Why Business Owners Need to Keep Thorough Records

By Bonnie Lee/Published April 20, 2012/FOXBusiness

No one likes to pay more in income tax than they have to, but it happens all the time thanks to inadequate record keeping.

If a business owner doesn’t understand the accounting process and the basic skeleton of a good set of books, costly errors can go undetected. Business income is a common area to make mistakes, so here are a few tips designed to eliminate potential problems.

Sales are the primary source of taxable income for most small businesses, and this is the only income that should be shown at the top of the Profit and Loss Statement. Sales can be broken down into several line items if you wish. For example, a clothing store may break out sales numbers by broad categories of items, such as, women’s clothing, men’s clothing, accessories, jewelry, shoes, etc…

 What I often find when drilling down into the gross sales reported on the profit and loss is income that is not taxable at all: loans, capital contributions, deposits of gifts from parents or loan repayments. If a tax pro uses the total reported on the profit and loss statement and the total contains these types of transactions, the business owner will pay more in taxes than required.

To prevent confusion, monies from sources other than sales when deposited into the business bank account must be classified according to the type of income they represent. Take a look at the chart of accounts on your accounting software. If you are using QuickBooks, go to the top ruler bar, click on lists, and chart of accounts. Note that all accounts are categorized on the right hand side by type of account: bank, assets, liabilities, equity, sales, expenses, other income and other expenses, etc. Whenever you post a transaction, QuickBooks will provide you with the name of the account as well as the type of account it is. Start paying attention to this feature.

Capital Contributions: Any time you transfer money from a personal account or deposit cash from your pocket into a business bank account, you have increased your equity position in the business. Therefore, the transaction should be classified as a capital contribution. On your chart of accounts under equity, you may see this listed under a similar name such as owner investments, paid in capital (corporation) or owner contributions.

Owner Loans: If you are a sole proprietor, you are the business and don’t need to set up a liability account payable to yourself. Not only is this not the method to be used to record monies you “lend” to yourself, the business, but it will falsely decrease your equity position. Post these items as capital contributions.

However, if your legal form is corporate, you may wish to classify these transactions as loans. In this case, set up a liability account (short term – payable in one year or less or long term – payable in more than one year). Check with your tax pro to determine if it would be better to show the transaction as a loan or as paid in capital.

Bank Interest: When your business accounts earn interest, these amounts should be shown on the profit and loss statement but at the very bottom of that statement under Other Income. You are not required to pay self-employment tax on interest earned on business accounts, therefore do not report this income on your Schedule C. It belongs on Schedule B of the tax return.

Credit Card Cash Advances and Consumer Loans: I can’t believe how many times I’ve seen these transactions mixed up in sales. Not only might the business owner, who obviously needed a cash infusion to begin with, hurt himself further financially by paying taxes on nontaxable income, but he is losing a valuable interest deduction by not properly tracking the repayment of the loan or cash advance. Set up this account as a credit card liability. When the monthly statement arrives, record the interest expense as well as any new charges. It is best to have a credit card devoted 100% to business. But if personal charges occur then post them to your draw (also an equity account).

Reconcile the credit card or loan account monthly in the same way you would reconcile your checking account to ensure the correct balance is carried forward. QuickBooks allows the reconciliation of liability and credit card accounts including full reports.

Periodic Income:

Say you have a vending machine on the premises that you cash out every couple of months, that income is taxable and should be recorded as “Other Income” at the bottom of the profit and loss statement.

Or perhaps you receive a check from the insurance company for flood damage at your business, this reimbursement will be recorded as “Other Income” and included on your Schedule C. Of course, so will the offsetting expenses to clean up the damage. It’s usually a push.

Rebates on equipment, business vehicles, etc. are not reported as income. Instead they reduce the basis of the item purchased. The rebate should be recorded as an asset in the same account that the purchase resides.

Gifts from friends and family members can be attributed to your owner capital contribution account.

Business loans from family members – see consumer loans above.

Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn’t Want You to Know.”

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8 Core Beliefs of Extraordinary Bosses

Apr 23, 2012| Geoffrey James

Apr 23, 2012

A few years back, I interviewed some of the most successful CEOs in the world in order to discover their management secrets. I learned that the “best of the best” tend to share the following eight core beliefs.

1. Business is an ecosystem, not a battlefield.

Average bosses see business as a conflict between companies, departments and groups. They build huge armies of “troops” to order about, demonize competitors as “enemies,” and treat customers as “territory” to be conquered.

Extraordinary bosses see business as a symbiosis where the most diverse firm is most likely to survive and thrive. They naturally create teams that adapt easily to new markets and can quickly form partnerships with other companies, customers … and even competitors.

2. A company is a community, not a machine.

Average bosses consider their company to be a machine with employees as cogs. They create rigid structures with rigid rules and then try to maintain control by “pulling levers” and “steering the ship.”

Extraordinary bosses see their company as a collection of individual hopes and dreams, all connected to a higher purpose. They inspire employees to dedicate themselves to the success of their peers and therefore to the community–and company–at large.

3. Management is service, not control.

Average bosses want employees to do exactly what they’re told. They’re hyper-aware of anything that smacks of insubordination and create environments where individual initiative is squelched by the “wait and see what the boss says” mentality.

Extraordinary bosses set a general direction and then commit themselves to obtaining the resources that their employees need to get the job done. They push decision making downward, allowing teams form their own rules and intervening only in emergencies.

4. My employees are my peers, not my children.

Average bosses see employees as inferior, immature beings who simply can’t be trusted if not overseen by a patriarchal management. Employees take their cues from this attitude, expend energy on looking busy and covering their behinds.

Extraordinary bosses treat every employee as if he or she were the most important person in the firm. Excellence is expected everywhere, from the loading dock to the boardroom. As a result, employees at all levels take charge of their own destinies.

5. Motivation comes from vision, not from fear.

Average bosses see fear–of getting fired, of ridicule, of loss of privilege–as a crucial way to motivate people.  As a result, employees and managers alike become paralyzed and unable to make risky decisions.

Extraordinary bosses inspire people to see a better future and how they’ll be a part of it.  As a result, employees work harder because they believe in the organization’s goals, truly enjoy what they’re doing and (of course) know they’ll share in the rewards.

6. Change equals growth, not pain.

Average bosses see change as both complicated and threatening, something to be endured only when a firm is in desperate shape. They subconsciously torpedo change … until it’s too late.

Extraordinary bosses see change as an inevitable part of life. While they don’t value change for its own sake, they know that success is only possible if employees and organization embrace new ideas and new ways of doing business.

7. Technology offers empowerment, not automation.

Average bosses adhere to the old IT-centric view that technology is primarily a way to strengthen management control and increase predictability. They install centralized computer systems that dehumanize and antagonize employees.

Extraordinary bosses see technology as a way to free human beings to be creative and to build better relationships. They adapt their back-office systems to the tools, like smartphones and tablets, that people actually want to use.

8. Work should be fun, not mere toil.

Average bosses buy into the notion that work is, at best, a necessary evil. They fully expect employees to resent having to work, and therefore tend to subconsciously define themselves as oppressors and their employees as victims. Everyone then behaves accordingly.

Extraordinary bosses see work as something that should be inherently enjoyable–and believe therefore that the most important job of manager is, as far as possible, to put people in jobs that can and will make them truly happy.

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Last-minute Tax Tips You Can’t Afford to Miss

René Shimada Siegel  Apr 13, 2012

Ahh, the tax man cometh again. Just when you were feeling good about how much business improved in 2011, the IRS shows up to grab its share. More profits for you equals more taxes for Uncle. Damn.

I asked Brad, my Tax Man, if we were doing all we could to reduce our healthy taxable income. He slowly drew a small rectangle and filled the rectangle with a few vertical lines. “See that?” he said. “That’s jail. The good news is you made more money last year. The better news is the tax rate is still far less than 100 percent.” Ah, got it.

Now, I’m not a tax professional and I’m certainly not offering advice about your specific tax situation but I will tell you that you can’t deduct your grocery bill from Costco, or the Petco bill for grooming your lap dog, nor can you deduct your children’s private school education.

Brad and super-accountant Tammy are a strategic part of my business team. I trust them to make sure we pay our fair share and minimize the pain of tax time. Here are common and legit tax savings for small businesses that my favorite number crunchers say too many business owners overlook. (If not for Brad and Tammy, I might have missed them, too!).

Car expenses. The rule is you can deduct the costs of operating a car only when that car is being used for business purposes. Keep track of the miles you drive and add them up at the end of the year. The deduction rate in 2011 was 50.5 cents per mile and in 2012 is 55.5 cents per mile for business-related driving.

Travel. In addition to car travel, you can also deduct the cost of plane fare, taxis, lodging and meals as long as the trip was undertaken primarily for a business purpose.  Additionally, travel expenses paid or incurred in connection with a temporary work assignment away from home are deductible.

Education.  As a small business owner, staying up to date on the complexities of your industry is imperative for operating a successful business. Author Stephen Covey calls this “sharpening the saw,” investing in yourself to become smarter and more effective. You can deduct education expenses if the courses you take are related to your field and help you run your business.

Software.  Most software programs bought for business purposes have to be depreciated over a period of 36 months. But if the software is only useful for less than a year, you can deduct its cost as a business expense in the year that you buy it.  With rapid changes in technology and software constantly being updated and replaced, this is becoming a more common source of tax savings.

New Equipment. The key here is “new.” Section 179 deduction can sometimes allow a small business owner to write-off the full costs of new equipment in the same year they were purchased. This year you can write-off up to $139,000 in expenses, and half of what you spend above that amount. The writeoff starts to decline once your total spending exceeds $560,000.

Profit Sharing.  It’s nice the Uncle Sam lets you deduct a key tool for attracting and retaining high-quality employees and increasing productivity. That’s right: A profit sharing plan does this for us, and more.  Your contributions to retirement plans (and often plan expenses) are generally tax-deductible.  You may also be eligible for a tax credit for establishing a qualified retirement plan.

Carryback. In addition to tax-deductible expenses, executing a net operating loss (NOL) carryback is another good way to recoup some of the losses you suffered during the recent economic crisis.  This deduction allows you to offset one year’s losses against another year’s income.  Calculating a NOL can be tricky and we suggest that, if you have one, you consult a tax professional to help ensure you do it correctly.

Have more questions? The IRS is actively working to make information more easily accessible, and believe it or not, they have social media tools that describe tax changes, initiatives, products and services. Check out the IRS2Go phone app (for iPhone and Android phones), YouTube, Twitter, Facebook, and free IRS podcasts on iTunes.

René Shimada Siegel is Founder and President of High Tech Connect, a specialized consultant placement firm for marketing and communications experts.

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Tips to Help You Claim a Home-Office Deduction .

By BARBARA WELTMAN

About 52% of all businesses are run from home. The number of teleworkers is growing annually.

It’s good to know that some tax savings can result from this work arrangement.

A portion of personal expenses for your home can be turned into a business deduction — if you meet certain rules.

To claim a home-office deduction, you must use the space in your residence as a principal place of business, as a place to meet or deal with customers on a regular basis, or as a separate structure used for the business.

You also must do the above regularly and exclusively for business.

If you’re an employee, you must use the space for your employer’s convenience and not for your own preference. Working after hours at home rather than staying late at the office is probably your own choice and not for your employer’s convenience.

Usually, “employer’s convenience” means that the employer does not have space for you on the company’s premises.

But while the home-office deduction rules are written in black and white, there are some uncertainties that could affect your home office deduction. Think of them as gray areas.

One is the meaning of exclusive use. Clearly, the space must be available 24/7 for business and cannot be used by you or your family for personal reasons at any time during the day or night. Thus, if you use a TV room as an office during the day and your family watches TV there in the evening, you fail the exclusive-use test.

But what about walking through a room? The Tax Court has said that even occasional use of space, such as using a bathroom by family or guests, means your business use is not exclusive. However, the court has also said that incidental use of space, such as family members walking through the office to get to another part of the home, is minimal and won’t cause you to fail the exclusive use test.

What’s the difference between occasional and incidental use?

This is a gray area, but it seems that passing through is not equivalent to using the space.

Storage of some personal items in a space claimed as a home office won’t violate the exclusive-use test. The court has allowed a home office deduction for a garage in which some personal items were kept. So, people, no. Things, yes.

A common belief is that claiming a home office deduction is a red flag to the IRS, practically inviting an audit. There is no IRS data to support this belief and, unfortunately, the belief may be responsible for some taxpayers forgoing the deduction needlessly even though they are otherwise eligible for it.

The best course of action is to talk over your personal situation with a tax advisor to make sure you meet the home office deduction rules.

Keep good records of all expenses related to the home office, and take a photo of the space used as a home office. The photo can help in case the IRS questions your return after you’ve stopped using the space for business.

To learn more about the home-office deduction rules, see IRS Publication 587, Business Use of Your Home.

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Hiding Income? Look Out, Here Comes the 1099-K

By

Starting this month, business owners will begin getting new tax forms issued by their credit-card and online-payment processors and intended to keep businesses from hiding income. The form, called 1099-K, will document all 2011 transactions processed for sellers with more than 200 transactions and $20,000 in annual gross receipts. The IRS estimates that 53 million forms will be issued by such processors as eBay, PayPal, and Amazon as well as credit-card companies, says Steven Aldrich, chief executive officer of Outright.com, which makes online bookkeeping applications for self-employed people and small business owners. Aldrich spoke with Smart Answers columnist Karen E. Klein about how small business owners should handle the new forms. Edited excerpts of their conversation follow.

The new 1099-K requirement was signed into law by President George W. Bush in 2008 but is just now taking effect. Why is the government mandating this?

Electronic payments are a growing part of our economy, but up to now they have not been officially reported to the IRS. People were on their scout’s honor to report this income. This new form is designed to help close the gap between what businesses and individuals owe the IRS and what they actually pay. It is expected to bring about $9.5 billion into the U.S. Treasury over 10 years by taxing revenue flowing through electronic networks.

That’s a big number.

It is a big number, but our concern is keeping the burden on small business low enough so they don’t lose their competitiveness and don’t have a big burden of extra time they have to put into dealing with this. All businesses will get these, not just small businesses, but larger businesses have got tax teams and people to handle these matters and small business people usually do not. Our concern is that small business owners could be distracted and worried when they get this form and not know what to do with it.

This is going out for the first time to individuals such as eBay and Etsy online sellers. Have they gotten any notice about the form?

The payment processors were required to obtain sellers’ tax identification numbers for these forms, so many of them sent out notices last year when they were verifying the information and making sure the right people got the right form.

What information will the form list?

It’s actually very simple. At the top is a box with your total gross revenue for the year, processed by PayPal or whichever payment processor you use. Beneath that box is a breakdown of revenue month by month.

How is that number going to be compared with what’s reported on an individual’s tax return?

The IRS will look at the gross sales amount reported on the 1099-K and compare it with the total gross receipts reported on an individual’s Schedule C. The amount on the tax return has to be at least as much as what’s reported on the 1099-K.

The interesting thing is that these amounts reported to the IRS are gross sales numbers. But businesses never actually make their gross sales because of refunds, frauds, exchanges, and returns. But none of those expenses are taken out of the gross sales amount.

And business owners don’t pay taxes on gross income, but on net income.

Exactly. So it will be incumbent on the business owner to take the gross amount reported on the 1099-K and capture all the transaction fees, charges, and returns, in addition to the other expenses of running their business, in their tax reporting.

Is that going to be a big burden for micro-businesses?

It’s not going to be a big deal if you have good record keeping. The problem is that most small business owners are still using paper and pencil and spreadsheets to track their business data. This reporting is really a clarion call to move those people into the digital age. Certainly, if you’re taking electronic payments, you need to move to a digital form of keeping your books.

Are there other pitfalls related to the 1099-K?

For service providers, like consultants, who are taking advantage of electronic payment systems, they might get a 1099-MISC for some part of their consulting revenue. But that income would also show up on the 1099-K if it was processed electronically. That could result in double counting that income, so that’s something to be very careful about, especially as more people in the service industry are starting to use services such as PayPal or mobile credit-card readers instead of taking cash or check payments.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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Still Don’t Get Social Media? Here’s What To Do About It

Ivana Taylor, Marketing Strategist, DIY Marketers,  November 28, 2011

Do you stay quiet on social media because if you admit that you don’t get it, social media experts look at you like you have three heads? You are not alone.

A lot of business owners feel that this marketing tool is beyond their understanding and will remain so. If you secretly feel hopeless or stupid about social media marketing, read on. You’ll find a strategy and a day-to-day plan that will get results.

Focus on objectives, purpose and brand

First, stop worrying about individual social media applications and tools, and get clear on the purpose of your business and your brand.

  • What does your business do for customers?
  • What is your brand promise?
  • What do you want to be known for?

Don’t over-think these questions, just jot down a few notes and thoughts. They will become your talking points as you step into the Twitter, Facebook, LinkedIn and Google+ worlds.

Think of social media applications as rooms

Once you’re clear on your message and your talking points, imagine each social media application as a room at an event. Walking into any social media space is like walking into a bar.

When you walk into a bar, you might join a group of friends and chat with them. TVs tuned to the news have a newsfeed running across the bottom. (The links that people share on social media sites are like that newsfeed.) You might also hear tidbits of conversations from the people around you. You may leave one conversation for another, or just listen to several conversations.

When you think about it this way, it’s obvious what your behavior on social media sites should be and what kind of information you might want to share with people. You wouldn’t think about blatantly selling anything at a bar because a bar is not a retail outlet. But you would share your experience with a product or service. You should be active in social media to interact, learn and inform others—casually.

Give your business or your brand a voice

Maybe you’re used to relating to marketing communications as a company instead of as a person. In the past, we’ve been conditioned to separate our personal lives from our business lives. But social media marketing emphasizes personal voices inside brands.

Every social media platform was originally designed for individual communication—for people, not companies. Think about what it is that you have to share that supports your business and your brand.

One of my favorite examples is Shashi Bellamkonda, director of social media at Network Solutions (@ShashiB). He is committed both personally and professionally to small business and its participation online. His personal expertise and experience fully support that of the larger Network Solutions brand. Visit his Twitter profile and notice how comfortable he is in this room.

Focus on your marketing objectives and results

Many small business owners try to use social media to achieve sales objectives instead of marketing objectives. Selling on social media is not only ineffective, it’s a sure way to put people off instead of attracting them to your brand.

From a marketing perspective, what are you trying to achieve, and who are you trying to attract?

Suggestions by business type

  • Business-to-consumer or retail: Build relationships with your local community to attract local people. Use Twitter and Facebook to communicate what’s going on at your location.
  • Professional: Build your credibility and expertise by sharing information and educating your target audience. Participate in LinkedIn groups and Facebook groups and pages in your vertical markets. Build your focused network across regions if that’s appropriate for your business.
  • Business-to-business: Build relationships with relevant people in your networks. Use LinkedIn to find and connect with decision-makers and influencers inside the companies you work with and in your customers’ companies. Create lists on Twitter that include experts in your industry and conversations about the industry topics that you’re interested in. Google indexes Twitter conversations, so have those keyword-rich conversations there. Google+ is the latest social media tool that combines the benefits of Facebook and Twitter and makes it possible to collaborate and work in a social media environment.

Create a place for conversations to land and expand

You may not be successful with social media because you don’t have a clear place for these conversation to “land.” It’s hard to get any traction from social media when you don’t have an offer or an internet representation of what you’re talking about.

Don’t just link to your home page—that’s confusing for your audience. Write blog articles that clearly communicate your brand and your offer in a way that is useful, engaging and educational. Start conversations. You can capture people from the online world and add them to your own sales and marketing database by creating landing pages that have offers such as downloadable reports, e-courses, white papers, videos and templates.

Focus on a few key social media spaces and let go of the rest. If you do everything I’ve outlined here, you’ll come up with a few key sites that support your marketing strategies. Participate more fully in the areas that you’ve targeted based on your goals and objectives.

Base your social media policy on your marketing strategy

Writing a policy doesn’t have to be a big, scary, official thing. It’s a set of rules that you follow on social media that supports your goals and objectives. It keeps you focused on what you’ve decided to work on as you navigate social media spaces.

Have fun

Focus on your marketing objectives and then use social media marketing to engage with your audience in a way that generates interest and, ultimately, new customers. Use social media to build a community that is engaged in your brand because you are engaged in helping them understand and use your brand.

You’ll experience the satisfaction that comes from having access to your customers and influence in your market.

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Ten Common Marketing Mistakes

By Steve McKee

I can’t tell you how many times I’ve heard this refrain, or a variation of it: “We tried _____ marketing tactic. It doesn’t work.” While it may be true that a given approach is ill-suited for a particular industry, audience, or situation, in my experience the tactic is less often to blame than the implementation of it. In fact, many companies make mistake after mistake based on gaps in their understanding of how marketing really works. Here’s a quick review of 10 of the most common errors to help you avoid the worst of them.

Aiming at everyone. No company can be all things to all people; as much of a cliché as that is, it’s true. Companies paint themselves into a corner because of a misplaced fear that by targeting one group they’ll be turning away others. But aiming at everyone is an oxymoron; the best marketers understand that by narrowing their target audience they can increase the intensity of their brand’s appeal, piquing interest and driving margins. You’re better off being the first choice of 10 percent of the population than being one of 10 options for everyone.

Betting on rationality. This mistake is subtle, but dangerous. Marketing planning is often a left-brain effort, where rational exercises like determining budgets and plotting strategy take place. But consumers don’t make decisions where logic and argument reside; research suggests that emotion not only influences most purchase decisions, it tends to trump reason along the way. Don’t try to convince your prospects; connect with them. They’re depending on their gut more than you realize.

Letting market research trump everything. Too many marketers invoke data as if information had mystical qualities. To say market research has its limitations is to understate the point; some of it can be flat-out misleading. Consumers don’t always realize how they feel, what they think, or why they do what they do, and even when they’re well aware they won’t always tell you the truth. Research is a valuable tool in a marketer’s shed, but used improperly it can cost you a finger (and perhaps your head).

Getting seduced by the new. We live in fast-paced, exciting times, with new marketing and media options sprouting up every day. While they’re all worth a look, none is worth upending your efforts for. It’s easy to be seduced by the siren songs of new tactics, but wisdom says to stick to what works while you evaluate what might. Some company has to be first to give something a shot, but it should rarely (if ever) be yours.

Advertising your aspirations. We all aspire to make quality job No. 1, offer uncompromising service, and demonstrate amazing results, but no company can fully achieve any of these. Advertising your aspirations only invites people to catch you failing to achieve them, and these days it’s easier than ever for them to spread the word. Aspirations are, by definition, promises that can’t be fully kept. Don’t announce them, just try to live by them—use them within the walls to rally your troops but don’t let them escape to rouse the ire of your customers.

Following the leader. Competition is awesome in the abstract. When it gets concrete it’s just plain hard, especially if your competitors are pounding the market with claims you think you can match or beat. It’s tempting to try and one-up the other guys, especially if they’re the market leader. Do so, however, and you may reinforce their strengths and derail your differentiation. Don’t try to be better. Just be different.

Seeking approval by committee. If you can’t agree with your family on what type of pie to serve at Thanksgiving, how can you expect a roomful of managers to agree on something as subjective as marketing communications? Everyone’s taste is unique, and the fewer people involved in the creative approval chain, the better. If you try to please everyone, you’ll end up with a gooey mess that nobody wants to eat. The best committee is a committee of one.

Starving the budget. An anemic marketing budget may save bucks but it will cost business. If you don’t have a line item on your profit and loss statement with a reasonable percentage allocated to marketing, you’re not a real business. Notice I said marketing, not advertising—paid media may very well not be right for your situation, but every company must somehow get its message out. Find the way and spend the money. And keep in mind that most do-it-yourself marketers shouldn’t be doing it themselves. Pay for professional help.

Anticipating customers will act very quickly. When was the last time you leapt out of your recliner to do exactly as an ad instructed? Marketing doesn’t work that way, and as consumers we all understand that. Yet when we slip into our desk chairs we somehow expect marketing to show immediate results. It takes time to seed a message, and credibility grows through consistency. Plan your efforts well, and stick with them. As obvious as it sounds, every time you start over, you’re starting over.

Chickening out. Plans are terrific, but plans are just words on paper. It’s amazing how much time and money companies spend getting their acts together, only to succumb to stage fright when it’s time for the curtain to rise. It’s easy to come up with reasons not to do something, surrendering to fear of the unknown. But just as writers aren’t writers unless they write, marketers aren’t marketers unless they market. Not everything you do will work, but with each mistake you’ll be learning and growing.

There you go. Ten tips that can save you time, money, and a lot of frustration as you learn from the mistakes of others. Now you’re free to make new mistakes of your own (when you do, I’d love to hear about them).

Steve McKee is president of McKee Wallwork Cleveland and author of When Growth Stalls: How It Happens, Why You’re Stuck, and What to Do About It. Find him on Twitter and LinkedIn.

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8 Reasons Your Employees Don’t Care

By Jeff Haden | September 6, 2011

Pay only goes so far. Higher salaries are like the bigger house syndrome: Move into a bigger house and initially it feels roomier, but after awhile larger becomes the new normal.

Employees don’t automatically perform at higher levels if wages are higher because commitment, dedication, and motivation are not based on pay. No matter how high the salary, if you treat employees poorly they won’t care — about their jobs or your business.

Here are eight reasons employees don’t care:

1.No freedom. Best practices are definitely important, but not every task deserves a best practice or micro-managed approach. Autonomy breeds engagement and satisfaction. Autonomy also breeds innovation. Even manufacturing and heavily process-oriented positions have room for different approaches or paths. Decide which process battles are worth fighting; otherwise, let employees have some amount of freedom to work they way they work best.

2.No targets. Goals are fun. (I’ve never met anyone who wasn’t at least a little bit competitive.) Targets create a sense of purpose and add meaning to even the most repetitive tasks. Without a goal to shoot for, work is just work.

3.No sense of mission. We all like to feel a part of something bigger. Striving to be worthy of words like “best” or “largest” or “fastest” or “highest quality” provides a sense of purpose. Let employees know what you want the business to achieve; how can they care about your dreams if they don’t know your dreams?

4.No clear expectations. While every job should include decision-making latitude, every job also has basic expectations regarding the way certain situations should be handled. Criticize an employee for providing a refund today even though last week refunds were standard procedure and you’ve lost the employee. (How can I do a good job when I don’t know what doing a good job means?) When standards change, always communicate those changes first — then stick with them. And when you don’t, explain why this particular situation is different.

5.No input. Everyone wants to be smart. How do I show I’m smart? By offering suggestions and ideas. (Otherwise no matter how hard I work I just feel like a robot.) Deny me the opportunity to make suggestions, or shoot my suggestions down without consideration, and I’m just a robot — and robots don’t care. Make it easy for employees to present ideas and when an idea doesn’t have merit take the time to explain why. You can’t implement every idea, but you can make employees feel good every time they make a suggestion.

6.No connection. The company provides the paycheck, but employees work for people. A kind word, a short discussion about family, a brief check-in to see if they need anything… person-to-person moments are much more important than meetings or formal evaluations. Employees want to be seen as people, not numbers. Numbers don’t care. People care — especially when you care about them first.

7.No consistency. Most employees can deal with a boss who is demanding and quick to criticize… as long as she treats every employee the same way. (Think of it as the Vince Lombardi effect.) While it’s okay — in fact necessary — to treat employees differently, all employees must be treated fairly. Similar achievements should result in similar praise and rewards. Similar offenses should result in similar disciplinary actions. The key to maintaining consistency is to communicate; the more employees understand why a decision was made, the less likely they are to assume favoritism or unfair treatment.

8.No future. Every job should have the potential to lead to something better, either within or outside the company. I worked my way through college at a manufacturing plant. I had no future with the company because everyone understood I would only stay until I graduated. One day my boss said, “Hey, let me show you how we set up the job scheduling board.” I looked at him oddly; why show me instead of someone else? In response he said, “Some day, somewhere, you’ll be in charge of production. Might as well start learning now.” Take the time to develop employees for jobs they hope to fill — even if those positions are outside your company. They will care about your business because they know you care about them.

Posted in Employment | Leave a comment

Selling for a Small Company: 8 Rules

By | August 15, 2011

Selling for a small firm presents challenges even for top sales professionals. Because your company is small, your prospects probably don’t know much about it. Money is tight, which means that you don’t have luxury of spending lavishly to develop an account. Your firm probably lack the sales support that reps in big firms take for granted. And so forth.

Even so, there are tremendous advantages to selling for a small firm… if you know the rules.  Here they are:

RULE #1: Never Apologize. Man sales reps in smaller firms scuttle their credibility by taking on an apologetic air, trying to explain away the inexperience or size of their firm, and then practically begging for the business. Savvy customers smell that kind of fear a mile away and are often more than willing to use it to their advantage by demanding steep discounts or even amusing themselves by making the hapless rep jump through meaningless hoops. Don’t let that happen to you.

RULE #2: Consider Yourself the Customer’s Equal.Rather than being apologetic, you must convince yourself of the value of what you and your firm has to offer. Rather than dwelling on your inexperience, constantly emphasize the unique value of a truly new approach to the customer’s problems. And rather than begging for business, be hard-nosed and ready to walk out the door. And as for jumping through hoops, your company is business not a dog and pony show.

RULE #3: Treat “Weaknesses” as Strengths. Customers may not know anything about your firm, but they don’t have any negative preconceptions, either. Money may be tight but customers are often negatively impressed when they see sales reps overspending. Support may be scarce in your firm, but that’s an opportunity to get creative and more independent.  Remember: many decision-makers who won’t talk to cookie-cutter sales reps from established firms will take the time to talk with somebody with original ideas and a new approach.

RULE #4: YOU Are the Brand. It’s a truism that customers buy from people they trust. When you’re selling for a small firm, YOU are the brand name, the reputation, the trust-ability, and the reliability that the customer is buying.  A sales rep working for, say, IBM needs only the label on a business card to create credibility. With a smaller firm, that trust and credibility must come from the person that you are and the way you present yourself to the business world.

RULE #5: Be an Entrepreneur. Because your firm lacks the support infrastructure of a larger firm, in most cases the only person you can really count on to get things done is yourself.  You’ll need to be extremely careful about your time and resources, and constantly finding creative ways to get things done quickly and easily. Remember: “activity” multiplied by “hours spent” must equal “sales results.” Make certain that everything you do leads towards the results that you seek.

RULE #6: Match Each Request with a Counter-Request. Insist that anything the customer asks you to do give you the right to ask the customer to do something comparable in return. That policy not only ensures that you’ll not be taken advantage of, but also gives you frequent opportunities to strengthen your competitive position and move the sales process forward. For example, if a customer asks you to provide them with an RFP based upon 35 pages of detailed questions, explain that you’ll only do so if you’re guaranteed a meeting with decision-makers to present your solution.

RULE #7: Be Willing to Say No. Never give in to a customer who’s being unreasonable or demanding things that don’t make sense for your company. Your larger competitor can perhaps afford to kowtow to get the business. You, however, don’t have the luxury of being anything less than the best – and the best in any industry NEVER truckle. That doesn’t mean that you shouldn’t be cooperative, but in all your dealings be aware of your worth and the worth of your company to the customer.

RULE #8: Never be afraid to bail. Don’t let wishful thinking propel you into wasted effort. If it becomes clear that the deal doesn’t make sense for your company or will take to much time and effort to close, it’s not worth pursuing. For example, if you’re being told you can’t meet with the decision-maker, you aren’t going to get the business. Period. So move on, without regrets.

The above is based on a conversation with sales trainer Bob Beck, who (unfortunately) has a track record of borrowing material from other sales trainers.  As a result, I don’t really know the ultimate origin of these rules.  They smack, however, of common sense, so that’s why I’m posting them anyway.

Posted in Making Improvements | Leave a comment

What’s deductible when working from home?

By Cyndia Zwahlen | August 15, 2011

Small-business owners who work at home might not have to worry about a commute, but figuring out their taxes could make the 405 Freeway at rush hour seem like a piece of cake.

Rules concerning home office deductions are hazy, experts said. For example, does a stereo or television in a home office qualify as a business-tax deduction? What about artwork on the walls, rugs on the floor or fresh flowers on the desk? What if the business owner lives and works on a boat?

 “People are so unclear about these issues,” said Jan Zobel, an Oakland tax preparer and author of “Minding Her Own Business: The Self-Employed Woman’s Essential Guide to Taxes and Financial Records.”

The Internal Revenue Service doesn’t publish black-and-white rules on every aspect of the topic. Instead it’s up to the small-business owner — and his or her tax preparer — to be able to make the case to the IRS as to whether something is a legitimate home-business expense and to what extent.

To be deductible, a home office space “has to be used on a regular basis and exclusively” for the business, said Sam Jarrar, a certified public accountant in Marina del Rey.

Even a corner of a room can meet that test and be deducted, he said. But no working on the family finances in the home office, not matter what size it is.

The deduction is based on what share of the total space in a dwelling the home office takes up. If it’s, say, 20%, then the business owner could deduct that portion of a number of indirect costs — such as utilities or real estate taxes — as a business expense. A renter could deduct that percentage of the rent payment.

If the home office deduction is taken, direct costs related only to the space, including repairs or wallpaper, can also be deducted.

When Denise Abdun-Nur set up an office in a spare room of her house for her Amazing Grace Organizing service in Ventura, she was able to deduct the cost of direct expenses for the room, such as new window blinds and paint for the walls.

She relied on a trusted accountant to make the calls as to what was tax deductible for her small business, and advised other business owners to do the same.

“That’s not my area of expertise, and I would rather pay for their service now than pay fines later,” Abdun-Nur said. “If you listen to other people, like friends and other business owners, you get a lot of different information.”

Even if the home office itself is deductible, not everything in it necessarily is.

“In order to deduct an expense, it needs to be necessary in order to bring the business owner more profit, and ordinary, in the sense that other business owners would have the same expense,” Zobel said “I didn’t deduct the TV or iPod I have in my exclusively used home office, but someone who’s more aggressive might have.”

If a business owner is using just a corner of a room, then something like a stereo or television is probably not a deductible business expense because it’s probably not used exclusively for the business. Zobel said that fresh flowers for the area probably wouldn’t be deductible, either.

Colleen Wainwright, who runs her social media consulting business, Communicatrix, out of her former dining room in Los Angeles, bought a small money tree for her space.

It’s supposed to be good for career success, she said, but Wainwright didn’t deduct the $4 cost.

“I am very fond of being conservative with the IRS,” she said. “Why invite trouble? It comes too often on its own.”

Posted in Tax Issues | Leave a comment