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Thursday, 15 December 2011

Small Business Strategies Using cell phones to make sales

How long has it been since you used your cell phone to find a business? To make a reservation at a restaurant? Not long. Most of us use mobile devices to shop. But are you using any mobile marketing for your small business, to capture all those customers on their phones?

ure, the idea of "mobile marketing" seems daunting, especially for a small business. After all, how can you develop a smartphone application ("app") when you haven't even had time to update your webpage in six years?

Relax, you don't have to develop a gee-whiz app or use every mobile method available. Enter the world of mobile marketing slowly, and you can still improve business and your bottom line. The good news is many mobile marketing techniques are easy - and even FREE.

MORE: Small business stories
MORE: Columns from Rhonda Abrams

First, acknowledge that mobile devices transform the way customers deal with small businesses, and some of those are your customers and prospects. After all, more than a third of Americans own a smartphone - equipped with data services such as Internet access and mobile applications, or "apps," according to the Pew Internet Project. Pew estimates that 11% of Americans now own a tablet device as well.

That's a lot of people looking at smartphones. Some are absolutely addicted to it.

Take my experience over Thanksgiving. Everywhere I went with my nephews - 24-year-old Seth and 32-year-old Aaron - the first thing they did was whip out their smartphones. They checked in on FourSquare, posted on Facebook, tweeted on Twitter. They weren't just checking in with friends. At one restaurant, Seth looked up which dishes others recommended on FourSquare; at another, he got a discount coupon on his phone. At yet another restaurant, Aaron ran his phone over a "QR" - Quick Response - code (one of those squiggly square graphics that take you to a website) pasted in the guest check folder to earn points toward a future meal or dessert.

So how can you get started with mobile marketing for your small business?

1. Get found. Let's say someone is in Chicago's North Side looking for a Thai restaurant. Their GPS-equipped mobile phone shows them which Thai restaurants are nearby. If you own a Thai restaurant in the neighborhood, you want to show up. Easy solutions? "Claim" your business on sites such as Yelp, Bing, Yahoo Local, Google Places, Foursquare. Free and easy.

2. Give coupons and deals. The easiest - and free - way to offer deals is to add a coupon to those sites listed above. But there are also business-oriented applications especially designed to present coupons to customers based on location, such as Yowza ( or CouponSherpa ( or DealChicken (, owned by USA TODAY parent Gannett) as well as the daily deal sites like Groupon or LivingSocial.

3. Build relationships with customers. The easiest - and free - way is through social media sites such as Facebook or Twitter. Many people, especially younger consumers, check these on their phones continually. Posting once a day or a few times a week keeps your name in front of them. More powerful customer connection programs, like RewardMe, enable customers to receive rewards for coming back to you repeatedly.

4. Help shoppers find your location, hours, main products or services. I'm betting it's tough navigating your decades-old website on a tiny phone screen. Talk to your website designer or host about options for mobile versions of your web page. In any case, make sure your home page has the most critical info in highly readable type - large fonts, dark print - that doesn't require typing or moving away from the home page.

5. Accept payment. Maybe it's you - not your customer - who's mobile. In many mobile service businesses, such as plumbing and contracting, or if you sell at crafts fairs or farmers markets, you can accept payment right on your cell phone. Services like Square, ( or Intuit GoPayment ( have little credit card swipers that attach to your cell phone. You pay a percent fee for every charge processed, but you get paid on the spot.

More mobile services for small businesses are being created every day. So whip out your phone and say hi to the new marketing powerhouse for your company.

how to Simplify the Balance Sheet

The Balance Sheet is always in balance.(Refer to Balance Sheet Page and Sample Balance Sheet to familiarize yourself with terms and look of Balance Sheet)
The Balance Sheet is comprised of:
1. Assets (things we own); Current and Long-term
2. Liabilities (things we owe); Current and Long-term plus Equity (shares owned by shareholders/owners)

The reason Equity is a Liability is that the company owes money to the shareholders if and when they decided to sell their shares in the company. For most coffee businesses, there are likely between 1-5 shareholders who have each contributed funds in exchange for a percentage ownership. The percentage ownership is reflected in number of shares owned by each individual. For example, in our Sample Balance Sheet Page, there exists 100 common (voting) shares. If a partner owns 20% of the company, they own 20 common shares. (I will post more on Common and Preferred Shares soon)

The most important thing to know is the following equation:


ASSETS are for our purposes:
Short Term; cash on hand, bank accounts, investments and receivables
Long-term; equipment (tables, chairs, coffee makers and espresso machines) and leasehold improvements (things you've done to the space you rent, but cannot remove when you leave, ie cabinetry, flooring, washrooms)
When we add these things together we know, because we are working on a Balance Sheet, that the Liabilities plus Equity will equal this figure.

Short Term; accounts payable under 1 year(suppliers, rent, utilities, taxes payable)
Long-term; bank loans (note: there is usually a note listed in the Financial Statements outlining the terms of any outstanding loans, and lease agreements)

Example: In this simple example, our Balance Sheet is truncated, but clean and clear. We have $2,000 in cash, 20k in the bank, 50k in equipment and 72k in total assets. On the other side of the Balance Sheet, we owe 5k to suppliers, are making payments on a 20k bank loan, and as an owner we have 47k in value built up in the company.

cash 2,000
bank account 20,000
equipment 50,000
total 72,000
accts payable 5,000
bank loan 20,000
equity 47,000
total 72,000

If we decide to upgrade some equipment and take a bank loan for $20,000 out to do this, our new Balance Sheet will look like this.

cash 2,000
bank account 20,000
equipment 70,000
total 92,000
accts payable 5,000
bank loan 40,000
equity 47,000
total 92,000

Our Balance Sheet has grown, but the shareholders didn't profit, in fact cash flow will now need to be diverted to service the new debt, thereby reducing the profit at the end of the year. There are many different ways we could have acquired the equipment without taking on a new loan, lease, lease to own, pay cash, or issue preferred shares. Each has a cost associated with them, some more costly than others.
A very important factor I have omitted is the fact that new equipment depreciates the moment we take possession. (think new cars) This depreciation always happens at a constant rate determined by Generally Accepted Accounting Principles, normally 10-20% per year. This means that we need to reduce our ASSET equipment account by 20% of 70k each year, and if we do that, we need to reduce our LIABILITIES account by the same amount because we are working on a Balance Sheet. If we are reducing the value of equipment by 20% per year, and we are not paying off the equipment by more than 20% per year, we need to reduce the equity account by the difference to keep the sheet balanced. This means less value for the owners.
Play around with these concepts, apply them to your own situation and let me know if you find this helpful.

Cash Flow Statement helps us identify the company status

Cash Flow Statement
Most of you who own companies and are reading this use what is referred to as an Accrual Method of Accounting. This is not as noteworthy for companies with little or no receivables, but companies that have wholesale or retail accounts, it is. In the accrual method, the sales are booked when they are shipped, and recorded as accounts receivables, even if they aren't due to be paid for over a year. When using the Accrual Method, it becomes critical to keep track of cash coming in and out of your account.

The Cash Flow Statement helps us identify when a company is generating more cash than it requires, or conversely, when it is running short of cash. For example, a company may be breaking sales records every month, but if they are not collecting payments for those goods they will certainly run out of cash quickly.

The first part of the Cash Flow Statement identifies Cash Flow From Operating Activities. This is calculated by adding net income, plus depreciation and amortization expenses. Although depreciation and amortization are expenses, these are added in because though they are true costs of doing business, they do not consume cash and therefore don't affect liquidity.

The next part of the Cash Flow Statement is Cash Flow From Investing Operations. This section is comprised of all money spent on capital expenditures (equipment/property purchases) This is always a negative number because we always spend money to purchase capital goods, thereby decreasing available cash. Please note, this is why it is very important to approach capital expenses with caution and always consider how it will affect the Cash Flow Statement. Coffee companies dedicated to constantly upgrading equipment always have the burden of depleting cash for current operations to maintain long term debt payments. It is a dangerous and expensive strategy to maintain over the long term if a company's marketing and promotion are based on the newest/fastest.(Think car companies profitability?) Also included here is also revenue produced from any investments the company made during the period. This includes bonds, GIC's, and other financial instruments.

The third part of the Cash Flow Statement is Cash Flow From Financing Activities. This is not particularly applicable to most coffee companies since few companies issue shares (debt) to finance capital goods. This is where we would record any dividend payments to shareholders (you) during a period, or if the company is re-purchasing shares from a partner and converting them to treasury stock. Again, these transactions are not common, but if your company is incorporated, these line will appear on your financial statements.
Adding all three sections reveals the company Net Change in Cash position.
For a coffee company cash flow is king, no cash. Conserving cash is The Most Critical component of running a retail company. Slowly building reserves, and wisely investing excess cash is the goal.

Balance Sheet is a representation of a company

Balance Sheet
The Balance Sheet is a representation of a company's Assets and Liabilities and Shareholder Equity at a specific moment in time, for example, Balance Sheet as of June 30. A Balance Sheet is always balanced, Assets on one side, Liabilities and Shareholder Equity on the other. If for example a company has 200 000 in assets, and owes 100 000 to suppliers etc, Shareholder Equity must equal 100 000. 200 000 = 100 000 + 100 000

Assets are all about listing what the company owns including cash, inventory, receivables, pre-paid expenses, short and long term investments, property, facilities and equipment. On a Balance Sheet, the Assets are listed in order of how quickly they can be exchanged for cash. For a coffee company, this means your cash in the bank, investment accounts, money customers owe you on account, inventory of cups, coffee, tea, office products, espresso machine, coffee makers, cash registers and any owned buildings and property. For a coffee company, conserving cash which can be used to make timely acquisitions and reducing debt is the key to long term success.

Liabilities and Shareholder Equity are the opposite side of the Balance Sheet. Liabilities are grouped into two different types, short term and long term. Short term liabilities are things which need to be paid within a year such as any unpaid supplier invoices, phone bills, utilities and taxes. Long term liabilities are usually bank loans, bonds, unpaid rent and lines of credit. An important note about Liabilities, because Assets = Liabilities + Shareholder Equity, increases in debt necessarily reduces Shareholder Equity. Conversely, if a company has very little debt, the owners wealth increases one dollar for every dollar that debt is reduced.

Current Ratio is a tool sometimes used by financial institutions to determine a company's ability to meet it's short term payables. The Current Ratio is expressed as the relationship of Short Term Assets to Short Term Liabilities. A ratio of 1 or better is considered good. A ratio of below 1 would indicate that the company may have a difficult time in meeting it's short term obligations. While not a black and white measure of a company, it is a helpful tool in understanding what your banker thinks of your coffee company.

How to prepare Income Statement

The Income Statement is the first of the three components of a Financial Statement. The Income Statement is a representation of how much money a company earned (lost) during a specific period of time, typically 1 month, 3 months, 1 year. For a coffee company, the thing that jumps out immediately are Cost of Goods Sold (COGS), Labour Costs, General and Administration, Interest and Banking Charges.
The first line of an Income Statement lists the Revenue (Sales) of our Company. This is a compilation of all daily sales receipts, coffee, espresso, muffins, coffee makers etc. during the period. Note: Never hide revenue or misrepresent your company's sales. This is not only illegal and dishonest, but is a clear indication that you are not operating a professional organization capable of long term success.
This revenue only includes sales which are in the normal course of business and do not include one time sales, disposal of used equipment etc. For instance, if you have a 5 year old Linea that you are selling to your brother in law, this is not recorded under Revenue. High Revenue, as we shall discover, does not necessarily equate to high profits.

The second line of the Income Statement is Cost of Goods Sold (COGS). This represents all of the money the company spent on items it sells, including coffee beans, coffee makers, travel mugs, tea, milk, sugar, cups and lids, stir sticks, baked goods and other food. Note: It is helpful to have a cash register system which can separate revenue steams so that you can identify how much revenue is being generated by each Cost Centre. For example, if you are spending $1000 per month on baked goods, but only generating $1200 in revenue, you either have your pricing wrong, theft, or waste. Either way, you can't tell if your revenue is bundled together.

The third line in the Income Statement is Gross Profit. Gross Profit is determined by subtracting COGS from Revenue. This number in itself does not tell us whether the company is successful but can tell us whether it's pricing is appropriate by calculating Gross Profit Margin. We do this by dividing Gross Profit by Revenue (Sales). A high percentage of Gross Profit Margin is a positive sign, but doesn't necessarily translate into Net Profit. For example, 70% Gross Profit Margin is an excellent result for any coffee company.

Labour is either treated as a part of Selling, General & Administration, or preferably, treated on it's own. Labour is an important controllable cost and it includes labour and salary taxes, benefits and medical expenses if applicable. An exemplary target for labour cost is 20-25% of Revenue.

Selling, General and Administration includes office expenses, advertising, phone, internet, security, travel, repair and maintenance, legal and professional and the big These are costs which can also be easily controlled by an attentive operator without impacting the quality of the end products. Carefully selecting service providers, paper products, cleaning products, maintenance companies and parts suppliers can greatly effect positive results in the Income Statement. Note: Advertising, when used effectively can be an excellent strategy for improving revenue, but is also a huge burden on General and Administration and is an area where new operators make mistakes by misdirecting scarce funds better employed elsewhere. Rent can either be a valuable asset or huge liability. An excellent target for rent as a portion of Revenue is 10-12%.

Depreciation is a simple representation of how much utility has been used up in any piece of equipment. For example, if you expect your new espresso machine to last 5 years, you are expected to depreciate the value of the equipment by 20% per year. This amount reduces the equipment value in the Balance Sheet by an equal amount, while increasing the accumulated depreciating account in the Balance Sheet by the same amount. This is a real cost and is completely controllable by regularly maintaining your equipment thereby extending it's lifespan beyond the depreciation period. Those companies that regularly purchase and upgrade their machinery to the latest (most expensive) models necessarily incur high depreciation costs which negatively impact their Income Statements and Balance Sheets.

Interest and Bank Charges is another red flag area for coffee companies. The cost of a new build is significant and requires funds in the area of 200-400k. At todays low interest rates, the burden of carrying 200k of debt is manageable, but if rates rise to levels experienced in the 1980's (15-25%) most businesses would fold under the pressure. A new entry to the coffee business would be well advised to conserve their funds and avoid debt at all cost. An excellent strategy is to benefit from others errors by purchasing failed coffee businesses for pennies on the dollar and employing the saved funds to improve and promote the business.

Sale of Assets is where we record the funds a company receives when it sells used equipment, property, fixtures, etc. This is where a company that regularly upgrades their espresso machinery would account for the sale of the old machine. Note: If a company purchases an espresso machine for $10k, depreciates it by $2k in the first year, and sells the machine at the end of the first year for 6k, it needs to record a loss of 2k on the sale of assets. That transaction cost the company 2k in depreciation plus 2k on the sale of the asset equalling $4000 per year.

Net earnings is the amount of money the company has left over after paying it's taxes. Typically, we must allow for approximately 35% for taxes. Note: if your company is incorporated, pay yourself an extra amount at year end to avoid double taxation. Double taxation occurs when a company pays tax on corporate earnings, then pays the owner a dividend which tax must be paid on also. By anticipating profit, the owner can pay tax only on the salary earned and at the same time reduce the corporate tax payable. An excellent target for a coffee company is 15% on total Revenue.

Friday, 28 October 2011

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