Tag: Accounting

Pricing

Happy Tuesday.  On Sunday, we had brunch with some good friends Jordan and Whitney at Tommy O’s in downtown Vancouver.  Kubae and I split a delicious Kahlua Pork Quesadilla and had a great time with conversation about firing ranges and civil liberties.  We then spent the rest of the day driving around contemplating if it is time to move to another spot as we are fast approaching our 2 years in downtown.  How time flies when you are having a great time.

One of the things I think that worry small business owners is what price to charge.  And since most small business owners start their small business after leaving their employer, they typically follow the model they were taught there.  This works, but I think there may be a better way.

When I was working with VSource in the startup of Argentstratus, I decided to approach the pricing model differently.  Instead of first saying, “here is our price”, I suggested the sales team start by asking what the prospective buyers budget was for things like

  • Server replacement
  • Desktop PC replacement
  • Software updates
  • System security
  • Downtime for server maintenance
  • etc

The typical response was a blank – deer-in-the-headlights- stare because most small business owners don’t stop to think about those things.  Depending on their answer though, the sales team could help create a frame of reference for the costs of doing everything in-house versus outsourcing their entire IT.

This had two benefits: First we avoided having the investment discussion too soon and second we ensured that the prospective buyer understood what they were really purchasing.  In essence, we established the value of the offer and then provided a price which was dramatically lower than that value.

To be clear, there is no such thing as the right price.  What the small business faces are buyers with absolute maximum and minimums to their pricing decision.  Many start-ups are willing to pay legal counsel several thousands of dollars: Some will not pay a dime.  Established businesses are willing to pay a million dollars to buy out a competitor but won’t spend $100,000 on an advertising campaign.  Each party perceives the value differently but I honestly believe the main point of differentiation is how the investment is packaged to the buyer.

By the way, I intentionally use the word investment over “Price” or “Cost”.  For most of us, especially in the service industries, we are often considered a “Cost of Doing Business” – an expense.  I go out of my way to explain that using my services is an investment.  By paying my firm you get access to some of the best business, tax and accounting minds in the area.  By deliberately removing loaded words we can continue the conversation in ways that benefit all parties.  If I say your tax return is going to cost  you $1,800 you will try to shop me.  If I say that your investment in assistance in running, managing and reporting on your business is $1,800 and I will throw in a tax return for free… you see my point.

So some guidelines I have learned along the way when it comes to pricing.  Where I can remember the source I will give credit and if I do not actually remember the source I apologize in advance and if you can send me a message with the actual source I will update this post for that information.

  • Do not charge by the hours worked, but by the years it took to get you to this point. Harry Beckwith
  • Price high and offer amenities – it is easier to remove add-ons than raise prices
  • It is always easier to offer discounts than to raise prices
  • Determine what your customer can pay and then figure out if you can service the client profitably.
  • Offer tiers of service (Bronze, Silver, Gold or the like) with very clear differences between them so you can cater to a larger audience
  • Ask the prospective buyer their budget and try to hit it.  Jeffrey Gitomer
  • People hate to be sold but they love to buy.  Help them buy.  Jeffrey Gitomer
  • Your number one competitor is apathy, price accordingly.
  • Your costs are not your customers problem.

What these guidelines suggest is to be open and creative when it comes to pricing your solution.  You are offering a solution to someone’s problem so don’t be afraid to be creative about what they pay for their investment.  As a general rule, if you are looking for new or more business opportunities, look at how your competition is pricing and then do something different.  Make your pricing easy to understand and consistent for a set of prospective buyers.  Test your price and if you are getting 100% of prospects saying yes, realize your price may be too low.  If you are getting 100% saying no, your price is too high.

Somewhere in between is that sweet spot for that group.  You can find it.  If you are interested in thinking about ways to create new pricing models, try talking with your current accounting professional about ways to make your solution and pricing more effective.  If you are looking for a new accounting professional or would like a second opinion, feel free to contact me for a free no obligation consultation.

Have a great day and enjoy the challenge of charting a new course on pricing your solution.

Budgeting

Happy Thursday and Mid Year!  It is almost the 4th of July weekend and we are so excited the boys are coming tomorrow to play Xbox and enjoy our homemade individual pizzas.  It is always a great time.

Kubae and I went shopping last night.  This in and of itself is nothing extraordinary, but it is the first time we went shopping based upon a budget.  Why a budget you ask?  It seems she reads my blog and felt that we should plan for the things we want.

Since we are like almost everyone else in the world (especially like most small businesses) we have limited resources – meaning that we cannot have everything we want.  So we sat down over the weekend and did some strategic planning.  She wants to take a trip out of the country next year.  This was our primary goal.

Now, the fun part became, how do we get there from here?  This is where budgeting comes in.  A budget is the plan to get from where you are to where you want to be.

First thing you have to do is have a good idea of where you are.  So, I downloaded 3 years of bank information, dumped it into Excel and started categorizing.  I actually use 4 overhead categories for our personal finances, similar to what I use for small business – Facility, Food, Entertainment and General.  After 3 hours, I had a good idea of how we spent money.  From here I crafted a few alternative budgets for our upcoming discussion.

Tuesday night we had our “Board Meeting” to review our expenditures and our plan.  It was very enlightening and Kubae immediately dug into the details.  Part of the historical review is that it really puts somethings in perspective, such as $500 a month on eating out.  Having the history made it much easier for us to ask questions like:

  • Why do we spend money on this category?
  • Is there an alternative?
  • Do we impact our quality of life if we redirect the funds to another purpose?
  • How does this spending get us to our goal?

Based on this conversation, we were able to move into the various budget proposals.  We reviewed each category, moved money from one area to another and made a commitment to the plan.  Which led us to last nights shopping trip.

We spent a few minutes creating the list and a rough idea of what we would spend.  We allotted ourselves $60 for last night’s shopping.  We completed the list and added a few things we had forgotten and the total came to $68.  Victory!

I know, you are thinking, but you exceeded your budget so how is this a victory?  The answer is, we typically would walk out with over $130 of food and goodies.  We were able to cut our typical shopping experience in half.  Besides, the $60 was a guess and a pretty accurate one if I say so myself.  This was, after all, our first shopping trip in a month’s worth of shopping.  I will let you know how well we did for July at our next “Budget Review Meeting” the first of August.

Budgeting is part of your planning.  If you want to grow your small business, then you need a goal which requires a plan to reach it.  Budgeting is your financial commitment to your plan.  so ask yourself where you want your small business to go and then plan how you are going to get there.

If you need help with budgeting and reviewing your past inflows and outflows, talk with your accounting professional and ask his help in understanding what is happening.  If you do not have an accounting professional or are looking for a new alternative, feel free to contact me to set up a free no obligation consultation.  I am here to help your small business meet your goals and dreams.

Have a great Thursday.

 

What is Your Brand?

Good morning.  It’s a little overcast this morning here in Vancouver but it should burn off shortly and we ought to have a very nice day today.

I think that many small businesses completely misunderstand the idea of a Brand.  We hear it often and think it has something to do with a cool business name, an imaginary slogan, a logo, a phone number which spells out your business name, domain name: You get the picture.

These items are very important but they are not your Brand – they support your Brand.  Now, what is a Brand?

The best definition of a Brand I have found comes from Al Reis and it is really about “Your Customer’s Image of You.”

If your customers think you are the best widget-maker in town, that is your Brand.  If your customers think you are the only lawyer in town who calls back within 4 hours, that is your Brand.  Their perception becomes your reality and your concern is capitalizing on this and helping spread your Brand.

What do you want your customers talking about when the opportunity arises for them to potentially refer you to a colleague who fits your ideal customer profile?  This is your Brand talking.  Is your current customer missing a vital tool to help you grow your business?

By identifying your Brand, you can start to align your other marketing overhead expenses to support your image.  For instance, if your image in the marketplace is a highly knowledgeable commercial realtor, are you spending your marketing dollars and keeping potential leads, current prospects, and clients informed about real estate trends?  My good friend Jim West of Coldwell Banker does this better than anyone I know.  I am fortunate to be able to call Jim a good friend for many years and he always goes out of his way to share his wealth of information.

His Brand is my image of him.  He cultivates this and when the opportunity comes up to have a conversation with someone about commercial real estate, guess who is top of mind?  By the way, the imagine I have of Jim is exactly the same image that all of Jim’s network sees.  He ensures a consistent message and this is the important part.

The best part of sharing your Brand is that it doesn’t need to consume your entire marketing budget.  Once you identify a possible Brand issue, create a few flyers, perhaps update your website, but most of all, talk the talk.  If you are the most approachable Dentist in town, then cultivate that.  Do presentations to local community groups with lots of Q&A, ask to speak at a school assembly.  You get the point.  Expand on your approachability and enhance your Brand.

If you are unsure of your real Brand, ask a few customers what makes you different than every other widget-maker.  They might be shocked, they might even say they never even think about it as you feel like a perfect fit as you get them (what a Brand!), but their response might open up new avenues for spreading your message and growing your business.

I would encourage you to have a conversation about your marketing expenses and if they are really generating the revenues you would like with your accounting professional.  If you are not currently working with an accountant or would like to have a second opinion, feel free to contact me to set up a free no obligation consultation about your business.

Have a great Tuesday.

Owning versus Renting Continued

Good morning and happy Monday!  I hope everyone had a great weekend.  Mine was filled with time in the gym, laundry and a walk around the Fort.  Plus lots of reading and the occasional show on Netflix.  A very nice weekend indeed.

For small business owners, there is one part of the own versus rent conversation that concerns them; and it has to do with their business property.  I share their concern.  On the one hand, it can be cheaper than leasing and you build equity, on the other, it potentially ties up a huge chunk of liquidity.  Lets dig into this a little bit.

On the use of the property, most business owners swear they use the property 24×7.  But do they really?  Even if your hours are 6am to 6pm M-S, that is only 72 hours a week out of a possible 168.  I know, the business parks the fleet there, has tools, etc. in the building that need to be protected 24×7.  It doesn’t really meet the 80% test, but it does fall squarely into the lease category.  If you still feel it best to consider buying the property, there are other things to be aware of.

The bigger concern is how to pay for the purchase of the property.  With a lease/rental situation, you may have to leave a deposit, perhaps first and last months rent plus $1,000.  For this conversation, lets say the rent is $5,000 per month so your initial out-of-pocket to move in is $10,000.  Coming up with $10,000 is not a real challenge for most small businesses looking for property.

To buy that same property though, you may need a lot more than $10,000.  Let’s say the building is worth $500,000.  If you are fortunate, you may be able to put a down-payment of 3% (assuming you qualify for some sort of SBA guaranteed loan).  Most typically, plan for a 10% down payment.  That is $50,000 of liquidity you must have available to buy the property.  It is also liquidity you can’t get back quickly or easily.

But you cannot forget the other costs of ownership.  Remember, you still have property taxes which say runs about 1.5% of the value of the property.  And don’t forget, now that you own the building, you are responsible for its upkeep and maintenance.

If you have talked to some professionals about this (which I very strongly encourage), you set the building up in an LLC and are now renting it to your business.  Your business rents from you  at $5,000 per month, which is what you were going to pay in rents to begin with.

I know that there are tax benefits from the ability to take depreciation, but your business doesn’t see that, you do.  Don’t get me wrong, you may have other forms of income where having rental losses can be very helpful.  But if you are a typical small business owner, you have your income from the business and that is pretty much it.

I also realize that there is the potential for the gain on the investment.  But the net gain after realtor fees, lawyers and taxes might not be as great as you imagined.

There is nothing wrong with owning your business property and renting it to your business.  Remember though, it can suck down your liquidity and possibly slow your business growth.  Really analyze your current and future cash position and ask yourself if tying up your cash in real estate is the right investment.  If you need help or want to understand the impact of owning versus renting commercial property, talk with your accounting professional and ask her advice.  If you are not working with an accounting professional or are interested in a second opinion, feel free to contact me and enjoy a free no obligation consultation.