Employee Gifts: How to Give Tax-Free December 9, 2013Posted by SBDC in Small Business General.
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As you decide on an appropriate holiday gift for your employees, it’s important to consider not only what they’ll enjoy but also how taxes will come into play. Because a “gift” is often considered by the IRS to be compensation, it’s important to note the rules so that your employees are not responsible for paying taxes on their gifts. “Get creative so the reward isn’t an individual burden to the employee, but a company expense,” says Brent Shelton, spokesperson for FatWallet, Inc., an online shopping resource website based in Rockton, Ill. “That way it stays as a reward.” Here are some options that will ensure your employees won’t face a tax on their holiday gifts.
Give a gift under $25.
Gifts under $25 are tax-exempt, explains Howard Rosen, CPA, president and principal of Tax Services for Connor Ash in St. Louis, Mo. If this is the amount you typically spend on each employee, then you have nothing to worry about.
Tie a gift to an employee award.
You don’t have to worry about taxes if the holiday gift is a reward for service (i.e. highest sales) or longevity (i.e. the employee has been with the company for 10 years). Rosen says you can even create more personalized awards, such as “Most Helpful” or “Best Attitude,” as long as the awards have some kind of consistent format and you give them on an annual basis.
Make a charitable donation.
If your gift to your employees is a charitable contribution in their name, then you don’t have to worry about taxes, no matter the amount, says Rosen.
Give company products or a job performance aid.
If you run the type of business where the employees would enjoy your products (i.e. a clothing store or bakery), then you can give your company products or services as gifts without having to pay taxes on them. And while an employee might not get too excited over office supplies, Shelton says this is a good opportunity to get creative. “Perhaps there could be branded office supplies like an idea journal,” he says.
Give the gift of an outing.
You can take only a group of employees, such as the management team, to an event, and the cost will be tax-free. But, Rosen warns, you cannot take only family members involved with your business and consider it a tax-free company expense.
Facing the Tax
If you opt to go ahead with a gift not listed above that costs more than $25, Rosen recommends “grossing up.” This means you have to be willing to pay the gift amount and also the amount it’s taxed for so that the remaining amount can be given to the employee without he or she worrying about taxes. For example, if you want to give a $100 gift to your employee, you’re likely to end up spending around $135.
Related resources: 3 Ways to Maintain Productivity During the Holidays, and 6 Ways to Motivate Employees by Using Little to No Money, plus more tax tips
3 Reasons Why An LLC Beats A Corporation December 2, 2013Posted by SBDC in Small Business General.
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One of the first things a new business owner needs to figure out is what sort of entity they want to file their new business as. This question can be answered based on the specifics of your new business as well as what you need as the business owner. Do you need more protection for your personal assets? Are you more focused on less tax fees or less paperwork?
Unless your business fits in the nonprofit bracket, the two most popular entity types for new entrepreneurs to choose from are corporations and LLCs. They both come with their fair share of positives and negatives, but ultimately an entrepreneur’s choice should depend upon what specificities are best for their business (which can only be determined after doing a good amount of research).
However, looking at the two entities side by side without any particular industry or business in mind, I’ll always think of an LLC as the better of the two to maintain for the following three reasons:
1. You’ll avoid double taxation
LLCs have something called a pass-through taxation structure. This means that an LLC is a legal entity in which income “passes through” to investors and owners, or the income of the business is actually the income of the investors and owners. An LLC also has the ability to change the way it’s taxed if the business owner isn’t a fan, for whatever reason, of that structure.
Corporations, on the other hand, experience almost the opposite tax effect in most states. They experience “double taxation,” which is a corporate tax rate that is levied against a corporation’s profits. Shareholders then additionally have to pay personal taxes on whatever income they make from the business.
2. You’ll effectively protect your business as well as your personal assets
When you first start a business, your personal assets are attached to your new business. That means if your business fails and you have some major debt to pay, your home, car, and other personal items are at risk of being seized from your possession. A corporation does do the job of turning the business into its own legal entity, separating it from the business owner. This means that the business can now hold its own debts, can be paid separately, and is taxed separately from the owner. This gives the business owner some protection in separating himself from his business. With the LLC, a business owner is rewarded the same legal and fiscal protection as a corporation, but in a less complicated manner than with a corporation.
3. It keeps things simple
All things considered, running an LLC can be pretty easy compared to running a corporation. Different states regulate certain entities differently, but for the most part, an LLC can get by with just an organized record of major business decisions and your business’s finances. Some LLCs can even get away with opening with just one member. They also don’t need to worry about annual shareholder/member meetings like corporations do.
LLCs do, however, need to send in an annual report with updated information on the names and addresses of those involved with the business and to pay a fee as well. Though those additional areas are included, maintaining an LLC is still much easier than maintaining a corporation.
The Importance of Cash Management November 25, 2013Posted by SBDC in Small Business General.
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Business analysts report that poor management is the main reason for business failure. Poor cash management is probably the most frequent stumbling block for entrepreneurs. Understanding the basic concepts of cash flow will help you plan for the unforeseen eventualities that nearly every business faces.
Cash vs. Cash Flow
Cash is ready money in the bank or in the business. It is not inventory, it is not accounts receivable (what you are owed), and it is not property. These can potentially be converted to cash, but can’t be used to pay suppliers, rent, or employees.
Profit growth does not necessarily mean more cash on hand. Profit is the amount of money you expect to make over a given period of time, while cash is what you must have on hand to keep your business running. Over time, a company’s profits are of little value if they are not accompanied by positive net cash flow. You can’t spend profit; you can only spend cash.
Cash flow refers to the movement of cash into and out of a business. Watching the cash inflows and outflows is one of the most pressing management tasks for any business. The outflow of cash includes those checks you write each month to pay salaries, suppliers, and creditors. The inflow includes the cash you receive from customers, lenders, and investors.
Positive Cash Flow
If its cash inflow exceeds the outflow, a company has a positive cash flow. A positive cash flow is a good sign of financial health, but is by no means the only one.
Negative Cash Flow
If its cash outflow exceeds the inflow, a company has a negative cash flow. Reasons for negative cash flow include too much or obsolete inventory and poor collections on accounts receivable (what your customers owe you). If the company can’t borrow additional cash at this point, it may be in serious trouble.
What Are the Components of Cash Flow?
A “Cash Flow Statement” shows the sources and uses of cash and is typically divided into three components:
Operating Cash Flow Operating cash flow, often referred to as working capital, is the cash flow generated from internal operations. It comes from sales of the product or service of your business, and because it is generated internally, it is under your control.
Investing Cash Flow Investing cash flow is generated internally from non-operating activities. This includes investments in plant and equipment or other fixed assets, nonrecurring gains or losses, or other sources and uses of cash outside of normal operations.
Financing Cash Flow Financing cash flow is the cash to and from external sources, such as lenders, investors and shareholders. A new loan, the repayment of a loan, the issuance of stock, and the payment of dividend are some of the activities that would be included in this section of the cash flow statement.
How Do I Practice Good Cash Flow Management?
Good cash management is simple. It involves:
1. Knowing when, where, and how your cash needs will occur
2. Knowing the best sources for meeting additional cash needs
3. Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors
The starting point for good cash flow management is developing a cash flow projection. Smart business owners know how to develop both short-term (weekly, monthly) cash flow projections to help them manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help them develop the necessary capital strategy to meet their business needs. They also prepare and use historical cash flow statements to understand how they used money in the past.
Source: U.S. Small Business Administration
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For small business owners, determining how to best protect your business and your family with proper insurance and legal needs can be overwhelming. But it’s important to realize that the stability of your business and family are often dependent on each other. Sudden events in your personal life can mean you’re unavailable to manage your business. Likewise, business demands might mean you’re not able to spend time with family the way you’d like to. Failing to navigate your protection needs appropriately can be catastrophic if something unfortunate happens and your business is unprotected. It can be especially tricky when you begin to consider the security and protection of yourself, your family, your possessions and your business.
Therefore, it’s crucial to that you ensure the proper protection and legal agreements are in place before the unexpected happens. There are always special circumstances to think about, but the following four points serve as a great place to start as you consider protecting your future:
Know what should be insured - Make a list of all the products, people and services vital to your business and determine what insurance coverage and agreements are needed to ensure business continuity if an unexpected event occurs. Though it may not be pleasant, try to think outside of the box when considering your exposure to risks. Considering multiple scenarios – everything from stock market downturns to employee injuries to natural disasters – will help you recognize the vulnerable areas of your business. Purchase insurance to protect you from catastrophic events if it’s available, and establish contingency plans for things that can’t be covered by a policy.
Establish partnership agreements - Each state has its own laws governing partnerships, but you are not confined to these. To avoid conflicts, document important agreements including how profits will be shared, the decision-making authority of each party and the protocol for the withdrawal or addition of partners. Being able to refer to a written document may help defuse a disagreement before it escalates into a legal matter.
Budget and consult with other professionals -Treat protection costs like any business expense and budget for them in advance. If you find yourself stressed over the cost, decide what you can’t afford to replace with savings should something be destroyed or your income compromised by an unforeseen disability. Consult with professionals like a financial advisor, attorney, accountant and small business consultant to ensure that you’re adequately protected.
Don’t forget to cover yourself - Your business and your family depend on you – so it’s absolutely essential that you have the proper personal protection in place. Consider your options for life, disability and long-term care insurance, and make sure that the income you provide your family would be replaced if you are injured or pass away unexpectedly. Also be sure you have legal documents in place that reflect your wishes to help eliminate unnecessary complications for you and your family following a traumatic event. No matter what the cost may be today, you will likely never regret the price of protecting what is most important to you in the aftermath of a tragedy.
Financial Considerations When Starting Your Own Business November 4, 2013Posted by SBDC in Small Business General.
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If you’re thinking about starting a small business, it’s important to look carefully before you leap. Owning a small business can be very rewarding, but it can also require a lot of time, energy and funds long-term. Taking the right steps upfront can help you increase your chance of success and maximize your start-up dollars. Begin by:
• Using the resources that are available to you — There are several free online resources that can help guide you through the steps of starting your own business. One of the most comprehensive is the U.S. Small Business Administration site at http://www.sba.gov. It offers detailed information on how to plan, implement or sell a small business and more. You may also consider meeting with other small business owners and professional consultants.
• Determining equipment needs and costs — Make a list of all the items you’ll need to purchase or lease to get a true sense of your start-up and operating costs. Will you need big ticket items such as business or office space, manufacturing and computer equipment? What about smaller purchases like office supplies and software? It’s beneficial to have a detailed list of your needs when making a plan and figuring out your costs.
• Adding up the other costs you may incur — If you plan on hiring any personnel, factor in the costs of any employee benefits, such as healthcare or dental insurance, that you may be required to provide your employees. Also consider any wages that you’ll pay and the fees for any legal, financial or tax advice or special licenses or permits if they apply to your business needs.
• Determining how much financing is needed — After you identify your start-up and operating costs, you can assess whether you need outside financing. Keep in mind that these sources may require a contribution from you as the owner of roughly 20 percent or more, depending on the type of business.
• Establishing an advisory team — Before you make major financial commitments or sign complicated agreements, seriously consider consulting with a financial professional, an accountant and an attorney. Treat your business financial plan and personal plan with the importance they deserve by putting them in writing. Not only will this hold you accountable, it will also give you something to refer to when difficult and inevitable choices arise.
• Setting up your financial accounts — After you have established the type of business entity you need, talk with your advisors about what kind of banking and credit services you may need. Shop around to see who offers the services and pricing that best meet your needs.
• Implementing a business insurance policy — Depending on your business, you may have special or additional insurance requirements and considerations. A business insurance policy helps you protect your investment by minimizing the financial risks associated with unexpected events, like the death of a partner, an injured employee, a lawsuit or natural disaster. Your state government determines the insurance requirements for businesses. Your financial lender or investors may also require you to maintain certain types of insurance to protect their investment. After implementing the coverage you need, annually meet with your financial professional to discuss changes in your business and whether or not they alter your coverage needs.
• Assessing your household budget — It’s easy for this “To Do” to get lost in the excitement of starting a new venture, but it’s critical to closely and regularly review your household balance sheet. Because of the income uncertainty that can occur when you branch out on your own, it’s even more important if you are leaving a stable paid position. Staying on top of how your new business venture impacts your personal finances can help you remain realistic about what you can and cannot afford for both your personal and business needs and wants.
Taking the time to carefully consider the viability of a small business venture and to create a business and financial strategy can help you feel more confident about your endeavor. It can also provide you with the information you need to make sound decisions that will more likely lead to greater success in your business and personal lives.
5 Cheap Ways to Boost Your Presence on the Web October 28, 2013Posted by SBDC in Small Business General.
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The key to making your business visible online isn’t just having a website. To ensure that current and potential customers can find and interact with you online, improve your overall presence on the Internet. That means your name has to be out there—big time.
Start with your website: a window into your business and a direct channel for interacting with your customers, says Scott Steinberg, CEO of TechSavvy Global, a Seattle-based technology consulting firm that advises small businesses and Fortune 500 companies. But don’t stop there. Expand your reach online to find more potential customers.
Follow these tips to improve your Web presence:
1. Share Content
Allow people to share content from your website. If you write a blog post, for example, add a button to the post so readers can share it through e-mail or on social media sites. If you feature a video on your site, give viewers permission to embed it on their website. (Search engines move your website to a higher position in search results if more people provide links to it.)
And don’t limit your presence to your own website. Write a guest blog post on the blogs of other companies or experts in your industry, and return the favor by featuring them on your website. Consider swapping online content with company partners, making sure your company name is attached to the content. The more places your company name appears, the larger your presence is on the Web. (And the easier it will be for customers to find you.)
2. Optimize Your Website
Use search engine optimization, commonly known as SEO, to make your website appear at a higher position in search engine results. The top five results attract the most visitors. To raise your search engine ranking, integrate keywords that relate to the products or services you offer into the text of your site. Find out which words you should use by visiting a site like Google Insights for Search—it will tell you what terms are frequently used in Internet searches.
3. Update Your Website Consistently
Don’t set up a website and neglect it. Update it consistently with content like blogs, videos or client testimonials to give people a reason to return to your site. Make your website the go-to place for information on your industry, products and services. “[Maintaining] a Web page requires commitment,” Steinberg says.
4. Grow Your Online Community
Give your audience a way to interact with you online. Use a message board—a forum on your website where users post messages and discuss topics—and create a company profile on social media sites like Facebook and Twitter. By interacting with your customers online—especially on websites where they’re already active—your company is more likely to stay on their radar.
5. Get Your Company Name on Other Sites
Customers are more likely to find you through an Internet search if your company name appears on multiple websites. How do you make this happen? Complete a customer testimonial for one of your vendors. Offer up your expertise to journalists and be quoted on news sites. Include your company name when posting on industry-related message boards.
The Dos and Don’ts of Generating Repeat Online Business October 21, 2013Posted by SBDC in Small Business General.
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Converting prospects to first-time buyers requires a good amount of blood, sweat and tears. But generating repeat business online is a challenge all its own.
“It’s like the difference between a first date and a 20th date,” says Elijah R. Young, co-founder of Social Talk Live, a California-based social marketing and training firm. “Asking a customer on a first date is awkward—you’re fighting for a chance. On the 20th date, you’re not as nervous, but you’re worried about creating a new experience and finding something both of you would like to do together.”
First-date analogies aside, repeat business requires maintaining contact and nurturing relationships. Check out the dos and don’ts of generating repeat online business:
DO keep in touch regularly. This can be accomplished online through email newsletters, audio podcasts or even YouTube TV shows once or twice a week, says Ian Greenwood, an online marketing trainer and consultant in Scotland. “These are all powerful marketing tactics and can be done for free,” he says.
DON’T contact customers just to make a sale. “Contact should be more informational than sales-based,” Greenwood says. “You should be relationship-building, not selling.” Try sending “tip of the week” emails or offering customer-only offers once a month.
DO thank customers for their business. This could be in the form of a free gift, an automated thank-you email or even a simple hand-written note. “Follow-up notes—a ‘thank you’ or ‘hope you enjoy your order’ note—leave a positive impression in customers’ mind, letting them know you care about their purchase,” says Susie Ghahremani, of BoyGirlParty.com in San Diego. “They feel more inclined to come back as a result.”
DON’T automate everything. Automation can be useful in certain instances, but automating the entire customer experience can turn off some customers. “Even if your product or service is awesome, there’s no connection to come back to if your marketing is cold and heavily scripted,” Young says.
DO offer coupons and discounts for repeat business and referrals. Cell phone retailer Bigtime Wireless sends every customer a unique coupon code when an online purchase is made, says Shai Atanelov. “This builds relationships and shows we care about the customer,” he says. “We have one customer who buys a new cell phone every six months and always uses the special coupon code we provide him.”
DON’T add customers to your mailing list without their permission. It’s a basic rule of online marketing. Instead, ask all customers who purchase online for permission to receive your newsletter, Greenwood says.
DO give customers a sense of ownership. This can be achieved by inviting customers to create their own profile on your site, or asking them to join special membership programs to receive exclusive offers.
DON’T forget the personal connection. Just because transactions are made online doesn’t mean they have to be impersonal. “Talk on customers’ terms—it doesn’t always have to be about business,” Young says. “Learn about your customers personally, and they’ll feel more of a natural connection to you when it’s time for repeat business.”
5 Ways You Can Start Improving Employee Morale Today October 14, 2013Posted by SBDC in Small Business General.
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How’s worker morale these days? Depends on who you ask.
A recent Gallup poll found a startling 70 percent of workers either hate their jobs or are completely disengaged. Most observers blame the economy: Businesses are short staffed, everyone is overworked, and no one can remember their last raise.
But others see it differently. The 2012 Workforce Retention Survey by the American Psychological Association says that 67 percent of employees stay in their current jobs because they enjoy the work.
While the surveys may diverge, business owners typically know for themselves whether their employees are loving or hating their work. Either way, a big percent say morale is a top priority. In a recent Robert Half poll, one in five business owners said maintaining morale and productivity was their top priority.
Gift cards and plaques help, as do spontaneous thank-you awards. (And you can even give tax free.) But here are some other ways you may not have thought of to boost morale today.
1. Give them the power.
At HourlyNerd in Boston, “we’ve found that employees are motivated by ownership of their work,” says co-CEO Robert Biederman. “Rather than tell our employees what to do on a given series of tasks, we begin by asking them what they think is ideal. We allow our sales force to craft their own outbound emails, select their sales targets, and report in on their own performance. Our basic philosophy is that self-directed employees — subject to proper monitoring and oversight — are far happier employees.”
2. Send them home.
At SaaS startup BambooHR in Provo, Utah, all employees work a 40-hour week, period. “The founders have a firm policy of no more than 40 hours per week for all employees because [we] believe in trading a manageable workweek for greater loyalty, focus, and productivity,” says co-founder Ryan Sanders. Employees report being “happier, more focused, and more willing to be productive during work hours because they know they’ll never be asked to work more than 40 hours in a week. They respect the company’s acknowledgement that they aren’t drones fit to be worked to death.”
3. Introduce them to guests.
A little acknowledgement goes a long way. Sometimes recognition can be as simple as an introduction, says Mike Topa, a corporate advisor in South Bend, Indiana. When taking guests on a company tour, for instance, stop by employees’ stations for a quick greeting. Describe the person’s career, maybe share an anecdote. This can go a long way toward validating workers, helping them to feel more like part of the team.
4. Give together.
Lots of businesses make donations to non-profit groups, partly as a feel-good measure to boost morale. To help people feel even better, engage them in the giving, says Patty DeDominic, COO and chief catalyst of business-coaching firm Maui Mastermind in Santa Barbara, California. “Ask them which charity you should give a special gift to and when to place that donation. Team members who volunteer for groups usually love to hand-carry checks to their favorite causes. It is good business and reinforces the prestige of your employee in the community, too.”
5. Go away.
Among small business owners, one of the most widely touted morale-boosters is the off-site lunch. While the measures named above are generally free, this one can cost a few dollars, but supporters say it is worth it. By getting off site, employees get a break from the work routine. They engage each other as individuals, talking through problems and laying out a vision for what is to come. It doesn’t have to be a lavish corporate retreat. Sometimes the best way to make work fulfilling and productive is to walk away from it for a while.
Is Your Business Spending Too Much Time on Facebook? October 8, 2013Posted by SBDC in Small Business General.
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Countless articles and studies have focused on the negative psychological consequences of Facebook. They include everything from depression (seeing friends’ awesome vacation photos while you’re sitting at a computer can spark FOMO, or “Fear of Missing Out”) to relationship problems (a British survey found that nearly one-third of divorce filings in 2011 mentioned Facebook).
Researchers in Norway have even published a new psychological scale to measure Facebook addiction. Yet, while these all focus on personal afflictions, I wonder whether there’s a similar phenomenon with businesses today.
Can a business spend too much time on Facebook? And what are some of the negative consequences?
1. It lowers employee productivity.
When social networking first arrived on the scene, employers’ biggest fear was the time suck —productivity levels would drop as employees spent too much time on their personal Facebook pages.
But Facebook can also be an enormous resource drain, even when employees are using it for business purposes. That’s because Facebook isn’t free. Cultivating a community, moderating discussions, responding to feedback and other Facebook page activities require an ongoing commitment.
Considering that resources are always finite, any resources allocated for Facebook must be pulled away from other activities. Without explicit goals, Facebook can easily become a massive waste of time, draining important resources from other marketing, sales and customer service priorities.
2. It encourages unfair comparisons.
A recent study from the University of Michigan found that Facebook use leads to declines in moment-to-moment happiness and overall life satisfaction in college-aged adults. According to research co-author John Jonides, “When you’re on a site like Facebook, you get lots of posts about what people are doing. That sets up social comparison — you maybe feel your life is not as full and rich as those people you see on Facebook.”
Likewise, small businesses, especially those just launching their campaigns, can easily become discouraged when comparing themselves to Pepsi, Pampers, Starbucks, Virgin Atlantic and other brands on Facebook. Running campaigns at that level takes a tremendous amount of strategy, resources (both internal and external) and expertise.
This pressure to “keep up with the Joneses” can have two negative consequences. One, businesses may end up spending more time on Facebook due to competitive reasons, as opposed to basing their priorities on actual business objectives or realities. Secondly, businesses may end up focusing on the “wrong” aspects of Facebook, such as racking up fans.
3. It’s difficult to measure.
Wanting to succeed on Facebook, many businesses hone in on some of the easiest metrics around: the number of fans and the number of likes. After all, these numbers can be a very visible measure of status, and it’s easy to treat the site like a game in which the whole goal is to amass more likes than your competitors.
However, just how much does the number of Facebook fans matter? Many businesses host contests and offer discounts in exchange for clicking the Like button. For example, I once liked a store that I’ve never shopped at (and have no plans to either), simply because it was raffling off a vacation. I never visited its page or interacted with its brand after that initial like (and shortly after, unliked it because I was tired of seeing the updates). If this brand included my like as an indication of positive consumer engagement, it was definitely wrong.
The real question is, how do you measure the value of your Facebook fans? How many fans do you need to create a new customer or sale? Unless you have a way to prove that your Facebook page is making you money, you may run the risk of wasting substantial resources here instead of focusing your efforts elsewhere.
4. There’s no direct link to sales.
Facebook can be an ideal channel for generating buzz and engagement, but this doesn’t necessarily translate into sales — at least in the short term.
A 2012 Forrester study analyzed 77,000 online transactions over a two-week period and found that less than 1% of transactions could be traced to social media (compared with 40% from organic or paid search, and 30% from repeat business sparked from email).
If you’re looking for more proof that Facebook is not an effective direct sales channel, consider the fact that the number of U.S. retailers with Facebook-enabled checkouts plummeted from 63% in Q4 2011 to just 6% in Q4 2012.
Again, Facebook can play an important role in building relationships, but as a small business owner, I need to make sure we’re investing resources in those activities that have a more direct link to the bottom line.
5. There’s no human connection in the cloud.
Engaging via email or Facebook is entirely different than actually talking to someone in person or over the phone. A one-on-one conversation creates a deeper connection, and a more detailed exchange of ideas. The biggest risk for businesses with Facebook is assuming that social media engagement is the only customer interaction you need.
The New York Times illustrated just how difficult it is to reach a social media company on the phone: “Twitter’s phone system hangs up after providing web or email addresses three times. At the end of a long phone tree, Facebook’s system explains it is, in fact, ‘an Internet-based company.’ Try email, it suggests.”
Facebook and Twitter are excellent initial touchpoints for customer support, but nothing beats personal conversations.
In the end, be realistic.
I’m not advocating that any business should walk away from social media. However, you need to be realistic about the potential returns. Invest your resources based on the opportunity, rather than just because everyone else is doing it.
The 5 Worst Pieces of Advice for Small Business Owners September 30, 2013Posted by SBDC in Small Business General.
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When you’re starting a business, there’s no shortage of people eager to hand out advice. It seems that everyone, even someone you’ve just met, has an opinion on how you should be developing your product, running your marketing, handling your finances and much more.
I’ll be the first to admit that I’ve met some very smart people and have had great mentors over the years. Their contributions have been invaluable to my success. Yet after launching two companies over two decades, I’ve come across some terrible advice.
Below are the top five bits of advice that I could have done without.
1. “Hire people you know.”
I’ve had countless people tell me that it’s always better to assemble a team of “known quantities” — friends, colleagues or former employees whom you know and trust. But I’ve discovered that for me, the best hiring decisions are based on the specific positions I need to fill at that moment in time. In other words, I need to focus on the specific expertise and skill sets the company needs, rather than trying to piece together how Jill, Sally and Joe will fit into the new business.
In addition, if things aren’t working out between an employee and your company, you need to part ways (and usually, the sooner the better). You may be more reluctant to let friends go, even if you know they aren’t good fits.
2. “There’s no room for you in the market.”
When my husband and I launched a legal document filing company the second time around, the field was quite crowded, with several big names and established players. Many people told us to find a new space because there simply wasn’t room for us to compete.
However, the key to business success doesn’t always hinge on finding a completely empty field; rather, it’s how you define your company and its place in the market. Starbucks wasn’t the first company to sell coffee, but they did revolutionize the coffee shop by selling an experience along with a caffeine fix. Still, numerous boutique coffee shops are able to open and thrive today, even though there’s a Starbucks around the corner.
Rather than struggling to come up with a brand new idea, take a look at your target industry and see where there’s a void to be filled. Figure out the best possible way to fill that need and run with it. You don’t always have to blaze a new trail, but you need to know who you are.
3. “You have to be cheaper than the other guys.”
I admit that my husband and I fell into this pricing trap with our company. We felt that the only way we could compete with the “big guys” was to undercut them on price. So, we dropped our prices. Our business grew, customers were happy, more customers came in, yet we were nearly losing money with every new order.
Many young companies feel the pressure to discount their prices heavily in order to win business. While customer acquisition is important, attracting customers at unsustainable price levels will just result in a race to the bottom. I’ve learned that you’re better off in the long run to focus on how to bring more value to customers, rather than simply slashing your prices. After all, someone will always be able (or willing) to absorb a lower cost than you. You’ll need to find a new way to stand out, and then work as hard as you can to be exceptional in those differentiating areas.
4. “Social media is free.”
Over the past several years, I’ve had people tell me that starting a small business today is much easier than a decade ago, because of all the free marketing on Facebook, Twitter and Yelp. Sure, you don’t have to spend a dime to join Facebook, create a Twitter account or start a blog. But, I think a more apt comparison is that social media is free like a puppy. It may not cost much to bring a shelter puppy home, but from day one, it’s an endless whirlwind of training, toys and treats.
Likewise, social media is far from free once you factor in the blood, sweat and tears it demands. From developing fresh content to keeping up conversations, social media requires nonstop commitment once you start. Unless you consider your time (or the time of your employees) worthless, then there’s a significant cost involved with social media.
5. “You have to spend money to make money.”
This cliché never applied to our business, particularly at the beginning. We set up shop in our apartment and did everything we could to keep expenses down. Sometimes we thought things would be better if we just had the money for X, Y or Z. But it’s risky to think that throwing money at a problem is your silver bullet. Sometimes, creative thinking and strategy work far better than a checkbook.
We had to learn the difference between spending money and investing in the business. Certainly, money can scale a business faster, but only when you spend money on those things that will produce more money in return.
People will always give you advice — some good, some bad. The key is to never forget that you are running the show. Other people’s opinions should always be viewed through the context of your own experiences, convictions and value system.
Final decisions are always up to you, so there’s no blaming someone else for bad advice.