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What influences business cycles? Where are we on the Cycle?

Where are we on the business cycle? It depends upon a lot of factors, because there isn’t just one “business cycle.” There are many: 1. The economic cycle of the world 2. The economic cycle of the country 3. The economic cycle of the region 4. The economic cycle of any particular industry 5. The economic cycle of a particular firm. All of these cycles interact. Sometimes they are in synch, at other times each are at a different phase, and we experience a blended effect. It’s sometimes difficult to distinguish which is what and how they are affecting any one person’s investments or business. The factors which affect a business cycle include these factors: a. Capital availability and cost b. Markets – demand for products c. Innovation and competition – and the value propositions d. Psychographics of the population or target market e. Social narrative and outlook ( such as optimistic or pessimistic, anticipatory of some event, or even what appears to sometimes be a bi-polar attitude expressed by group think) f. Regulation, political and legal structures. Is this all complex? A lot more complex than your college economics class would lead you to believe. The assessment of where …

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LLC, Limited Liability Company as a form of business

This is a great question. The answer is more complex than it first appears. The advice I’m about to give you is not legal advice, and you should seek the counsel of a qualified attorney before relying upon it. First off, let’s address the issue of “limited liability” – after all, it’s called a limited liability company. Other respondents have indicated that this means you are off the hook… the company and not you are liable. Not so fast. Emphasis here should be on “limited” — yes it may limit your liability, but it doesn’t erase it. In fact, in the practical world, it probably does little to nothing to limit your liability. Oh drat! How can that be? Well, let’s talk about the general liabilities that a company incurs: payroll taxes, bank loans, trade payables. There’s no protection from payroll taxes… they’re coming for you on that one. Bank loans: bankers aren’t fools, they’ll make you guarantee the loan personally. Trade payables: ah, there we might have some protection if the company went belly up.  Now, how about when a customer slips and falls, or a competitor alleges that we stole their copyrighted stuff? These liabilities are generally classed …

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What can I do to Promote my Business?

You didn’t state what your product or service was, so it’s difficult to answer the question. You also didn’t specify what the LVC ( lifetime value of a customer) was, so we don’t know whether a particular marketing approach might or might not be appropriate. The obvious sales techniques include media advertising,  direct mail (my favorite),  telemarketing (not my favorite),  direct door-to-door sales (brutal),  and signs on the business ( if you have a retail location.) Just doing one thing or another in an un-coordinated shotgun fashion is counterproductive and expensive. To be successful, you must come up with a compelling USP ( unique sales proposition) which leads to a strong “message” and a “brand” which then is used to create a coordinated, cohesive campaign. All that given, here are some ideas that others use successfully: Dinner seminar – you’ve gotten one of those invitations for a free dinner and sales pitch. They must work, because lots of people use it. Signs. Lots of them. Everywhere. Coupons. People LOVE to save money. Remember, the magic word “FREE” followed by the almost magic word “On Sale” Events – One financial planner hosted a showing of a popular movie —- and gave …

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What is “Days Payables Outstanding” and Why is it Important?

Simply put,  Days Payables Outstanding it’s the number of days worth of  expenditures that you owe in the Accounts Payable balance at any point in time. It’s mechanically calculated by taking your accounts payables and dividing it by the average expenditures per day. For a manufacturing business, the “average expenditures per day” is usually calculated by taking the cost of goods sold for the last year and dividing by 365. Sometimes a shorter period is used, especially if things are changing rapidly. For a service business, the total expenses are used, less salaries, payroll taxes, payroll related expenses (such as pensions) and then dividing that by the number of days … similar to what is done for a manufacturing facility. Of what use is this number? Of and by itself, not much. As a comparative figure to industry averages, mildly interesting, perhaps indicating an abnormality. As a comparative figure to past periods ( horizontal analysis), it is very indicative of what’s happening in payables management. It’s a good figure to monitor. If you can get it, a great measure of payables management is the “discounts lost” figure, which indicates how much in those “ 2–10, net 30” discounts for prompt …

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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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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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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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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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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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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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