Category Archives: Small Business

When to Advertise Your Tax Practice

If you’re a tax professional, don’t assume that the only time customers look for your services is during tax season. When it’s not tax season, I continue to place a huge emphasis on marketing. In fact, I can focus more on marketing my business because I have ample time since I’m not overwhelmed with working.

It is a common mistake I see among other tax professionals who eliminate their advertising budgets and put no time into networking/marketing. There is still a lot going on from May until the end of the year. People have IRS problems, businesses are on fiscal years, and many people file extensions. In fact, I have obtained some of my best customers in the off-season.

If you are starting out or have a tight advertising budget, you should be spending your time networking and building relationships. This will pay off over the long run.

Only through testing will you be able to best allocate capital for advertising. If you don’t try new creative things, you will have no way of knowing what works best for you. That said, I didn’t realize how many people look for a tax preparer in the middle of the summer until I started using Google Adwords and SEO after establishing an online presence. By this point, I had been in this profession for 20 years!

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1000 True Fans Principle for Consultants

When I was studying online marketing, I came across the idea of 1000 True Fans. This was an ‘aha’ moment where everything clicked. The “1000 true fans” principle is that your biggest fans (or happiest customers) are those in which not only buy form you but also tell all of their friends about you.

Over the years, I have steadily accumulated these types of clients. in fact, I have some true fans in which I’ve been preparing their income taxes for over 25 years! And many of them are still referring me new customers!

Now, you may be thinking 1000 fans is too many and is a huge number. Bear with me here. 1000 is just a guideline for internet marketers. However, tax professionals can succeed with far fewer true fans. Depending on your client base, you may only need a fraction of this. But, the point is, you should be striving to establish a fan base. Charlie Munger was quoted saying that if you do great work, you will simply get more work.

That being said, I’m generally not conformable when a single client exceeds over 15% of my income. This is because I prefer to have many sources of income. Therefore, I don’t sweat it when I lose a single customer. Therefore, I want some diversification in my fan base and attract an array of fans.

I have found that my personality and way of connecting with certain customers makes them happy. I am unique and may not appeal to everybody. But that’s perfectly OK. Tax preparers vary about as much as different makes and models of cars. And buyers all have different tastes. I used spend time thinking about how I should change to appeal to everybody. Alas, this is not only impossible, but this only dumps energy down the drain.

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Design of Everyday Workflow

Design is a huge factor in determining how successful your workday is. It determines how much you are able to get done as well as how effective you are at reaching your goals. Working smart is obviously much better than working hard.

In a world of information overload, we are always multi-tasking and have too many things that are considered a high priority. The problem with this is that we can only handle a couple of high priority things at any given time. If you have more than a couple of projects that are considered high priority, then you cannot be effective at successfully achieving all of them. If your priority list is very long, you should kill a few projects or temporarily narrow down your list.

In large corporations, workers are generally given too many projects. Each project is classified as being extremely important. An employee seldom says no even when he or she understands that it’s impossible to complete everything to his or her best ability. In this case, there are generally two choices. First, you can complete every project with none of them being great products. Or, you can do a great job on one or two of them with the rest either not getting done at all or finishing late. Your manager will try to squeeze every drop of productivity out of you, but there’s always a limit.

Let’s say that you have two projects that are critical to your success. Anything else is either irrelevant or is just an action step toward achieving that goal. Large projects should be broken down into steps and milestones. This helps keep you on track. And successfully meeting objectives will help motivate you to go ahead and complete the next step.

Your workspace should give you comfort and should not make you feel like you’re going to prison everyday. Cubicles are a productivity drain and are not human friendly. If you can design your workspace to have a degree of inspiration, the quality of your work would improve.

Perhaps there’s a couple of tasks you generally find boring because they are redundant or require very little thought. In addition, you procrastinate on them because of this. You can take your laptop to a coffee shop and finish the task there. This will help because being at the coffee shop makes the experience more pleasant.

Once you get a grasp on how to prioritize effectively, you need to allocate distraction free time to get it done. This can be really difficult. We have cell phones going off, email messages popping up, and people walking in the door assuming we’re working in a public place. The real issue lies with the fact that a single distraction will interrupt our flow. During a critical focus time, a single interruption can completely throw us off. Then, we have to spend at least 5 minutes or longer just to get back to where we were.

Having said that, you need to figure out a way to get yourself some distraction-free time. For many people, this can be early in the morning. For example, if you get to work at 6 a.m., there are few, if any, other workers in the office. No one is there to distract you. When everyone else comes trickling in, between 8 and 9, you will already have 2 hours of productive work done. Compare this with the fact that most employees only deliver about 2 hours of quality work per day. This is because of things like distractions and meetings.

Your coworkers simply can’t get as much done because they are only working during the day when meetings and other distractions are prevalent. By the time they arrive to work, you will have already equaled or surpassed what your coworkers will do for the entire day. The difference being a matter of discipline and workflow design.

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A Few Ideas for Increasing Profits

There are multiple ways in which you can raise your income. The most often pursued route is trying to get new customers. Most people think this is the only answer. First of all, it isn’t. Secondly, it’s one of the more difficult ways of raising your income. Getting new customers generally has substantial costs whether it’s money paid in advertising or time spent networking. Although you should always put effort into getting new clients, there are other options that are easier for increasing profits.

One of these is increasing the average transaction value. This partly involves raising prices. Many business owners are hesitant to do so. However, you need to look at the value of the product or service in which you are providing. Also, look for items that complement the product the customer is buying. For example, McDonald’s raises the average transaction value by supersizing. That is, asking customers if they want to get a larger soda and more fries. Look for creative ways to do this with your business.

Over time, you should develop a system for selling back-end products. These are products that aren’t your main product or service. They may be complements to main products. Or, they could be a product or service you introduced that are fairly similar to your other products. You were able to produce this product using the expertise you developed with selling your main product. Many of your best clients will be willing to buy back-end products from you.

Another technique involves increasing the frequency of customer purchases. The easiest customer to get is the one you already have. It has become a popular cliche. Yet, it has always been true. With this strategy, you can offer more promotions and discounts to your existing customer base.

You should also be active in generating referrals from your best customers. Generally, the top 20% of your customers generate 80% of your revenue. This does not just come from them buying directly from you. It also comes from them happily telling their friends and acquaintances about your business. To take full advantage of this, make sure your customers understand the benefits of your services. If you’re a tax professional, show your customer how he/she is saving money on taxes. These techniques should be leveraged simply because they are much less costly than the expense of getting new customers.

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Running a Business in a Sluggish Economy

During hard times, people are generally reluctant to start new businesses or expand the business they are currently in. This is simply not a viable strategy. As we have seen throughout history, cost cutting will not get you very far and only yields short term results. No business has ever cut its way to greatness.

When the economy is bad, you still need to make the effort to continuously innovate and market yourself. Reducing costs will not work for very long. You can, however, allocate your costs in a manner that will offer better value. For example, if you have two different marketing campaigns with one outperforming the other, you can reduce or eliminate the one that’s underperforming and add to the campaign in which you’re getting better results from.

What you should not do, however, is cut your advertising budget when the lifetime value of the new customers you’re getting is higher than what you’re spending. No matter how great your current clients are, you will constantly be losing clients over time. If you run a great business, this will happen slowly. The point is that you will always need a stream of new business. Because of this, you will always need to allocate resources to advertising.

In fact, you can improve your position in your market. If your competitors are either closing or cutting costs, your business could fill that void. The mediocre businesses will go out of business first. Best Buy, for example, prospered when Circuit City went out of business.

Keep in mind also that many great business get started in hard economic times. Apple and Microsoft are two examples of this. In times like today, opportunity costs are low. This means that there are a lack of alternatives. More people choose to pursue their dream because the steady employment option has been taken away. This leaves the choices to either do nothing or start something great.

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Why Almost Everything is a Numbers Game

We always think of business as being a numbers game. However, numbers apply to almost anything, especially sports. In football, Bill Walsh developed a system that resulted in scoring more points and reduced risk by limiting turnovers. In baseball, Billy Beane used statistics to find undervalued players to fit his team’s tight budget. This shows that you can find an arbitrage and increase efficiency in almost anything.

Michael Lewis, a financial writer, wrote two great books on applying numbers in sports. The first was Moneyball. In this book, Lewis uncovered how batting average was a statistic that was over used. This has traditionally been the biggest statistic in which a player’s performance would be judged. Billy Beane, having to replace key players that left the team for more money, had to find a way to maintain production (scoring runs) without these major stars. He found that batting average wasn’t a perfect indicator as to how many runs a team would score. Of course, the higher the batting average, the better in general. But, there were other stats that did the job more accurately.

The key point here is that slugging percentage, walks, and on-base percentage are better metrics than batting average at estimating runs scored. However, the market (other teams), were using batting average as their key metric. This created enormous opportunities in the marketplace. Baseball has long been a game of tradition. And those working within the game were reluctant to change. This included everyone from owners to general managers and coaches. Billy Beane was able to replace stars with low budget players while the team kept winning.

In the investing world, we see examples of this all the time. Quarterly and annual earnings are an over used statistic, not to mention the fact that they’re also heavily manipulated. Also, there are those who only buy securities based on recent price performance. Stocks that have been going up generally attract more buyers. We’ve seen Benjamin Graham and Warren Buffet take advantage of these arbitrage opportunities by separating the real value of the company from the price of the stock. They care more about the business’s fundamentals than the stock.

In The Blind Side, Michael Lewis described the evolution of football over the last few decades. When Bill Walsh took over the San Francisco 49ers in 1979, he revolutionized the game. He introduced an offense that consisted of shorter passes. Not only did this new offense score more points, it also reduced risk. Shorter passes get intercepted less often. Plus, the quarterback gets rid of the ball quickly which reduces the likelihood of getting sacked. Replacing the traditional approach with higher percentage plays, Bill Walsh would win 3 Super Bowls.

Sports is a numbers game just like any other business. We can learn quite a bit from the competitive world of sports. The first is that most people favor the traditional ways of doing things which creates opportunity for you. The second thing is that we should always strive to maximize productivity while reducing risk. Many games are won or lost based on how many mistakes were made.

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Why Opportunity Cost Should Always be a Consideration in Your Financial Decisions

Let’s say that you are in a position where you have extra money to pay off your mortgage. Is it worth doing? The short answer is that it depends. To arrive at a good answer, you must consider the other opportunities that you have with that money.

For starters, there may be other investments available to you. I am not referring to the stock market or any other exchange traded security. These tend to offer low yields over very long periods of time. The historical return for stocks has averaged around 6% over the past 100 years. Therefore, if I had a choice between paying off my house versus purchasing stocks, I would rather pay off the home loan. In addition, the stock market is very volatile and returns can be significantly below their long term averages over 10 to 15 year periods. We are in such a cycle now. If the interest rate on my mortgage is 6%, then I will not likely gain anything by deploying the extra cash into stocks.

What if you had more opportunities than this? What if you were considering to start or expand your own business? Obviously, there is more risk to that. However, the return on your capital investment will likely be much higher than investing in securities. In this situation, the rate of return would be much greater than the amount of interest that you’re required to pay on the mortgage. In this case, you’re better off investing the money rather than paying off your loan.

The opportunity cost demonstrates that my returns are negative if I pay off my mortgage when I have better ways to invest the money. If you plan on starting a new business, home equity is much cheaper than most of the alternatives. SBA loans, in particular, consist of higher fees and higher interest rates. This is because it’s hard for lenders to value the collateral and default rates are high. When they take possession of the collateral after a default, it’s much harder to sell at fair market value than a residential property.

Lastly, depending on your tax situation, the true cost of borrowing may be below your interest rate. Since mortgage interest is tax deductible for most taxpayers, the tax savings could be factored into offsetting the amount you are paying in interest. Your tax savings depends on what tax bracket you’re in. So, if you’re thinking about paying off your home loan, definitely look at all your other opportunities first.

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Why Marketing Must be the Top Priority for New Businesses

Start-ups initially struggle to build a customer base. So, without a good marketing campaign, it’s simply impossible to stay in business. This should be obvious but it’s not always being practiced. Many new business owners focus more on the products and services rather than promoting them. This is a huge factor in causing most startups to fail in less than five years. Another issue is that many new business owners advertise through the traditional media channels in which the costs are too overwhelming. In this post, I will describe why your marketing must be direct to make it cost effective.

Before we jump in, let me state that being an accountant and income tax professional, I always get asked about tax planning and entity structure. Saving on taxes is important but is not a huge priority until you are making some money and have a steady income stream.

To begin, there is a world of difference between advertising and marketing. Marketing is not the same as spending a ton of capital to reach the masses through the traditional media channels. New entrepreneurs feel the need to “get their name out there”. The first problem with this is that traditional advertising is very expensive. The second problem is that branding your business takes time. A direct marketing approach can be much more cost effective. This is where you narrow your business to a target market. Then, your sales approach focuses on how your product/service benefits your potential customers (be sure to focus on benefits, not features).

Direct marketing could be done through attending networking events, social media, direct mail, or pay-per-click advertising. With traditional advertising, you generally pay large, flat fees. With direct marketing, you narrow your focus to only those who are in your target market. These could be people that fit a certain demographic. Or, they could type in a Google search looking for your product. By taking this type of approach, you avoid paying huge fees to appear in front of those who may never be interested in your product. In addition, there are no flat fees because the costs are directly proportional to the number of people you want to reach. For example, you can alter the number of people you send direct mail to. This makes it a variable cost. Another example is that you only pay when a potential customer clicks your online ad. You can even optimize your online ads so that you never spend over a certain dollar limit.

Finally, direct marketing is much easier to manage. You can’t manage what you can’t measure. How do you know how well a television ad is working? Certainly, you can try and ask everyone who comes in the door how they found out about your business. This is not possible in some circumstances. It’s also impossible to measure the impact on your company’s brand recognition. On the other hand, marketing online is easy to measure. You can track how many times your ad was shown versus how many people clicked on it. You can also find out what people are typing into the search engines to find your business.

By focusing on the numbers that you can measure, a few tweaks will raise your return on investment. You can spend more time and/or money on the marketing campaigns that are working and phase out those that are not performing.  If you’re selling products online directly, tracking through analytics will instantly tell your whether your income is positive or not.

There are many more ways to creatively market your business to the right audience. My two rules of thumb for promoting new businesses are: keeping marketing costs as variable costs and having a way of measuring the results.

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