost 1/3rd less - 1/3rd - one

simple decision reduced the tax rate by almost 1/3 rd ‌ in the corporate form more things are more easily deducted so the result is you are paying almost 1/3 rd less tax on a smaller taxable amount because you can deduct more expenses more easily.

Quick Funding When Needed In my experience, sooner or later every business needs quick cash to solve a problem or harvest an opportunity.

New money can be brought into a corporation quickly and easily by issuing more stock.

A sole proprietorship cannot have another investor; an investor serves to dilute an existing general partnership and may demand expensive restructuring of an existing limited partnership or LLC. In addition the personal financial records of a sole proprietor or all of the general partners is often a precondition to getting new money - often an untenable option.

Ease of Transfer Consider this scenario - I own more stock in my corporation that all the other stockholders combined and can run the business as I wish. When I die (and I will) there’s a written agreement that the corporation will buy and retire all of my stock for one dollar, at which time my widow will own more stock than all the other stockholders combined.

Because she can follow the instructions in my business documents - or hire someone who can - she will enjoy continuing income. When she dies (and she will) the corporation will buy and retire all of her stock, at which time my son will own more stock than all the other stock-holders combined.

And this his sister - and on - and on - and on.

Let me repeat a point I made in Section 272. I don’t know how many corporations there are in America but more than half have not paid one penny in federal income tax in any of the last five years… last ten years … last twenty years.

Remember - read the tax law and learn how it applies to your business. it is an instruction manual and they are telling you how they will let you make and keep money.

4.02 F 2) How to incorporate FREE Incorporating offers additional advantages which may be a benefit to your business. Discuss this idea with your accountant.

Instead of treating your incorporation costs as an investment in the corporation (the lazy accountants default position) treat it as a personal loan to the corporation - to - be - formed, which loan will be repaid (at interest) when affordable. The benefit in this approach is that you wind up owning a profitable corporation in which you have zero investment.

Consider this - you invest $10,000 in your business and get a $2,500 profit distribution after 12 months. The $2,500 is subject to federal and state personal income tax and you pocket about $2,000.

Or your $10,000 loan to start the corporation is repaid (no tax liability there) and you get a smaller $1,000 distribution. The $1,000 is taxable but your new situation is that you have your $10,000 back in your pocket, you are earning income on a business in which you have zero invested and the return on your $1000 is not ten percent - remember there is zero investment the rate of return is infinite.

If a time comes to sell the business could you entice a buyer to buy a business in which s/he had zero invested while still earning A + B + C + D income?

3.02 F 3) Pocket tax free cash selling your business to your corporation And if you already have a business things get even more interesting. Discuss this option with your accountant.

Assume you are already in business as a sole proprietor or partnership and have $78,000 equity in tools, equity, inventory supplies, vehicles etc. and you decide to reform your business as a corporation.

After the corporation is formed, sell the $78,000 in business assets to the corporation for $78,000, arranging for payment over time, at interest. The income from the interest is taxable but the $78,000 is not taxable because you are simply changing non-cash into cash ‌ exchanging the $78,000 from assets into cash.

We all know most people prefer cash - cash is king. But the values are the same and no tax liability is created and the corporation still deducts or amortizes the $78,000

4.03 Flow of communications There are other organizational aspects which are every bit as important in the day to day operation of the business as the legal structure. How departments, work groups and individuals connect is one of these.

My father owned his own business and had about a six full and part time employees. Over his desk he had carefully hand printed a sign on a large index card which said “I’m the boss - and you’re not!” that sign told the story.

He talked directly to everyone and everyone talked to him - nothing and nobody got in the middle. The corporate downsizing of the 1980-90’s erased bloated layers of unnecessary people whose major contribution to the business was to confuse, misunderstand and misdirect those above and below them in the chain of communication.

A popular management book of the day was called The Peter Principle suggested individuals were promoted based on their ability and their performance until they reached their level of incompetence, where they remained until retirement.

You need to think through the patterns of communications and design as many direct pathways as possible. You‘ll see how this is accomplished in Section 274.

4.04 Organizational charts Earlier I suggested business happens in two languages words and numbers. Now I want to add a third communication pattern to the mix - pictures. Because a picture can often illustrate relationships more quickly and simply than words or numbers businesses often develop flow charts or pert charts to illustrate how various functions or tasks are completed and organizational charts to illustrate how the whole business or division functions. We’ve all seen those wedding cakes.

The first really large organization to be created in the western world was the Catholic church, whose structure because the first organizational chart pictured.

Their system worked so effectively that political units began to copy the model eventually naming kings, queens princes, dukes and earls, nobles and peons to the various layers in the chart.

Those two systems were so effective the military copies them too producing generals and colonels, majors and captains and sergeants and privates.

And when the industrial revolution began to restructure cottage industries into larger work groups we began to see a parallel model develop - the familiar organizational chart.

Whether the man at the top (and they were almost always men) was called Pope, King, General, Admiral or Boss - the people understood the top dog was the top dog because God willed it. Classic Calvinism, dominant when the new world was being colonized, taught that those who were blessed by God were superior and everyone else wasn’t ‌ and there was no changing that reality.

Between 1500 and 1770 there was a lot of new thinking coming into the marketplace of ideas … much of it supported by the realities of life in the new world … those not selected by God and born into the elite were able to become rich and powerful because of hard work, intelligence or some other skill.

Crazy ideas entered the public discussion and some became accepted as new truths, revolutionary in their content - “We hold these truths to be self-evidence - that all men are created equal and they are endowed by their creator with certain unalienable rights. That among these are life, liberty and the pursuit of happiness.”

This revolutionary brilliant concept was written by a slave owner!

Now we jump forward 150 years to the late 1950’s and Americans were still trying to figure out what these ideas mean as applied to every day life; On the streets of America it says blacks have the right to decent jobs, education, the vote, to respect …the right to live wherever they can afford housing.

In offices it says women who do the same work as a man should get the same pay and the notion that a woman is inherently unqualified for most jobs is morally wrong.

In factories it says workers have the right to join together in unions and to bargain collectively for pay, and working conditions.

Abraham Maslow is a uniquely important thinker during this time of re-defining American culture and mores. He was one of the early social psychologists, prominent in the development of a new social science.

Psychology is the study of human behavior … the mind and how it works to impact action. sociology is the study of groups - how groups behave whether they’re teams, work groups, voting blocks, religious communities or whatever.

Social psychology became the blending of these two disciplines - studying how being a member in a group impacted an individuals’ behavior. Why, for example, does a group of twelve men elect one of their number the jury foreman and a different one their team captain, and a third as most likely to succeed?

Maslow was one of the first major thinkers studying this emerging discipline when he was approached by a group of business people who wanted to hire him to do some special research that they thought could be hugely important. Their assignment was this Look at every society - at any moment in time - at any place on this planet - and determine if there is an absolutely 100% predictable pattern of behavior always present everywhere.

If there was such a pattern it would have a huge impact on knowing how to manage, hire, fire, train, evaluate, how to sell, how to parent, how to be an effective husband, wife, father or mother. The knowledge would have major benefits in gauging and directing human behavior.

There was - there is - such a pattern and Abraham Maslow found it and talked about it until he died early in the 21st Century.

We have already suggested there are two languages used to discuss business … words and numbers. Now we add this third language - a picture or a graphic.

The graphic people outside of the business see is often a logo - a visual symbol representing the business > the yellow deer in a green frame - the John Deere Company > golden arches over a McDonalds restaurant > the stylized signature FORD > the blue letters IBM in block typeface > the stylized initials GE representing electronics of all kinds People inside the business may be as familiar with a different picture - a series of tiered boxes resembling a wedding cake showing the various levels of the companies structure This common format is an updated version of an organizational chart that is 2000 years old - the Catholic Church, whose design was so effective it was copied by the politicians (Kings, Princes, Dukes, Earls and Peons), by the military (Generals, Majors, Captains, and Privates) and copied eventually by businesses (President, Vice President, division heads, supervisors / foremen and workers).

Sometime between 1950 and 1975 it became clear that this picture was less accurate in representing how business should be and was organized. > too many layers wasted money and diluted effectiveness > workers no longer accepted the premise of hierarchal authority ‌ nor did wives, children, members and anyone else lower in the chain of power and authority (Father Knows Best was a popular TV show until people began to acknowledge that father often did not know best ‌ he was just bigger, stronger, louder and was holding on to the checkbook). > the nature of human behavior began to change world

wide.

Abraham Maslow is the man who many consider the primary recognizer of this fundamental change in societies world wide. He was one of the first important social-psychologists … those who study the affect of being in a group on it’s members … and he was hired by a business group to conduct some vital research whose result might be of major importance in management, marketing, and virtually every other aspect of human behavior.

Look at every society everywhere on the planet now and at any time in history anywhere on earth and find out if there is a common, consistent, predictable pattern of behavior that works every time to help us know how people are going to act and what motivates their behavior.

Maslow was given a lot of time and money to conduct his research - and he found the answer … there was (is) a predictable consistent pattern of behavior. He called it the hierarchy of needs and illustrated it as a pyramid with five levels - survival at the bottom and selfactualization at the top. Everyone began at the same starting point on the bottom (birth) and worked toward the top as conditions permitted.

Relatively few in history reached the top but in more recent times more and more are reaching the top because the blocking conditions stopping people from reaching the top are being erased and reaching the top of the pyramid is recognized as a legitimate aspiration and goal.

When critics refer to California as the land of fruits and berries it’s not only a political-sexual reference - it’s is a ‘knock’ on our focus on self-actualizing as a worthwhile life purpose and political willingness to facilitate it for

others - we teach it in our schools and include it in our religious teachings.

In management discussions this concept began to formalize itself into the identification of two more or less opposite management philosophies which produced more or less opposite behavior patterns Theory X

Theory Y

The quick representation of classic Theory X management is the character Ebenezer Scrooge in Charles Dickens’ The Christmas Story.

Theory Y is represented by ‘take your dog to work Thursdays’ at Google, Ben & Jerry‘s Ice Cream and The Walt Disney Company.

We have come to understand that children tend to perform the way their parents and their teaches expect them to perform and similarly recognize that employees behave in response to their employers expectations We tend to find whatever we’re looking for and we tend to get whatever we expect!

The way we organize work and the people who do the work has a direct and measurable impact on the results we achieve . . . and many of those results have a direct and specific impact on our profitability.

3.05 Personal organization and 'flakiness' I continually hear people talking about motivation being motivated and motivating others. I understand the power of a powerful speaker or an excellent book or recording you can repeat over and over to reprogram your thinking and attitude and believe in all of it.

The bottom line for me however is that I am motivated by my own desire for the result - and you can run all the contests and offer all the grand prizes in the world, until I decide I want the result you won’t motivate me to do much of anything. Once I decide how much I want the result nothing you can say will stop me from doing what I want to do to get what I want to get.

All of which is to suggest this - personal organization is the behavior pattern we establish to achieve our objectives. The clearer your objectives are, and the more you want them, the more powerful your personal organization will be.

The less defined your objectives are the less able you will be to organize your behavior to accomplish the results.

So if you are a disorganized person try to figure out the benefits and rewards disorganization is bringing you. If those rewards are what you want then you can recognize you’re not disorganized at all.

So here’s the way to decide when someone is flexible and when someone is a flake (and not suitable for retention in your business).

They can be considered flexible when their apparent disorganization does not reduce their performance and does not create problems or anxiety for others (coworkers, customers, family etc.) When the behavior reduces their effectiveness and-or creates anxiety for others who depend on them in some way, they’re flakes.

Flexibility is good and helpful. Flakes behave in a cancerous way, eating up positive energy in your people and business - they cause ulcers.

3.05 A Time management - planning systems When I started in business in august of 1962 I bought a calendar book from a company called Daytimers www.Daytimers.com - and began to plan my day and record my activities. I have a day sheet for every day of my life from mid-1961 until the end of 2008 (because I already have next years calendar pages in my notebook because I do schedule a year in advance.

The world has moved on and many people who used to track on paper now use computer software or PDA’s or whatever technology comes next. The question is not what you use because different people have different work habits - rather it is the instruction to use something - anything - that works.

I have reproduced my Daytimer page on my computer screen and have a running file called TODAY which I open every day - reminding me the tasks that need to be done that day and the status of various projects in process. Everything is presented in 9 point, red print until I complete the task when I switch it to black.

At the end of the day I delete everything in red (tasks undone) print the completed (black) jobs onto the 5X8 Daytimer sheet for the day - and then I restore the page to pick up my projects tomorrow.

That works for me because it amends a lifetime habit and makes it available on the computer. You will probably do something different - but you need to do something.

There is no magic in the design of a sheet of paper, software or PDA - the magic comes from the discipline of your effort. So don’t buy any thing because their advertising says it will do the job. Buy whatever you need and will use to actually do the job.

There are several well known brands available at the big office supply stores and it’s worth doing a little research to find a format that covers your various needs. www.AtAGlance.com www.Daytimer.com www.DayRunner.com www.FileOFax.com Many computers and ISP’s offer some kind of calendar program as part of their basic package.

In general the kinds of items you will want to build into your tracking system are these > > > > > > > > >

appointments / meetings / events due dates - deadlines birthdays / anniversaries etc. tasks to do? phone calls to make work / phone calls / reports due to you work blocks work in progress payables and receivables

Your whole life management system should be in one tool (one desk calendar, one calendar book, one PDA, one computer file) because multiple units invites mistakes and always causes problems instead of preventing them.

Personally, I am big on scheduling family events and some play time into my schedule first and my discipline is to post those entries in ink - because you cannot erase ink … and then I use pencil to fill all my work tasks around those items already posted in ink.

Remember -

A business is a vehicle to get out of life what you want to get out of life so you begin by defining what kind of person you want to be and what kind of life you want to live - and then find a business that will let you become that and do that.

3.05 B Telephone tracking Many years ago I had the high honor and pleasure of working on the staff of President of the United States in Washington D.C. where I became acquainted with one of the major political operatives in the country - who conducted most of his business on the telephone.

As a matter of fact, he worked in a medium sized office with a small desk in the center of the room upon which was placed a telephone and desk lamp. In the center drawer were several legal pads and sharpened pencils.

That‘s it. No chairs for people to sit - no files or decorations.

He used a tracking system he had developed to record each phone call he made or received. Each call was summarized on just one line and he regularly filled 3 or 4 legal sheets on both sides.

I learned and copied his system which I have adapted to my computer in more modern times. It’s easy and simple and accurate and permits me to have a record and a memory prompt without making a lot of notes.

The system places the date at the top of each page and records the time of the call and indicates whether I made it or received b using a simple arrowhead. Assume I am at the left hand edge of the sheet and I phoned someone named Clark and there was no answer. Then Fred called me about a fundraiser following which I called Janice and reserved four tickets. Paul called to schedule a committee meeting and then I called Pete Hansen and left word on his voice mail. Finally I called Chuck Harris and left a message with his secretary Marge..

10:32

<

Clark

no a

10:35

>

Fred Tues fundraising dinner

10:39 < dinner 10:44 > Bordons 10:51 <

Janice

10:57

Chuck Harris lw secy Marge

<

Pledged 4 $500 tickets for

Paul Schedule committee meeting @ P Hansen lw vm

Simple codes notes the basic functions of these conversations cb @ 2:15 lw vm no a n/a not n/a w/c aft

call back at 2;15 left word on voice mail no answer available (someone is) not available but will call later this afternoon . Period indicates the task is completed (like a period at the end of a sentence.)

I donâ&#x20AC;&#x2122;t believe in keeping records I donâ&#x20AC;&#x2122;t need to use but I do know I have to be more careful with some people (customers - clients) than others and for those people I was a system that is as close to fail safe as possible.

These simple notes tell me what I did this day and provides evidence about my telephone activities both inbound and outbound.

4.06 Contact management systems / CMS

In a business application the simple address book program built into your computer may not be adequate and you will consider a more sophisticated software system commonly called a contact management system such as Act! Contact Eze Goldmine My Contact Manager MyMailList Deluxe The general process for all of these is that they accumulate many fields of information which can be sorted and cross referenced in various ways and mail merged into mailings and databases and which permit you to add comments or notes to each entry. The address book feature in Microsoft XP is reasonably effective in this regard except it does not permit convenient sorting by fields in my opinion.

These CRM programs make it easy to keep all of your contact information in one master list which is actually a compilation of many sub-lists - a system that facilitates cross checking of information (email addresses, phone numbers etc.)

6 People & Work

5.00

People and work Table of Contents 5.01 5.02 5.03 5.04 5.05 5.06 5.07 5.08 5.09 5.10 5.11 5.12 5.13 5.14 5.15 5.16 5.17 5.18

People and Work Building a Menu of Tasks Merging Tasks into Job Descriptions Networking Job Descriptions into Systems Compensation and Performance Performance Review Orientation and Training Theory X and Theory Y Management Hiring - Before You Begin Hiring - Where to Find Recruits Hiring - Application Forms Hiring - Interviewing Skills Hiring - Testing Hiring - Background Checks Hiring - Americans With Disabilities Act Hiring - Independent Contractors Hiring - The Department of Labor Hiring - Employee Manuals

5.01

People and Work None of us truly works alone even if we think of ourselves as a â&#x20AC;&#x2DC;one man shopâ&#x20AC;&#x2122;. We all have helpers, vendors and suppliers and - of course - customers.

We need to be conscious about our actions around each of these publics to make sure we are effective and to make sure we are behaving legally.

Once again we begin at the end - deciding the nature of the working relationship we want to surround ourselves with and then doing what we need to do to produce the result.

Having said in an earlier session that I believe a business is a vehicle to get out of life what you want to get out of life, I have determined that one of the results I want from a business is a sense of fun and accomplishment. Although Iâ&#x20AC;&#x2122;m good at war games, I prefer the image of people working together happily a sandbox.

That image represents the work environment I hope to create.

5.02

Building a Menu of Tasks When you begin developing ideas for your business one of the basic jobs you need to complete is developing a menu of all the tasks that need to be performed within the business. A good way to do this is to buy a thick pad of lined loose leaf paper and a good felt tip pen and sit down in a quiet place and liberate your imagination.

Begin thinking about each and every small task which must be done in your business, writing that task on the top line of each sheet of paper open the office in the morning make coffee answer the phone prepare invoices buy stamps clean the kitchen wash the windows process customer orders - mail process customer orders - phone process customer orders - online process customer orders - fax etc.

etc.

etc.

Clearly the list is long and there will be continual additions as you go through the actual experience of organizing your business. This may be your first realization of how many things there are to do especially if there is nobody else to do the things that need to be done except you.

5.03

Merging Tasks into Job Descriptions It is reasonable to assume that your first effort may produce 50, 100 or more tasks that need to be done - a stunning number and yet not nearly all the tasks which will eventually be added to your list.

As you review the pile of almost empty sheets, each bearing only a task item on the top line, you will begin to recognize natural task clusters … and gather these together -

clean the kitchen clean the bathroom vacuum the carpet wash the windows empty the waste baskets\ take out the trash wash out the refrigerator

- quickly recognizing these several tasks might be lumped together as the outline for a job description called ‘housekeeping‘, ‘maintenance’ or ‘janitorial’.

5.04

Networking Job Descriptions into Systems Gathering these several tasks together under the title housekeeping starts to provide the structure of a job description as well as suggesting a pay rate and performance standards.

Lets look at a simple example - using a task that virtually everybody understands and knows how to do.

------------------------------------------------------------------------------Task:

Make Coffee

Supplies Needed: (flavor) coffee beans measure grinder timer paper filter cone carafe water source water pot cups napkins spoon sugar cream thermal pot.

Heat water to boiling put 15 grams beans in grinder and grind for 15-20 seconds then place grounds in the filter in the cone on the carafe Method:

pour boiling water on grounds and let it drip until filled to the 8 cup mark and then serve the coffee - place the surplus in the thermal pot.

------------------------------------------------------------------------------Here’s why this simple exercise is important in business. Had I asked you to make a pot of coffee, you would have done whatever you normally do and been satisfied with the results, believing you had done what you had been assigned to do. You made coffee the way you like it.

Caffeine, however, is my drug of choice and when I am the boss it’s my taste buds that decide if the coffee you made is any good or not. And if you used the wrong flavor beans or ground the beans too long - which does change the flavor of the brew - I would not be satisfied that you had done the job the way it should have been done.

Your pay raise … your performance evaluation … your continued employment are suddenly in jeopardy. Suddenly a nothing job turns into a big deal.

It is fundamentally unfair (unreasonable) to hold people accountable for their performance when (a) they were not told the standard they were expected to meet and (b) they were not provided the supplies and equipment they need to do the job in the required way.

As you examine the list of supplies and equipment required to do the job you should recognize that you are beginning to build a shopping list of the things

you will need (to buy or provide) to start your business - as well as the job skills needed to do the job according to the required standards - which begins to outline your training standards as well as performance standards, and even suggests where in your work space this function will be located (near a water source if you want to make coffee).

4.05

Compensation and Performance As we begin to define the specific skills required to do a job we can determine an estimated cost for someone doing that work. For example A - Someone who can type 100 words a minute is worth $10 per hour. You type 60 words a minute.

How much are you worth?

B - You can type 60 words a minute and are being paid $6 an hour. You decide you want a $1 an hour raise to $7 per hour. What do you have to do to get it?

You have a raise coming - it becomes effective when you do.

4.06

Performance Review In so far as performance can be measured, is it reasonable to suggest that employees can take on a direct responsibility for their own pay rate and can be empowered to earn a raise whenever they decide they want one - and that having that kind of authority provides worker satisfactions that are reflected in ways that improve the companies overall performance?

As individual employees take advantage of the opportunity to capture the rewards and benefits of improved performance, can we suggest that whoever installed this management system might be considered more effective and deserving of a higher income?

Finally, if the manager is also the business owneroperator, can we suggest that the manager can boost his/her income by being more valuable while building the net worth of the business s/he owns?

4.07

Orientation and Training Orientation As a hiring decision is made each new person needs to receive orientation explaining how general business events are handled bathroom breaks coffee breaks employee parking holidays sick days vacation time This information can be developed into a class format if there are enough people to experience the process at the same time, but in smaller businesses we usually develop an audio program cross referenced to printed material that individuals can process individually with periodic reviews by a supervisor or manager.

Training Knowledge specific to the tasks involved in the job description fall under the training function. Often this is treated as an on-the-job training event where the new hire is paired with an experienced worker who first states the performance standard and second, demonstrates how to do the job task to meet the standard.

If a small company does not have someone experienced who can provide this training then they may edit the job skill requirement to hire someone who brings this skill to the job without the need for onsite training.

4.08

Theory X and Theory Y Management When you begin to think about the management process you start to deal with your own ideas about people; what are your core beliefs about people and what do you expect of them?

Some believe that most people are lazy and stupid, that they cannot be trusted nor depended upon.

They believe they must watch their employees like a hawk - or pay a supervisor to watch the employees while they watch the supervisors - in the belief that workers will do a bad job, steal, lose, waste and goof off if given the opportunity.

This is Theory X management at work and it is best represented in most people’s experience by the character Ebenezer Scrooge in Lewis Carrols’ Christmas Story.

As an alternative Theory Y managers are often referred to as ‘touchy feelies’ who are more welfare workers and psychologists than employer. Theory ‘s are softies who like to hug and are more concerned the bathrooms are clean and comfortable than the company makes a profit.

Certainly few people are complete X’s or Y’s in their behavior - we all tend to float back and forth between the two. And there are times when X behavior is absolutely called for and the right way to do it. Y behavior is not always effective in getting the job done.

You need to decide where you tend to rest between these two opposites and build your systems as reflections of your core expectations. And your day to day management behavior must be consistent with the ideas and attitudes you express in your

documents.

Traditional management is represented by the wedding cake organizational chart presented at the end of Section 273. Management in every form has been a process based on physical strength and authoritarian principles.

The proposition that someone is smarter because they are older is rejected by many children some of whom actually are smarter than their parents.

Because men are generally physically stronger than women and children, they often assert a kind of superiority based on strength - even in situations where real or imagined strength has nothing to do with the issue.

The elders … the chief … the church … the government … tend to define some element within themselves as conferring advantage and then assert that advantage as the rationale for their claimed (threatened) superiority.

The oldest effective organizational chart in the western world is the wedding cake design reflecting the Catholic church. It proved so successful politicians copied it as a format for organizing their government - King, Prince, Duke, Earl, Peon). Both applications worked so well that the military begin to copy it - Generals, Colonels, Captains, Sergeants, Privates.

Those three applications worked so well that as cottage labor began to mature into the early industrial revolution, businesses copied the same model - owner-boss, manager, supervisor, worker and apprentice.

Catholicism and Calvinism were the dominant religious philosophies when the new world was being colonized. Each reflected an authoritarian hierarchal approach to organizing society. Details of difference set aside, the core notion in these driving ethics was that some people are rich, intelligent, powerful and handsome because they have been selected and blessed by God. Those who are none of these things have not been blessed. Each person knew his/her place - blessed or not blessed - and accepted that it is as it will be because God made it so.

Each person knew where he or she fit in the great scheme of things and understood that their station in life was fixed and nothing was going to change it.

Then, liberalizing elements began to appear in societies all over the world. Early forms of democratic capitalism forced some amendments into this long held premise. People who came from poverty and illegitimacy who worked hard, had special skills, some luck and who were able to assert themselves in an open society began to become rich, powerful, educated, and after a while they didnâ&#x20AC;&#x2122;t even look too bad.

Maybe God wasnâ&#x20AC;&#x2122;t looking when an orphaned, illegitimate inter-racial Jew was born on a Caribbean island - and found himself in America during the founding - and became our first Secretary of the Treasury, Alexander Hamilton.

The wedding cake hierarchy no longer presents picture of the actual way a business works and isnâ&#x20AC;&#x2122;t a reliable reflection of the informal ways information is passed along and work gets done. Trying to replace the wedding cake, people have drawn spirals, beehives, bulls-eyes and other shapes attempting to

reflect the way various aspects of the business relate to other parts.

1 - In the early 1980’s companies began to downsize … “lean and mean” was the term of the day … erasing bloated layers of under-productive overexpensive people who were taking up space and eating up dollars in the chart.

2 - Then managers thought they could fool workers by inverting the wedding cake so the workers who used to be on the bottom of the pile were now at the top. Disrespecting their workers intelligence these managers thought the illusion would fool their people.

3 - Whatever the organizational picture looks like, actions speak louder than words and it is common for companies to pay lip service to their people with glowing references, while treating them miserably and disrespecting them in the most fundamental ways. These managers fail to understand a fundamental truth - feelings are facts.

You can say all kinds of nice sounding things about your people, but if they don’t feel respected, trusted, appreciated and valued, the lip service is insulting and becomes counter-productive.

Several years ago I found a news item in the newspaper that presented an amazing example of this. An employer had about 15 full time workers in Los Angeles and did not have a bathroom available for their use. They actually had to go to a gas station a block from the work place. The employees went to court and a judge decided the boss had to install a bathroom.

The news item appeared a year later because the

employees had to go to court again - this time to get the court to order their boss to let them use the bathroom.

4.09

Hiring - Before You Begin There was a time when hiring and firing was an easy procedure largely governed by what the employer choose to do. Today this simple procedure is a hotbed of regulations and litigation, To complicate matters further, federal (labor) laws, state (labor) laws, union contracts, standard industries practices (which are not law but which are considered to be law) and other elements continue to stir up confusion in the application and administration of the law.

Some people are really angry and resentful about these employment laws. They believe an employer should have a free hand in deciding who they will hire and object to and resent the many laws regulating this process.

Others feel these laws correct past employer abuses based on various forms of discrimination and exploitation and are entirely justified.

Each of us is entitled to a personal and private opinion but whatever that opinion might be the law is the law and it is to be obeyed to the letter and in spirit.

First - at the point where you are starting to think about hiring employees, contact the appropriate sources asking for basic information about hiring employees federal labor department www.doc.gov state labor department industry trade associations industry trade publication industry unions - guilds

and begin educating yourself about the laws, rules, regulations, industry practices and the rest.

Second - visit a large office supply store and examine the various employment application forms they offer for sale. The companies that publish these forms invest in legal talent to make sure their forms comply with the most recent adjustments in the law so always look for recent copyright dates.

Among these forms are complete employee packets (currently about $4 each) which includes a 9 X 12 folder containing a complete set of employee forms.

These forms are required by law - you just have them and they must be accurate and up to date.

In general you want to use the shortest job application form possible because there is an implied risk in gathering more information - in general less is better.

Third - federal and state law requires any business having employees - even one part time person - must show legally required posters in a suitable location in the workplace. These posters are usually placed in the area around the locker room - kitchen bathroom, and their subject includes wages, work conditions and safety issues.

The posters are sold in most office supply stores as well as online sources. Their cost is $5-40 but the penalties for failure to post are in the hundreds or thousands of dollars.

Fourth - at the time of this writing, illegal immigration is a front burner political issue stirring a lot of heat from all sides. Clearly employers will be expected to examine applicant documents more carefully, will be required to maintain better

employee and will be subject to much bigger penalties if they hire illegal (aka undocumented) workers.

4.09 A Discrimination Starting with the civil rights movement in the 1960â&#x20AC;&#x2122;s several elements have been identified as touch points for litigation and reference to any of these even by implication - presents a high risk race color creed sex sexual orientation age national origin marital status physical impairment mental impairment Often laws or regulations which are thought to be understood are given new meaning when a clever attorney is able to convince a jury of a new interpretation or a new application of a here-to-fore resolved question.

While undergoing sex change surgery must a transgender - male appearing - employee be permitted to use the womenâ&#x20AC;&#x2122;s rest room is not a crude joke, but a viable issue in employment law.

Whatever standards you apply - assuming they are legally correct in the first place - they should be applied with absolute consistency each and every time. Even the appearance of inconsistent application suggests an illegal behavior.

The EEOC/Equal Employment Opportunity Commission says you can use a written job description as a defense in a legal action only if the description is written, accurate and was prepared before the job was advertised or the interviewing process began.

Termination is an emotionally charged event in the best of cases. Given the litigious background of employment law one may assume the decision to terminate an employee should be carefully and completely documented because any failure to meet every step in the performance evaluation procedure is an open door to legal action.

At the time of writing Don Imus, a popular radio personality, had recently been terminated by his employers for racially insensitive remarks made on air. While wading though the issues of his high risk statements, Imus countered that he had been hired to ignite public passions and in the event his behavior was inappropriate he was to be given a written warning.

Since that written warning had never been provided, Imus alleges his termination violates his employment contract and that his employers are liable to pay him his guaranteed multi-million income.

4.09 B Dangerous Language in Help Wanted Ads Subtle language and inference are not acceptable in a help wanted ad or in the conversation surrounding an employment interview.

-------------------------------------------------------------------------WAITERS / BUSBOYS. Recent high school graduate to work the midnight shift at an all night restaurant.

Good opportunity for growth. Apply in person to -----.

-------------------------------------------------------------------------- The term busboy and waiter is gender biased in favor of males and is not legal.

- Reference to recent high school graduate implies an age distinction which violates federal law.

- The requirement for a high school degree is violative in that a (high school) degree is unrelated to the skills needed to do the job satisfactorily.

Federal wage rates (minimum wage) have been amended in many states and even some cities (sometimes called a living wage guarantee) to provide higher payment. Failure to meet these special circumstances opens the door to a variety of legal problems.

Where an advertisement is placed may in itself suggest an illegal action. For example, advertising a home for sale in a racially changing neighborhood by advertising it in an African American publication implies the property will not be of interest to a Caucasian buyer.

Placing a help wanted advertisement in the Michigan

Catholic (state wide Catholic newspaper) or the Detroit Jewish News implies who is wanted as well as who may not be wanted as a recruit.

4.09 C Recruiting and Selection The language generally used in the hiring process is the phrase â&#x20AC;&#x2DC;recruiting and selectionâ&#x20AC;&#x2122; which means the following recruiting refers to who is made aware of the employment opportunity and how that awareness comes about - while selection refers to how the evaluation and hiring decision is made.

We might promote the position in a discriminatory way but implement the hiring decision in a legal way - but since the hiring sample was tainted the decision would be tainted too. Or we might promote the position in a fair way but make the decision on an illegal basis - resulting in a violation of employment law.

4.09 D Applicable Federal Laws *

Civil Rights Act of 1964 - Title VII Prohibits discrimination on the basis of race, color, religion, sex or national origin. This statute only applies to employers with 15 or more workers but several states have lowered this number to one employee. *

Equal Pay Act of 1963 Prohibits employers from paying workers doing essentially the same job different amounts, based on gender. *

Age Discrimination in Employment Act of 1967 Prohibits discrimination on the basis of age for workers 40 and over. *

Pregnancy Discrimination Act of 1975 Prohibits discrimination against an applicant or employee because she is pregnant. *

Immigration Reform and Control Act of 1986 Requires employers to certify that their employees are United States citizens or have permits allowing non-citizens to work in this country. At the same time it prohibits an employer from asking about immigration status prior to a conditional hire. *

Civil Rights Act of 1991 Expands the definition of employment discrimination and permits the courts to award compensatory and punitive damages to victims. *

Americans With Disabilities Act - 1991 Bans discrimination against physically or mentally disabled employees or applicants who

are able to perform a jobs essential functions.

Companies with 25 or more employees are covered by this law.

4.09 E Job Descriptions In the event of litigation one of the first things the court will examine are your written job descriptions which suggests that your job descriptions should be written before you begin trying to fill a job â&#x20AC;Ś your descriptions are accurate and clear â&#x20AC;Ś and your actions are always clearly consistent with the description.

Training programs and performance evaluation forms should clearly reflect elements of the job description and negative entries should be clearly supported in the notes.

Everything you write in an employee file should be written from the expectation it will later on be read by a judge in a legal action brought by the employee.

4.09 E 1) Writing Job Descriptions In most businesses the owner operator writes the job descriptions. The reason why is that the boss normally thinks “I’m the boss! I sign the checks. I write the descriptions.” As a result the boss, who often knows next to nothing about how the job is really done and has no personal experience doing the job writes a general outline of what is to be done and a best guess about how to do it.

The best way to write a job description is with the help of people who actually do the job, with support from the supervisor and the person who immediately precedes and follows the job holder in the production sequence.

If the production sequence flows from A to B to C to D and we are developing a job description for C, it makes sense to know that there is an absolute agreement between B and Cs definition of the work in process … when B says ‘I’m done’ the piece should be ready for C’s addition. Any separation between B’s definition of ‘I’m done’ and C’s definition of “it’s ready for me” explains how mistakes and poor quality creep into the production system.

If each person in the production sequence was given the authority to accept or reject worked handed to them, there would be ongoing quality control which would improve the quality - and eventually the quantity - of your production -which makes you a better and more effective manager, increasing the value of your labor and earning you a raise (as well as boosting your net worth as an owner operator).

Further, if they are empowered in this way, workers tend to feel more involved, more respected, trusted and understood - which is expressed in many ways

that build your bottom line 4.09 F 20 Ways to Reduce Hiring Costs Even the smallest help wanted classified advertisement in a metropolitan newspaper is expensive. It makes sense to take advantage of opportunities to lower your hiring costs.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

ask your current employees for referrals check with union hall - guild membership explore community online job banks participate in job fairs explore college employment office for (part time / summer) students promote from within realign current job descriptions recruit an independent contractor or temp review old resume from prior talent searches screen candidates via telephone interview meet with applicants in grounds reconsider if the job must be filled discourage walk in applications (no appointment) consider specialty recruiting firms explore employee leasing raid your competition recruit at conferences, meetings, trade shows etc. tighten qualifiers to reduce number of face to face meetings ask competitors if they need to find jobs for their lay offs mass email your industry list asking for referrals

4.10

Hiring - Where to Find Recruits Knowing where to look for recruits as well as knowing what to look for is a function of understanding the written job description. If I need a printing press operator I can run a help wanted advertisement in local newspapers - or I can post a (FREE) help wanted notice on the local printers union website; or post a Help Wanted notice printed on an index card posted on the bulletin board of a local paper house or printing supplies store.

Vendors to the industry often get to know people who need a job or are interested in finding a better job. Other people in the industry may know of candidates who they would refer to you. Track competitor layoffs.

Local colleges often help students find jobs - some of which are underwritten by government agencies which means that the federal government will offset some of your labor cost if you hire a student and give them real world work experience while they’re still in school.

Networking at (industry) business meetings is another way to get recruits free. During self introduction stand up and say - “I’m Gene Konstant and I want to hire a printing press operator.” Ask and ye shall receive.

Job fairs and (local community) job bulletin boards are more and more common and provide a quick source of prospects day or night.

Temp workers are another tempting target, but be cautious. In many cases offering a full time job to a temporary worker will result in a large fee payable to the agency.

If you are recruiting someone who is already employed (presumably a competitor) review the industry associationsâ&#x20AC;&#x2122; Code of Ethics to be sure you abide by them completely.

4.11

Hiring - Application Forms Begin with our earlier admonition - be sure you are using a legally correct application form reflecting a recent copyright date; be sure every applicant completes every form; compare the data on the form with the written job description and make note of why rejected applicants were rejected in a way that reflects back to the written job description. > Applicant does not have 3 years verifiable experience. > Applicant unable to pass standard computer skills test. > Applicant arrived late for interview - did not call ahead.

Save all employment applications (accepted and rejected) for a reasonable period of time in case you need another candidate for the same position and-or in case of litigation.

4.12 Hiring - Interviewing Skills Having a clear and specific job description provides a general outline for personal interviews whether done face to face or on the telephone. As well as verifying the individual meets the listed criteria, the interview provides an opportunity to evaluate an applicants social skills, communication style and grooming.

To save time (and reduce hiring costs) offer applicants a choice of two or three different times when they can come in for a preliminary interview and try to schedule several people to appear at the same time. Time is valuable and you do not need to deliver preliminary information individually.

When I am hiring telemarketers I always begin with their telephone contact to a voice mail or answering machine so I can hear and evaluate their telephone voice - tone, pitch, rate, inflection, word choice, accent and personality.

Every interview reflects the same process with flexibility to respond to individual circumstances. Clear written notes are attached to each applicantâ&#x20AC;&#x2122;s file so that we can demonstrate how we decided to hire or not hire the applicant.

Dangerous Questions As you come to understand the legal elements in this process you should recognize that certain questions may seem innocent but in fact they are legally dangerous. > Birth date triggers age discrimination concerns. In most cases age is not a factor in the applicants ability to do the job and that makes the questing dangerous. >

Citizenship is a political hot potato and thereâ&#x20AC;&#x2122;s no

doubt that the laws and regulations will change between the time I write this and you read it, so tread carefully. It is against the law to ask about citizenship until a preliminary or tentative hiring decision has been made.

What kind of proof of citizenship or legal work status document will be required is currently being debated with the estimate that non-citizens will be required to present some form of temper proof identification. At this time nobody knows what that means. > Arrest record is off limits because many are arrested but not charged; charged but not convicted. Juvenile or misdemeanor convictions are off limits in many states by provision of state law not federal. > Affiliation are off limits because thatâ&#x20AC;&#x2122;s often a back door approach to determining discriminatory elements. > Emergency contacts would only be needed if someone was actually hired so the questions are not appropriate until after the applicant has been hired.

Safe questions The relatively safer areas for discussion are educational background and employment history, with limited questions about personal data.

Asking someone for more than name, address, phone number, social security number and whether they have any physical condition that would limited the ability to do the job puts you into a high risk area.

4.13 Hiring - Testing There are various ways you can test prospective employees and its useful to at least consider building some of these testing opportunities into your hiring process. Often it is helpful to use an outside HRD/Human Resources Development consulting service to perform these tests for you. They know how to do a better testing job and you shift some of the legal burden to them. > Skills testing - measuring the applicants ability to do the job (by hitting required performance levels) > Aptitude tests - measuring broad knowledge and ability to learn > Physical tests - determining strength, coordination and related factors. (Differences in male and female strength levels may become legal issues.) > Personality tests - measuring social skills, motivation, ambition, emotional stability and reaction to stress > Alcohol and drug testing (many state laws apply to this subject - contact local labor and legal authorities). > Polygraph (lie detector) tests - measure honesty and trustworthiness. (The Employee Polygraph Protection Act of 1988) prohibits testing of most employees. Government employees and contractors dung business with certain federal agencies are similarly exempted.

Once again - be sure the reason for any testing you do as well as the performance levels required for employment are clearly connected to your written job descriptions.

4.14 Hiring - Background Checks It is a sad fact of life that many applicants lie on their applications and resumes. And because of the litigious nature of employment law, background checks are often not effective.

College presidents claim degrees they never attained.

Salespeople refer to sales they never made. Ordinary people misstate their age, their experience, even their sex. Employers can never let down their guard.

These are the kinds of warning signs to look for on a resume or application > Inconsistencies in the dates - missing periods or over-lapping > Self employment provides a great opportunity to make up or inflate experience and performance records > References who are unreachable (even though contact information is provided) Actually test each applicants skills - testing their ability to perform the acts alleged in their resume. Be sure to test every applicant - or every applicant who reaches a certain point in the process.

Contacting prior employers often generates little more than a confirmation that the individual was an employee because of their fear of â&#x20AC;&#x2DC;blow backâ&#x20AC;&#x2122; legal action. This is especially true when an individual was terminated or lost employment in a merger or consolidation.

4.15 Hiring - Americans With Disabilities Act

This is a complicated law where legal precedents are less available and not as clear cut in providing precedence as other areas of law. It is comprehensive (including companies with 15 or more employees) and involves areas of emotional volatility - a hot bed for disputes leading to legal action.

Organizations of business owners (Chambers of Commerce, Trade Associations etc.) tend to be very hostile to the provisions of the ADA while worker-labor organizations (such as unions) tend to be supportive.

This is another of those situations where each person is entitled to a private opinion but that opinion must become irrelevant in so far as obedience to the law is concerned.

Enforcement is strict and penalties are serious - enough to bankrupt a careless business owner - operator.

The watchword for compliance is â&#x20AC;&#x153;a good faith effortâ&#x20AC;?. It is important to be able to demonstrate a continuing pattern of making a good faith effort to accommodate the needs of people falling within the jurisdiction of the act.

People with contagious diseases like tuberculosis and AIDS are considered to be disabled and fall within the jurisdiction of this law.

Non-employees may also be covered under some provisions of the law - for example ramps that help wheelchair bound customers access your facilities, and restrooms fitted with door opening devices and stalls which accommodate people in wheelchairs.

4.16 Hiring - Independent Contractors & Employee Leasing

As operating budgets get tighter and liability costs increase, many entrepreneurs have tried to reduce their overhead and risk by getting rid of employees in ways that provide a â&#x20AC;&#x2DC;have your cake and eat it tooâ&#x20AC;&#x2122; character.

Independent contractors and employee leasing are two of the most popular approaches.

4.16 A Independent contractors Independent contractors are not your employees - they are self employed people you hire to do specific jobs for you. Because they fall into a different legal category they may represent a helpful alternative to your staffing requirements.

It is not enough for you to claim someone is an independent contractor. They must meet a series of criteria generally called the IRSâ&#x20AC;&#x2122;s 20 Questions questions the answers to which indicates independent contractor status 1 Does the worker set his/her own work schedule?

2 Does the worker provide full time services for your company?

3 Do you define when and how the work is to be completed?

4 Are the services rendered essential to running the business?

5 Does the person provide services at your location?

6 Do you train the worker?

7 Do you pay the worker by the week, month or hour?

8 Do you provide tools, equipment or supplies to the worker?

9 Do you pay the workers business expenses?

10 Have you purchased equipment or supplies for the worker?

11 Is the worker responsible for providing reports to you?

12 Is the worker protected from financial loss for the work they do for you?

13 Is the worker prohibited from hiring assistants?

14 Can the worker delegate work to others?

15 Can you terminate the worker â&#x20AC;&#x2DC;at willâ&#x20AC;&#x2122;?

16 Can the worker provide services to the public at will?

17 Can the worker terminate the relationship with you without penalty?

18 Does the worker provide services to you on an ongoing basis?

19 Does your company control the way the work is done by the worker?

20 Does the worker provide services to only your company?

Here are some simple guidelines identifying independent contractors 1 2 3 4 5

They They They They They

have their own business license have a business bank account use a business alias - dba receive a gross check and pay their own taxes provide their own perquisites (employee benefits)

The information you receive from the federal and state labor departments will help you determine who is an employee and who is an independent contractor.

Many companies try to reduce their overhead and reduce their risk by terminating employees who are immediately rehired as independent contractors.

Since independent contractors do not receive benefits from the employer, over-head is reduced. If a contractor is hurt on the job however, s/he may allege they are really employees so they can gain benefits from the employer.

274.16 B Employee leasing Another approach is to replace employees with workers whose services are leased from their employer (an employee leasing company). This system is similar to hiring a temp except the workers are long term permanent.

In a typical example an employer may sell all of his employees to an employee leasing company who becomes their new employer of record.

Because of the large number of employees these companies have they are often able to provide more and better benefits to these workers than their original employer (which is what induces the workers).

The new employer assigns these employees to report to work at their former employers business doing their former jobs - just as they did when they worked for the original employer. This employer write a gross check to the lease company to pay for the services the leased workers perform - simplifying payroll record keeping and side stepping lots of opportunities for innocent errors to cause problems (which is why the employer likes it).

Because their various employee management costs including benefits packages based on larger numbers produce a profit margin the employee lease company makes money too (which is their incentive).

It is a win - win - win for the employer, lease company and employee.

4.17 Hiring - The Department of Labor Once you have an employee - even one - the state and federal labor departments will maintain a steady flow of (mailed) information to your place of business. This information should not be dumped into a file box unopened waiting for a rainy day when youâ&#x20AC;&#x2122;ll go through it.

This is vital stuff which must be given front burner attention even if itâ&#x20AC;&#x2122;s not the kind of material you enjoy processing, because the rules, regulations, enforcement and penalties are major events in the life of every business owner. Every envelope is a potential bomb waiting to go off when you least expect it.

There is no genius in problem solving - great managers prevent problems.

4.18 Hiring - Employee Manuals A logical extension of a written business plan and the job descriptions that it helps develop is the employee manual â&#x20AC;Ś another document which is in writing, made known to and available to every employee and a document which actually governs the behavior of management and workers.

It is safe to suggest that almost any deviation from the written words in the employee manual is evidence of illegal behavior. Having and disregarding a written manual is even more problematic than not having one.

Fortunately office supply stores sell CD programs which include a customizable disk which can be edited, saved and printed for distribution to each employee. These programs cost less than $50 and should become a management priority in every (start up) business.

6 Sales & Marketing Fundamentals

06.00

INTRODUCTION TO SALES AND MARKETING Table of Contents 6.01 6.02 6.03

Sales and Marketing - the Most Vital Discipline Marketing Defined Promotion and Publicity Defined

6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 6.13 6.14 6.15

Sales Defined Short History of Selling up to 1960 Short History of Selling after 1960 The 5 Functions of Salesmanship The 5 Disciplines of Salesmanship The Sales and Marketing Grid Fat Duck Salesmanship Positioning Seven Word Positioning Statements Surrender Salesmanship The Bicycle Wheel Surrender Salesmanship

6.01 Sales and Marketing - the Most Vital Discipline Every area of management activity is important to the success of the business. It doesn’t matter where a boat leaks - any leak will eventually sink the boat. That’s true of management too. What-ever the manager cannot do effectively becomes - in effect - a slow leak that sinks the business.

The reasons so many start up businesses sink after 2 years and so many more sink in the 5 th-6th year is managerial slow leaks.

But it’s also true to say that sales and marketing might be slightly more important than any of the other disciplines because “… if you can do everything necessary to start and grow a business successfully except sell what you produce - get a job.

You have a valuable skill someone will be happy to pay for. But if you want your business to succeed you must be the primary, ultimate salesperson.”

Whatever problem a business may have, if there are sales that produce cash income or accounts receivable, you usually can buy the time you need to repair anything else. If there are no sales, you rarely have the time you need to repair the problems.

That means every business owner operator must be a competent marketer, promoter and salesperson for the business as a pre-requisite for survival.

6.02 Marketing Defined Marketing can be thought of as everything that happens from the time the idea of a product is created until the product is delivered to the customer.

Visualize a group of people standing at a bus stop when a sudden rain storm begins to soak the individuals.

Fortunately one has a large umbrella which all the others huddle under. The umbrella can be labeled â&#x20AC;&#x2DC;marketingâ&#x20AC;&#x2122; and those standing under it can be named the functions of marketing - (for example) product name product design distribution advertising promotion sales materials Product name is a powerful element in the success of automobiles. The Lincoln Zephyr has a short life (a zephyr is a mile breeze) while Mustang is a powerhouse.

Product Design - Many feel the curvy shape of the coke bottle (resembling an attractive womanâ&#x20AC;&#x2122;s curves) helped the product succeed.

Distribution - Buying a product in a locally owned retail store, the local branch of a national retail chain like Target or in a multi-level marketing organization is - for many people - three definitely different events.

Advertising - A 30 second commercial shown once during a Super Bowl game can make a product an icon A) The Macintosh commercial introducing a new computer B) Tiger woods bouncing a golf ball on his club

several runâ&#x20AC;&#x2122;

times before hitting a â&#x20AC;&#x2DC;home

Promotion - Seeing a hotel featured as a prize on The Price Is Right or a particular coffee maker positioned in the background in a movie (product placement) has huge impact on a productsâ&#x20AC;&#x2122; sales and reputation.

Sales Materials - Why does the most expensive automobile have the most expensive and elegant brochures? Why do banks and insurance companies always have the fanciest offices?

6.03 Promotion and Publicity Defined Promotion has to do with getting the product and-or itâ&#x20AC;&#x2122;s name before the prospects in ways that directly stimulate the sales process while publicity tends to build the general awareness and reputation (image) of the company.

When a seminar leader like Wayne Dwyer does a 3 hour event for PBS the effect is to promote Dwyerâ&#x20AC;&#x2122;s programs to the PBS audience. News releases and references in various media to his appearance are publicity.

6.04 Selling and Sales Defined Selling is about motivating buying decisions - now. The salesperson makes a presentation to a qualified prospect with the intent of motivating a sale - a purchase order.

A) The server comes to the table and asks â&#x20AC;&#x153;are you ready?â&#x20AC;?

B) The real estate agent comes to your home intending to list your house for sale.

6.05 Short History of Selling to 1960 Selling as we know it begins back in the days before and immediately after the Civil War as the nation grew westward toward the Pacific. Thousands of people lived in wide open spaces far from the large cities of the east.

These people - ranchers, farmers, miners - often living far away from the small towns that sprang up. Their need for salt, cookware, tack for their horses and other staples was served by itinerant merchants … peddlers … whose horse drawn wagons were mini-stores on wheels.

Going from town to town selling whatever the locals required, these merchants often supplemented their income by hosting night time rally’s held near a large bon fire, featuring music, clever stories, news of the day and a curvaceous young ‘daughter‘ who would sing a few songs, dance just a little and invite those in the crown to relieve their physical ills with a bottle of magic tonic - a wonder elixir that would cure every ailment known to man or beast.

A $1 investment in a bottle of wood alcohol enriched the peddlers who hustled out of town before anyone revived from the curative powers of the brew. These peddlers could sell everyone in the world - once - and the world was large enough so they would never have to go back.

Many merchants were not entirely truthful in their claims and many customers who woke up with a hangover realized they had been duped … and perhaps robbed … and swore vengeance - but rarely acted .

Following the Civil War a burst of new technology began to stimulate the flow of people to cities - fewer people were needed to work on farms - motor vehicles facilitated movement - street cars/autos

- concentrated population stimulated billboards - telephones connected people (telemarketing) - daily newspapers were economically viable advertising - real estate boom - new cities and tall buildings - economic growth in expanding and new industries - heavy industry - steel / glass - power - water and electricity - telephone - telegraph - air planes Instead of the business owner talking about a product or doing a simple demonstration, trained full time salesmen began to make selling a full time career - often skirting the truth in the process.

- hard sell salesmanship (buy or die) - bait and switch salesmanship - the Lone Ranger and the salted gold mine As the public became enraged at the misdeeds of salesmen they began to fight back as Americans always fight back - they passed a law and formed a committee.

(The Sons of Liberty at the Boston Tea Party.)

The laws we passed included - blue laws - no sales on the Sabbath (Christian) - regulations - business licenses, dbaâ&#x20AC;&#x2122;s, registrations - license laws - testing, education, regulation, codes of ethics and the committees we formed included - Better Business Bureau - Chamber of Commerce - Boards of Realtors (now Associations) Suddenly the world was filled with new and better things to sell to people - and people were trained to sell them to other people - customers who could afford to buy the new things these salesmen were selling. In these days

virtually all salesmen were men.

Suddenly three major events hit the American people one right after the other - setting the stage for huge changes in the economy, and particularly in the world of sales and marketing.

World War I - swept hundreds of thousands of men into the army and out of productive income producing jobs; then The Great Depression kept virtually everyone out of work and helped make sure that virtually any possession anyone had purchased prior to the war was completely worn out and used up; then World War II swept millions into the military and put most of the rest to work in war industries working 60-80 hours a week in industrial plants that ran 24/7.

There was virtually no production of civilian goods so people put their paychecks into savings accounts to accumulate until the war was over in August 1945.

When the war ended we enjoyed what the economists called â&#x20AC;&#x2DC;pent up demandâ&#x20AC;&#x2122; and the nation went of a buying spree.

From the end of the war in 1946 until about 1960 salesmen enjoyed a golden age.

6.06 Short History of Selling After 1960 Everything was fundamentally different after world War II - the demand for new everything was huge because virtually everything anyone had been worn out between 1916 and 1946 - houses, cars, clothes, radios, farm equipment - everything.

And war technology produced new products that replaced the items people wanted to buy with new and better things they wanted because they were new and better. am/fm radio telephones

television transistors

ball point pens computers

Everyone had money - cash - and lots of it. Order takers could get rich without knowing anything about what they were selling. And anybody could sell anything.

Customers were everywhere and they were ripe for the picking - and they did get picked. And they did get angry and, over time, their anger forced changes in the selling ethic.

Sales trainers who wanted to make money began to amend the content of their traditional hard sell linear selling techniques to reflect the changing attitudes in the marketplace. Hard sell techniques represented by books like The Sale Begins When The Customer Says No were replaced by new (more acceptable and more marketable) approaches such as Win - Win Selling Consultive Salesmanship Counselor Selling But when you examine these programs carefully you quickly recognize the language is different buy the underlying principal is the same - the job of the

salesman is to get the prospect to do what the salesman wants the prospect to do whether the prospect wants to do it or not.

6.07 The 5 Functions of Salesmanship Whether itâ&#x20AC;&#x2122;s traditional hard sell salesmanship or our new market driven approach, everyone recognizes the same functions in the selling process Prospecting - identifying who (in the universe) can use your product or service?

Qualifying - which prospects needed what you sell - and knows s/he needs it - and has the money and authority to make a buying decision?

Presenting - creating a structured patter (story) that produces a sale.

Responding - having heard the selling patter, the qualified prospect responds in one of two general ways favorably - (called a buying signal) language such as do you have it in my size? can you deliver it Tuesday? do you accept checks or credit cards? can you provide financing? unfavorably by offering stalls - which attempt to buy time for the prospect to escape & evade a decision; or using objections which attempt to buy time to escape and evade the decision Closing - the act of getting the order â&#x20AC;Ś an authorization to purchase form or other action confirming the customer has purchased the product or service.

You push your cart up to the check out line while a cashier totals your purchases and asks for payment. The server asks if you know what you want or need more

time to decide. The air purifier infomercial offers to let you test the unit in your own home - for free - for 30 days. Traditional sales trainers always say ‘selling is about closing and if you don’t close you’re not selling you’re talking.’

6.08 The 5 Disciplines of Salesmanship When you reduce all the alternatives and variations of the selling process down to their core elements, there are five basic ways to sell anything to anyone. You need to know what they are and understand how each works in order to make operating judgments abut which one or which ones you will use for what functions.

6.08 A

Face to Face

Most people experience face to face salesmanship when they buy clothing, insurance or automobiles and are familiar with the traditional back slapping, high energy salesperson.

You need to understand what qualities and abilities make someone a good (i.e. effective) face to face salesperson so that you know what skills are required in deciding if you can sell your product face to face and what to look for in a prospective face to face seller.

Those who are good face to face sellers are good because (1) they are excellent at reading and interpreting other people’s body language and (2) they communicate a lot of their own message through the effective use of their own body language. In a word, face to face selling is about ‘see and be seen’.

5.08 B

Telephone

Telephone selling involves zero seeing - it all happens through voice transmission technology. But effective telephone sellers are able to create a visual image in their imagination and they can play to that vision even though it may be totally inaccurate.

Most people have created a mental picture of what someone they’re speaking with looks like and later

discovered - when they finally meet face to face - that their mental picture is 100% incorrect. But the vision still worked as a psychic audience to whom the telephone seller could play.

- When the purpose of the phone call is to sell a product or service, we use the term telephone selling.

- When the telephone contact is preceded by some other event such as a direct mail piece, a catalog, television or radio commercial, billboard, newspaper ad or email, we use the term telemarketing - suggesting the blending of two or more selling activities.

- When the salesperson initiates the call we use the term outbound telephone selling or telemarketing; and - When the customer initiates the call to the telephone seller we use the term inbound.

What makes telephone sellers and telemarketers effective is a mixture of elements including word choice pitch imagery tone pronunciation rate accent inflection projection clarity Anyone for whom English is not a first language should work hard on issues of projection, accent, inflection and clarity. Each of us tends to think that someone else has an accent but the reality is that everyone has an accept according to someone elseâ&#x20AC;&#x2122;s ears.

Itâ&#x20AC;&#x2122;s hard to sell people who cannot understand you and two great ways to determine how you sound to others are (1) record your telephone conversations with 2 or 3 people and then listen to how you sound and how you

interacted on the telephone.

- Do you interrupt others?

- Do you jump subjects or present complete thoughts?

- Do you make vague references that are never explained?

(2) hear how you sound to others by placing your hands alongside your skull in front of your ears and cupping your hands facing backwards and speaking out loud in a normal voice.

This technique reduces the head and chest resonance you normally hear as well as reducing the echo bounce back that normally amplifies your voice as you hear it.

The single best way to improve your telephone voice and technique is to put a simple make up mirror behind your phone and look at it as you speak on the telephone. The 4-6 inch two sided mirrors are $3-6 in the make up department of drug and department stores.

Looking at the mirror as you speak will reveal a variety of physical elements that make you less effective on the phone You will see that chewing gum or a cigarette impedes the function of your lips, teeth, cheeks and throat - all of which make you harder to hear and understand; You will see the red faced - fire in the eye anger that you are carrying forward from your last conversation which is now impacting this next conversation in a harmful way.

It’s also helpful to record some telephone calls when you’re on a hot streak and save them. Then record calls when you’re in a slump. As you listen to all the

conversations the difference between the hot and the not will be clear and help get you back in a successful pattern again.

5.08 C Mail The category called mail includes several similar but different elements - personal letters (individually written) - direct mail (same letter to everyone - perhaps personalized) - facsimile messages (fax mail) - web sites (inbound mail marketing) The ability to write effective mail copy is a precious gift that usually has to be hired and paid (ad agencies - copy writers). The object for any mailed contact is to capture someone’s attention and motivate them to read something they’re not expecting and then triggering them to take some specific action which you instruct in your copy.

Junk mail is the evidence of each individual failed effort.

However the rewards of even a tiny percentage of success is so high that direct mail (and junk mail) is bigger than ever.

If just 3 prospects out of 1000 who receive a mailed offer of a credit card actually accept the card the mailing is profitable - that’s just 1/3rd of 1% return to break into profit. Direct mail isn’t going to disappear soon!

5.08 D Mass Marketing Mass marketing includes two large segments, each of which breaks down into smaller specialties -

Print - which divides into newspapers and magazines.

Newspapers subdivide into daily, weekly, community, special interest etc.

Magazines subdivide into special interest areas such as home decorating, hunting, beauty, fishing, spirituality, politics, industry, hobbies and crafts.

Broadcast - which divides into radio and television.

Radio subdivides into AM, FM and satellite while Television subdivides into VHF, UHF, cable and satellite.

Perhaps email and blogging will mature into another variant of mass marketing. That certainly seems to be happening in the world of politics where parties, candidates and interest groups as well as pundits and gadflyâ&#x20AC;&#x2122;s all seem to be blogging their brains out.

Mass marketing has always been too expensive for little start up businesses to consider - but emerging computer technology is motivating dramatic cost reductions.

Community cable television must - by law - produce broadcast quality commercials for local businesses at nominal cost (typically under $500) and broadcast them on major channels (not the printed crawl under weather reports or television listings) at minimal cost.

Magazines can now include local advertising to subscribers in a specific zip code promoting a local merchant such as a car dealer or restaurant.

5.08 E Fat Duck Salesmanship The four approaches to selling we’ve detailed are similar in two respects that are vital to every smaller business owner - operator 1 - They are completely open to your competition who can track and counter-attack whatever you’re doing to steal your customers away from you.

2 - Although there are differences between them, they are just 20% - 1/5th as productive or as effective as Fat Duck Salesmanship.

I might suggest that the four traditional approaches to generating sales resemble buying customers at retail while fat duck selling buys customers wholesale.

Fat ducks are people who already know who you are … and what you do … and who want to know more.

Because there is some (any) prior association these people are predisposed to do business with you. Fat ducks include your customer list unsold leads - prospects you’ve actually contacted personal rolodex / address book friends and family church roster membership lists (Sometimes new salespeople tell me they prefer not to approach the people they already know - they tell me they don’t want to sell their friends. I ask them how they intend to sell their enemies.)

Here’s how the fat duck concept developed and how it produces sales. When I was growing up in Detroit our family would visit Palmer Park with a picnic lunch.

While she was setting up the table my mother always

gave me one or two slices of toast bread - broken into smaller pieces. I walked to the edge of the pond and tossed a chunk of bread to the swimming ducks.

I loved to hear them quacking as they swam toward me and enjoyed the bread. I was about four years old and I didn’t know the ducks were not quacking - they were telling some other ducks “Hey guys - the kid has some bread, Swim on over hear before he runs out.”

As the second larger group of ducks swam over I threw more bread - more quacking - and before long I was surrounded by hungry ducks and fresh out of bread. It was a this point I learned the first great lesson of salesmanship Ducks of a feather . . . flock together!

I want to find the common characteristics of my customers because others who have similar characteristics are more likely to buy what I am selling and buy it from me.

My job is to identify my customer duck and go where those ducks go when those ducks are there and deliver my promotional -sales and marketing message to them . . . I need to feed the ducks.

In one of my classes a gentleman came up on the break and asked how he could use this powerful concept in solving a problem he was having. He wanted to buy a print shop in the city of Riverside California.

I have a lot of experience in printing and told him the printing duck nests at the monthly dinner meeting of the Los Angeles Chapter of the printing Industries of America (trade association). He should call their office and make a reservation for their next dinner meeting.

These meetings always include a self-introduction

opportunity where each individual stands up and tells everyone else who s/he is and what s/he does. When it’s his turn he is to stand up and say “My name is ….. and I want to buy a print shop.”

Simple. Feed the ducks. You cannot say that to a room filled with printing ducks and not leave the meeting with a handful of prospects to contact about buying a shop or producing a referral to a shop that is for sale - or a shop that should be.

5.09 The Sales and Marketing Grid Your job as the owner - operator of your business is to develop a definite, structured system for promoting, marketing and selling whatever you produce. Even if this tool is only used as a guide for helping to find and hire a marketing director or a sales manager, the structured plan is a critical starting point.

We will build the structure that produces the outline for your program by configuring a grid of 25 intersections that specify what your plan must entail. The grid features the 5 disciplines down the side and arranges 5 columns of the functions of sales and marketing.

Face to Face Telephone Mail Mass Mktg Fat Ducks

Prospect -A-F-K-P-U-

Qualify Present -B-C-G-H-L-M-Q-R-V-W-

Respond -D-I-N-S-X-

Close -E-J-O-T-Y-

The exercise is to decide which functions you can satisfy using which discipline and to develop specific processes for that activity. For example, if you will prospect and qualify face to face but not use mass marketing to do your prospecting and qualifying, you can omit P and Q while developing an implementation process for A and B. A = Prospect face to face: What does that really mean?

How will you do it? Will you talk to strangers face to face at a trade show or visit every office in a highrise office building? Will you walk door to door in a sub-division (canvassing) or stop people walking into a shopping mall?

B = Qualify: And what will you actually say to these people? Whatâ&#x20AC;&#x2122;s the script for connecting with strangers and engaging them in conversation? What will you say to

transition from capturing their attention to finding out whatever it is you need to know?

Is a face to face interview the most effective way to connect with the prospects and to qualify them? Is it the most effective, most productive, most economical, most reliable approach?

Your job as the boss of your company is to develop the overall strategies and tactics to accomplish your objectives (Re-read the appropriate discussion of strategy and tactics in 271 Business Planning.)

Recognize that we begin with our best judgment and continually amend and refine out written plan until we finally develop a system that works to achieve our objectives and we continue to use that method as long as it continues to produce the results we want at the cost we are willing to pay or until market conditions change and we need to rebuild the plan to fit the new reality.

5.10 Fat Duck Salesmanship By every unit of measure traditional sales and marketing presents the most expensive and labor intensive approach to achieving the results you want. By focusing on those who already know who you are and what you do - who already like it and have indicated a desire for more of what you offer, the economics of fat ducks is compelling and the competitive invisibility is exciting.

As you come to define and understand your ducks more completely you begin to recognize several truths When you’re hunting for ducks - go where the ducks are.

When you’re hunting for ducks - point your gun at the fatter ducks … bigger targets are easier to hit.

Skinny ducks get fat and fat ducks get skinny.

You have to feed the ducks and keep feeding the ducks if you want the ducks to come when you call.

Ducks who know the sound of your voice and the taste of your duck food tend not to respond to the calls of others - unless you have neglected them and they’re hungry.

5.11 Positioning Two owners of a major advertising agency developed a unique marketing idea thirty years ago and wrote several books about it and went around the country speaking about the idea. The first book is still the best point of entry to learn about the subject and the paperback book is still under $10 at bookstores - POSITIONING: The Battle For Your Mind by Trout and Reese.

The core of the concept is that every product or service needs to be promoted and presented in a consistent way which develops an accumulating position in the mind of the customer. This ‘position’ becomes the reflexive buying response to someone whose desire is to buy what the position articulates. if you want quality automotive you buy Cadillac. A quality suit comes from Brooks Brothers.

For years Cadillac held the premier position in the American automobile industry because the previous first place holder - Packard - made a blunder that destroyed their position. The Packard was an excellent vehicle with a crème de la crème reputation that was reflected in their advertising slogan - (How good is a Packard?) Just ask the man who owns one . . .

Then they created a virtually identical version of the high price Packard called a Packard Clipper which wasn’t of the same quality as the real Packard but looked just like it - so the exclusive look of the car was diluted by the lower priced substitute which wasn’t as good as the real thing and the company went bust.

Remember when Mercedes came out with the compact 190 model at a lower price? What were they thinking and how much did it cost to recover?

5.12 Seven Word Positioning Statements Just ask the man who owns one is one of a series of powerful selling slogans that developed in the 1960-80’s as tag lines to help build a position in the mind of the marketplace. Significantly most people who were alive in those days still remember the lines even though they’ve not been used in product advertising in 20 years or more Winston tastes good - like a cigarette should Takes a lickin’ and keeps on tickin’ (Timex) You can be sure if it’s Westinghouse In your heart you know he’s right (Goldwater for President) Live from New York - it’s Saturday night!

Think in terms of developing your own simple phrase seven words is ideal - that you could use in a variety of applications to imprint your position in the minds of anyone who encounters it. Now think of all the different ways you can present that phrase out into the universe Direct mail headline Brochure headline Tag line on business card Tag line on envelopes flaps First sentence in direct mail piece Sign(s) posted in your store/office Telephone script - first or exit line Billboard caption

5.13 Surrender Salesmanship The next step is to develop that sentence so that it produces three different results among those who encounter it > A few will immediately respond by saying “you’ve got it and I want it… what do I have to do to get it?” > Many more will carry this imprinted message in their sub-conscious minds until the time comes when they need who you are and what you do at which moment they will think of you, believing they did it themselves instead of understanding that you did the imprinting before and are harvesting the seedling now. > A large number will not hear, see or remember anything and that’s the reality of the situation.

Your goal is to create a process whose result is that people / customers seek you out and surrender the order to you - as in the case of going to the doctor, buying groceries, getting gas or picking up a prescription. Wherever you go for these products or services, you go where you go because of some specific element that defines that’s the place to go - it might be price for gasoline, meat or produce qualify for groceries, skill specialty for doctors or convenience for prescriptions - but there is always a reason for the decision - and always a reason for making an exception to the usual decision.

275.14

The Bicycle Wheel

Because many of us sell one basic think to many different customers - or many different kinds of things to the same customer, we need to broaden our concept in another way that is represented by a bicycle tire. You all know a bike tire has a hub with spokes running outward to the rim where the tire is mounted on the rim to complete the structure.

Imagine that tire placed horizontally with you - your product or service at the hub - and the arc of the circle away from you. Because you sell to different customers we can imagine one customer (X) at a 45 degree angle to the left on the arc and a second (Y) directly opposite you in the center and a third (Z) about 50 degrees to your right.

(X)

(Y)

(Z)

- YOU -

z’s context

y’s context

x’s context

When you use your selling language on X your message is received and interpreted in the context of Z’s interests, experiences and needs while the same language presented to Z is presented in the same way but received and interpreted differently not because you or your product are in any way different but because Z has

a different interest, experience and need.

All of this suggests that perhaps as our understanding and skills matures we need more than one seven word phrase - one for each product … or one for each service … or one for each audience … or perhaps we need one for each different product - audience combination.

The simple reality is that my business is training and consulting for business owner operators (7 words) but when I’m talking to college continuing education n departments I’m Southern California’s most profitable small business trainer because what they’re actually buying someone whose classes generate a lot of enrollment dollars which produce a profit for the school that is not already assigned to some budgeted cost every college wants free money.

A business organization’s program chair doesn’t care about profitability - they want someone who will do a good job so they don’t look like they made a bad choice so to those decision makers I am Southern California’s most popular small business trainer and it’s the truth because nobody has done more business programs on more subjects for more colleges than I have. Nobody!

Although I am the same salesman selling the same services, the selling patter changes to reflect the experience and needs of different (kinds of) buyers.

5.15 The Economics of Fat Duck Salesmanshipď&#x192;&#x201D; Here is the core reason I am such a committed fat duck salesman. There is a cost involved in acquiring a new customer. Different businesses and industries have different ways of computing that cost - but there is always a cost.

If I make that investment and capture a customer I have achieved the purpose of that investment. At least on paper Iâ&#x20AC;&#x2122;ve done a good job. But have I done a smart job?

Assume your need to generate 100,000 sales over your professional life to generate the lifetime income you want. 100,000 sales are bought at the price of 100,000 individual investments. Now suppose you made that investment 50,000 times and sold those 50,000 customers 50,000 times (so far - so good) but could now get those customers who already know who you are and what you do (fat ducks) to come back and buy from you a second time.

Now suppose the cost of re-acquiring those 50,000 customers was 1/5 the cost of the original acquisition?

You would save the cost of 40,000 sales.

50,000 X 1 repeat sales at 10,000 cost = 25,000 X 3 repeat sales at 15,000 cost = 20,000 X 4 repeat sales at 16,000 cost = 10,000 X 9 repeat sales at 18,000 cost = 5,000 X 19 repeat sales at 19,000 cost =

40,000 60,000 64,000 72,000 81,000

saved saved saved saved saved

I donâ&#x20AC;&#x2122;t know what it costs your business to capture a new customer but as you begin to understand the dollar value of repeat business (and referrals too) you begin to understand the key to this process -

Every dollar saved by generating repeat and referral sales flows to the bottom line on the Income Statement PROFIT! That’s the only place for it in the financials .

Even if the savings formula for your business is somewhat off this general projection, the savings are dramatic and the impact of the savings are huge because savings flow to building your net worth (income C) - growing the value of your management ... making you rich.

And remember - your competitors have no idea what you are doing … how you are doing it … when you are doing it …you are invisible to your competitors which makes you relatively immune to any attempt to counter-attack.

You are relatively immune to specific competition.

5.16 Selling Skills - Writing a Sales Presentation Now lets turn to the language of selling and learn how to construct language which is an effective selling message - recognizing that the first step is having the right things to say … the second thing is to say the right things effectively … and finally we need to say the right words in the right way at the right time to the right person people.

Often people say ‘so and so is a born salesperson - s/he has the gift of gab’. It’s not true. there are no born salespeople. Babies are born. Some baby’s learn how to sell and some don’t. Some learn sooner. Others learn later. Some learn better than others. But it’s all learned behavior improved by practice.

Effective sales presentations have a classic structure and when you know what it is it’s easy to recognize it as you watch television infomercials or seminar salespeople trying to get you to buy their training program on how to get rich. Sales presentations are constructed like a train - with the same four parts Tracks Locomotive Box Cars Caboose Tracks The tracks represent the direction and flow of the train trip. It starts wherever you climb aboard the train and ends at the (salesperson’s) defined destination (a sale an appointment - a free trial).

The conversation may begin chatting in line at the drug store or in someone’s living room, preparing to sell their house, or in a showroom of an auto dealership. The salesperson may have gone to the prospect - the

prospect may have come to the salesperson - or they may have stumbled upon each other accidentally. But salespeople are in the business of climbing on board the train and usually find a way to get on board.

Locomotive The power that drives the train is a locomotive - which represents the big idea from which the sales presentation flows and which is often said as the first sentence in the presentation to get the train rolling down the track.

There are 21 good reasons why you should list your house with Century 21” The decision to sell your house is the most important decision you’ll every make …” (ERA Real Estate) Box Cars Trains are about moving freight and different kinds of freight require different looking box cars - but whatever they look like they’re all doing the same thing.

Similarly the individual element in the sales presentation each represents a single boxcar carrying it’s specific message toward the conclusion. They may look and sound different but each is built the same way using a specific construction that must be maintained if the box car is going to work. The structure includes four elements in this order - feature, benefit, close and tiedown.

Features are characteristics of the product or service you’re selling; Benefits identify the significance of the feature - give features value’ Closing is the process of generating a sale/purchase; Tie downs are minor questions which confirm the sale

Here is some selling language I wrote for a real estate client which demonstrates these four elements sequenced in the way a sales presentation would actually flow Bowers Real Estate also owns Bowers Mortgage … which means that when we find the house you’re looking for we can get it financed quickly … because I’m sure you will want to move in before the children have to start school in September … won’t you?

Feature - Bowers Real Estate also owns Bowers Mortgage Benefit - which means that when we find the house you are looking for we can get it financed quickly …

Close - because I’m sure you will want to move in before the children start school in September …

Tie down - won’t you?

If the prospect accepts the principle of the close (move in before September) their agreement implies they want to buy the house and have Bowers Mortgage arrange for the financing (two deals in one) - and we want to tie that down to confirm their agreement by asking the minor question “won’t you?”

As the salesperson talks through the presentation, ending each box car with a tie down, “yes momentum” is being generated ... as a series of yes answers accepts each step in the process, ultimately leads to the big yes the sale.

Sales trainers talk about building this yes momentum as if it were starting a snow ball rolling down the mountainside, eventually reaching such a size and speed that no reasonable force could stand against it.

That’s exactly the idea - if you accept each box car

separately (in other words you buy it) then - when all the box cars are assembled - you must accept the totality. If you buy the soup and the salad, the meat and the vegetables, the rolls, beverage and dessert you bought dinner. Dinner is the sum of the parts and you bought each of the parts. You bought dinner.

Sales trainers love to demonstrate tie downs because it’s a fun exercise in front of a room filled with students. The analogy is that it’s like walking through the doorway of a darkened room and hitting the light switch as you pass through. As you get to the benefit-close in the box car you hit the switch and begin inserting small inconspicuous questions into your conversation - tie downs ...

Do you see what I mean?

Isn’t that right?

Do you understand?

Simple isn’t it?

Was that clear?

Right?

Got it?

OK? A verbal or physical response indicates the prospects acceptance. If there is no acceptance, the salesperson resorts to other language devices to trigger that approval. (If all else fails, salespeople may smile and say “say yes“.

Caboose The caboose is what keeps us from walking the length of the train and out the back door of the last box car and falling onto the tracks. It is the end of the train - the scripted wrap of the entire conversation (presentation) and the point where we confirm the prospect’s acceptance of the whole

package now that s/he has accepted each part of the package individually.

Is there anything you want to ask about - that I haven’t made clear - before we arrange for delivery of the pink elephant to your house?

If the answer is ‘no’ - they bought. You are a salesperson.

If the prospects answer is “yes” then you ask what it is they don’t understand and then repeat the original language of the boxcar as you said it earlier except you embellish it with confirming phrases like As I said before …

You may remember when …

You will recall that …

- language whose affect is to remind them that this was discussed earlier. Then you return to the closing question and ask again if there’s anything else that should be reviewed.

In some situations the closing process might be reduced to a simple question - but it is vital that it not be a yes-no question because a no answer results in a total defeat. The question must offer alternative choices - either of which results in a sale.

The classic closing question is My place - or yours?

It’s a (closing) question the answer to which confirms the sale. Whether the answer is ‘my place’ or ‘yours’ - the issue is decided favorably.

Selling is like seduction - it is a game played between two participants who both understand the purpose of the game and it’s outcome. They must play their part responsively and tactfully for if either breaks the rhythm the mood may be broken and lost

- perhaps forever.

Rather than approach selling as a win lose game in which the purpose of the seller is to get the buyer to do what the seller wants the buyer to do whether the buyer wants to do it or not - doesnâ&#x20AC;&#x2122;t it make sense to explore Fat Duck Salesmanshipď&#x192;&#x201D; and creating a selling system that motivates repeat and referral business while slashing the cost of acquiring customers and a cooperative relationship instead of a hard sell confrontational relationship?

6.17

THE BEST PRICE AND TERMS As your selling experience grows and you receive the education and confidence that comes with experience you will begin to understand that in many cases price is relatively unimportant while ‘terms drive the deal’.

The reason General Motors sold more cars than Ford or Chrysler Motors was that GM was willing and able to finance buyers the other companies would not.

Because they could finance more they sold more.

Here’s a simple example of that theory put in practice.

I will buy your home right now … sight unseen … for $1 million CASH – but you must decide in the next minute to take it or leave it.

What would you do?

If you accept my office I’ll tell you the terms are I pay you one dollar a day, every day, for ne million days.

Changed your mind?

Price didn’t matter – terms drive the deal – or kill it.

I have a client who sells a computer program that costs his customers about $25,000. The terms – $25,000 cash $25,000 $13,000 at purchase & at 90 days $26,000 $ 4,5000 a month for 6 months $27,000 $ 2,500 a month for 12 months $30,000