Certified Entrepreneurial Advisor

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03

Jun'17

Should I do a Customer Profitability Analysis?

The ease with which you do this analysis and the accuracy depends entirely upon the level of granularity of your accounting system and ancillary reporting systems. The obvious idea is to figure out how much each customer provides in profit. You need to know what customers buy, how much they buy, how often, and the gross margins from each of those products. However, to do a realistic job of analysis, you have to take into consideration the returns, defects, post sale customer service, and the cost of maintaining the customer. Some would also suggest that the cost of acquiring the customer should be factored in… to get a total profitability from each customer. Few organizations have enough data to provide all this information in an easily accessed format. Figuring all this out depends upon whether you can get the requisite information, or whether you have to make “assumptions.” The biggest and most distorting assumptions will be in the product mix and the after-sale support. If you are considering the total profitability, you also have to figure out how much it cost to acquire the customer… a process fraught with assumptions. So, you end up doing all this analysis, and what …

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28

May'17

The Difference between a Corporation and a LLC

Both a LLC and a Corporation are entities established by registering with the particular state you are located in. The differences are profound. A Corporation is governed by corporate law, most states conform to the Uniform Commercial Code ( a prototype) of corporate law. Corporations are characterized by having a charter, bylaws, a governing board of directors, shareholders, and officers. In most states, a corporation must have at least three named officers ( one person can hold more than one office.) Corporations are governed by their board of directors, who are expected to meet on a regular basis and pass resolutions, which validate various actions of the officers, establish policies, enable borrowing and opening of bank accounts, etc. Corporations evidence their ownership by the issuance of capital stock, or shares of stock. Most states require annual reporting of one form or another. LLC’s are a hybrid entity, and were not prevalent until the 1980’s. They are much less formal in organization than corporations. They are governed by an operating agreement, managed by the owners, who are called “members.” No shares of stock are issued: ownership is evidenced by a percentage, similar to how it’s done in a partnership. In many …

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27

Apr'17

What’s the logic behind Debits and Credits?

This one’s easy: for every action there is an equal and opposite reaction. Pure physics; a fundamental law of the universe. Now, how do you remember that assets are increased by debits? This one is also pretty logical and easy. Imagine a balance sheet, with the left hand side listing the assets. On the right hand side are the liabilities and equity. We know that the total of all the assets, on the left, equals the total of all the credits on the right. Debits and Credits. Debit is on the left hand side of that statement. Assets are on the left hand side of the balance sheet. Ah! Debits increase assets! Credits… the credit is on the right hand side, and on the right hand side of the statement. Thus Credits increase liabilities. Example: we take out a loan. We debit cash ( the loan increases our cash, an asset) and we credit liabilities, because we now owe a loan ( increase in liabilities) Brilliant! Now, let’s do a tough one…. income and expenses. First, remember we said that equity was on the right hand side of the balance sheet. It represents the amount invested in the business, plus …

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31

Mar'17

What’s the Biggest Challenge for Small Businesses regarding Financials?

The biggest challenge most small businesses  have is just getting accurate financials. When you own and operate a small business, 110% of your effort is devoted to marketing and execution. The backroom tasks – including bookkeeping and accounting tend to get second fiddle, at best. As a result, back office systems in most small businesses are not given enough attention, until, that is, the company runs out of cash. Then there is a fire engine approach that takes over, as the business owner attempts to put out this fire and that. Not particularly conducive to developing sound information reporting systems. Most small business owners are not systems or detail oriented. They are big picture people, by necessity. As a result, keeping history, making things neat and developing internal reporting systems falls by the wayside. I have seen dozens of small businesses which ran by dashboard metrics alone. No financials. At year end, the outside accountants would struggle to make sense of the mess and sometimes the financials actually corresponded with the dashboard results… sometimes. Most of the time, the financials come as a rude shock. This is a symptom of being an entrepreneur. It’s a rare one who understands the …

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19

Mar'17

How Do You Approach an Investor for Funding

First: have your idea well thought out. Do your homework. Have a well constructed, researched, vetted business plan. It should address everything that can and probably will go wrong. What’s plan A, B and C? Second: be able to demonstrate a viable, compelling USP and a ready marketplace with the capacity and resources to buy. Don’t know what a USP is? See item # 1. (USP is a Unique Sales Proposition – it’s what differentiates your product from everyone else in a manner that makes the marketplace want it in a compelling fashion) Third: Summarize your idea into one paragraph. No technical jargon. 6th grade English. Then complete a 1 pager that summarizes your business plan in simple bullet points. Reference each to the business plan. Fourth: Practice your presentation. It must be layered. 5 minute overview. Stop, assess interest. 10 minute “fill in” details. Stop Assess interest. 10 minute “close” where you prove why it’s a great investment, and address major risks. Stop, ask for questions. Fifth: Adopt the right mindset. You don’t need their money. They need your success. Never grovel for cash. Never sell yourself out. Be proud but humble. Extinguish any arrogance. Remember, the guy wearing …

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10

Mar'17

What does Financial Freedom mean?

Financial freedom means being able to do what you want, when you want without the fear of adverse financial consequences. It’s different for each one of us. It means not having to worry about whether you can meet your cash flow needs, not having to worry about whether you will run out of money in retirement, not having to worry about bills and credit cards and financial emergencies. Reaching financial freedom is a wonderful milestone. As one who has been there, done that, I can tell you that it is a feeling like no other. A great weight removed from you. You get to financial freedom by saving and by adjusting your lifestyle. I firmly believe that by living about two levels below your income, avoiding all types of debt, making saving your passion, and adopting frugal as a hobby, you can reach financial freedom. Along the way to financial freedom, you will discover what’s important in the world: friends, family, community, and your spiritual wellbeing. You will find what true wealth is and how it’s not measured by money. You will learn to avoid consumerism, and learn to live authentically. Along the way, don’t forget to be charitable. Charity …

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10

Mar'17

How do I fund my startup idea?

Assuming that you don’t know anything about funding, or how deals work, you should consider yourself a lamb wandering in the forest full of wolves. Really. First thing you need to do is get an advisor, either an CPA or an attorney who understands how start-ups work. This is the tricky part. There are a lot of people who think they know how this stuff works, but have never actually done a deal. You know what I’m talking about, right? So, find some attorney and accountant who has actually been through the process, multiple times. You will have to ask around, and interview people. (That’s a post in and of itself: see https://CEAnow.org where we actually have a course on finding the right advisors) Next, you have to work up a very preliminary business plan. Ok, so you have the hottest thing since the hula hoop. So show me the numbers. Show me the research. Prove to me that you have a USP. ( oh, don’t know what that is? Yikes!) The business plan is the center to your funding request. You can’t do anything without it. Get it done right. ( Not to sound like a broken record, but …

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09

Mar'17

What is a Financial Advisor?

Financial Advisor = one who advises on finances. In the real world, we’re talking about someone who is either: A financial products sales person, eg a stock broker, insurance salesman, annuity salesperson, or A fee-only financial advisor who provides advice for a fee eg an accountant who provides personal financial advice and planning, an attorney who prepares estate plans. The vast majority of “financial advisors” fall into category # 1. There is no requirement to qualify as a financial advisor, one need not even have a high school diploma to call themselves a financial advisor. In order to sell securities, insurance or annuities, one must possess a license. These licenses (insurance license, Series 63, Series 7) are of varying difficulty. For example, I took the insurance license test with no preparation and passed. The Series 63 and Series 7 tests, administered by FINRA, take a little preparation, but are only mildly difficult compared to the CPA exam. They focus primarily on the legal implications of selling investments. The licenses do not prepare a candidate to adequately advise anyone on investments. Other credentials do that. A CFP ( certified financial planner) is one of these additional credentials that at least indicates …

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08

Mar'17

How Much Can I Deduct for Auto Expenses in My Business?

How many cars can you deduct: as many as you use in the business. How much? You deduct the “business use portion” only, computed by taking the business miles driven in a year divided by the total miles driven in that year. You can’t guess or take a wild average you pull out of your hat, either. The law requires contemporaneous records. That means you keep an auto log for each vehicle. What do you deduct? The costs of owning and operating the vehicle, including things like gasoline, oil, repairs, tires, car washes, registration, taxes, lease expense, interest paid, licenses and depreciation. But here’s the hard part: you have to know what those expenses are by vehicle! You can’t just take a wild guess, you have to have records (and receipts, proof), by vehicle! That’s what gets most people in trouble. Does the car have to be used over 50% for business?  If you use the car over 50%, you can take special, accelerated depreciation deductions. Under 50% you are limited to the old fashion straight-line depreciation. Again, only for the business use portion. Drive 10,000 miles and only have 1000 provable business miles, you get 10% of all costs, …

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06

Mar'17

Should I get a Business Partner?

Perhaps, but be very careful. Most business partnerships do not survive, and the breakups can be painful and extremely expensive. Things usually look rosy when you begin, but can degenerate into some pretty ugly stuff. My suggestion is that you not form a partnership. I would suggest a LLC or a corporation. You should talk to a business attorney about this. Secondly, you need to be very careful in the selection of any co-owner. What are they bringing to the table? What will they contribute? Are you really willing to give up ownership and some control to somebody else? You better have a really good reason to want a co-owner. You better research the candidates extensively and exhaustively. Thirdly, you need to think about everything that can go wrong. How will you deal with major disagreements? How will you deal with getting out of the arrangement? What happens if your co-owner doesn’t do their part, or worse yet, takes from the business? Think about every possible bad thing, and address it in writing. Finally, think about how this is going to work on an on-going basis. Right now you are the man in charge. What happens when you have to …

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