Pricing and the Rise in Interest Rates

After several years of low interest rates, the Federal Reserve has determined that inflation is taking hold and thus the need to raise interest rates to keep inflation at bay.  What does this rise in interest rates mean to you as a business owner?

It means that the products you sell will cost you more because your supplier will increase his prices to you.  It means that if you purchase your products on credit, the interest rate associated with your credit card will also rise and your installment payments will increase as well.  Any loans that you may require will carry a higher interest rate and you will be paying more for the cost of money. What are you going to do to maintain your profitability with these increases?  You are going to raise your prices to your customers as well.  But, increasing your prices comes at a risk; that is, losing some customers.  What are you going to do?  Raise your prices, of course.  Here are some strategies to consider.

Marketing and Advertising

When developing your marketing plan, you must think of the perceived value that your product offers your customers and express it in a way that your customers will understand it. Remember when you created that business plan, you had certain specifications for the products you would sell.  In addition, you would offer your customers one or more of the following values and benefits: quality, durability, selection in your product line, convenience, features and availability.  These will attract your customers even when you decide to increase your prices.  And, remember to toot your competitive horn when placing ads or delivering that pitch.

But, How Much?

You should be methodical in determining the amount of that increase.  Rather than making sizeable increases, it is more acceptable if you were to increase prices in increments.  For example, a $1.00 increase might make customers hesitate less than a $2.00 to $5.00 increase.


Starbucks changed the rules of the game of selling coffee.  You could go into a Starbucks and sit and do your computer work or meet friends, or even have a meeting, all for a cup of coffee.  Customers became so hooked on their coffee that they would buy it no matter the price.  Consider how you can change the rules by rethinking what you are selling.  Ask yourself, “How do I add value?” and “Who is willing to pay for that value?”

Target Market

You must think about the customers you have; would they pay a higher price for your product?  Companies should always set prices according to what their customers are willing to pay. Remember: “it is what the market will bear.”

Tiered Pricing

There are lots of ways to charge different people different prices.  You can create two tiers for example, call one “elite” and the other “basic.” Consider the tiers of pricing that the cable companies use for their offerings.


Roll out your increases gradually over a year.  That will take the sting out of the increase.

To gradually increase your pricing will insure that you will be able to maintain your profit margins and continue to do business.

What Makes a Good Business Plan?

Over the years I have read and critiqued many business plans produced by students in my Entrepreneur classes.  Few are great, others are not so great.  So, what is the difference in the great ones that make them stand out?  What are the elements they should contain? 

The answers to these questions encompass, among other things, what the business is, the products or services that you want to develop, how the operation works, what you are up against in the way of the competition, what consumer need you are fulfilling, and lastly, what is your experience in this business?  Of course, you will begin with a concept, but a business plan is not just for concepts.  There are goals that must be presented with solid, reasonable tactics and strategies that will result in a good business.

The development of these tactics and strategies are in the marketing plan, the crux of your business plan. Following the tools of marketing, the 4Ps of Product, Price, Placement and Promotion, is the key.  To do this you must do market research to vet or validate your business concept.

Many students fail to do significant market research.  Learning all about the consumer and his psychological makeup will help you design a product or service that will appeal to him. Comparing your product to the competition in the way of price, quality and costs to manufacture are important factors to work on. Differentiating your product from the competition to attract buyers is important. Looking at consumer buying trends, new innovative products and, of course, the technology that will reduce costs to manufacture and distribute products must be considered and studied.  Knowing these and incorporating them in your planning will help you stay ahead of the competition.

Communication with prospective consumers is so vital to convey what you have to offer and to attract and motivate them to buy.  Advertising and promotion — by utilizing social media, ads in newspapers, television, local ad placement — are ways to keep your name in front of the consumer.

Financial projections are another important part of a business plan. They reflect how you are going to make money.  You will consider your costs and expenses and determine the number of units that will be sold and at what price.  This is where competitive analysis comes into play.  How much are your competitors charging for similar products or services?  How much are they selling?   Is there demand for your product?   Do you believe you will be able to take a share of their market away from them in order to have a successful business? Starting in the first year, how much will you project to sell, then determine for the second year how much of an increase or growth from the first year is reasonable, and so on. You must consider seasonality, cyclicality and economic conditions, and adjust the projections for these. The answers to these questions are daunting and difficult to achieve without research. 

The writing style the plan contains is concise and accurate information geared toward your audience of potential investors and bankers.  Including charts, graphs, and pictures of the product make appealing reading and can show at a glance the data and points being made.  Show your completed draft to some friends who do not know your business to determine whether they understand it and address any ambiguities.

The key to a good business plan is market research. The more research you do, the better your planning will be.  For a start-up business, the projections will help to determine whether you have enough money to start the business and stay in business.

How to Make Paying Employees a Pleasure

Payroll Services

Many years ago, when I had my own company, I had a payroll of 20 people and did the payroll every two weeks by using an Excel spreadsheet to calculate the taxes, total deductions and net pay.  Then I manually wrote out the paychecks and the pay stubs.  It was a nightmare taking me over three hours to complete.  Then I would walk over to the bank and submit the Federal and state deposits to cover the payroll. “There must be a better way,” I exclaimed.  I found a payroll company to handle the payroll, here is what I learned:

You must choose a payroll company that is qualified and proficient.  I needed to learn the tasks that a payroll provider can provide, how much these services cost, the benefits they offer and what to look for when choosing one.  I found an online payroll service, which automatically calculates how much an employee should be paid each pay period and deposits the funds via direct deposit or check.  The great task that they can do is prepare the required reports that must be filed with the federal, state and local governments on a quarterly basis.

Most online payroll services integrate with account software as this gives businesses the ability to keep more accurate financial records. These services withhold employee taxes, file quarterly payroll tax reports and pay tax withholdings to the proper state and federal agencies.  They also issue employee W-2 and 1099 forms at the end of the year.  Some online payroll services have systems that make it easy for businesses to set up and monitor 401(k) and IRA retirement plans and for employees to control their contributions.  The biggest benefit of online payroll services is that all the work – payroll calculations, payroll tax payments, end of the year tax forms — is completed for you.  The only task you need to complete is the hours worked by each employee in each payroll period.

Before you decide on a payroll service, get some referrals from colleagues in businesses like yours and check on them.  Look for reviews and testimonials.  You want to see that they provide strong customer service and are available when you need them, not just on the days that your payroll is due.  Get a contact person to work with who is knowledgeable who knows what your tax needs are and understands your business.

You need to know how the payroll is delivered to you by courier or mail, what the charges are, what happens in the event of mistakes, and are the checks printed.   You will need to know the company’s billing structure and how much you will be billed.  You will pay more when the government filings are due, and if you are charged for adding on new employees.  You will need to compare charges and services rendered by a few payroll services to choose the right one for your business.

Should I Convert to a C-corporation?

By Marguerite Moore





Small Business: Risky Business

By Marguerite Moore

As small business owners we probably have a few clients who give us enough business to make us complacent.  However, what happens if we lose one or two of them?

Many small businesses have only a handful of customers or clients at a time.  If they work by themselves, they cannot take on additional work.  But some may say that It is less complicated to have a few clients, but it makes a business more vulnerable.

What are small business owners to do when a client leaves and revenues dip?  Don’t wait for this to occur.  Keep your name out there by networking, creating a blog, using social media and attending conferences all with the thought of not only learning something new, but also meeting new people and exchanging business cards.  So, if a downturn occurs you have met people who may hire you if you connect with them again.  If the client is a large corporation with several divisions, there may be an opportunity to do some prospecting in other parts of the company.

Keeping up to date regarding both negative and positive developments with your clients is key.  For example, when Toys R Us and Sears announced that they were closing some of their stores, it didn’t come as a surprise to vendors.  They had time to act to make new connections.

Here are a few good practices to keep in mind:

  • If a client is happy with your work, ask him for referrals to grow your business.
  • Never have a client who provides more than 10% of your sales. That would mean having more than 10 clients in your roster. Those clients should be diverse, that is, being from different industries, so that not all of them would be affected by a downturn at the same time. Try to make efforts to solicit more business from the contacts you have made.
  • Get out there and network at least once a week. Meet people who could be potential clients.  See what the trends are that potential clients are looking for and address them with your skills. There are many meetings taking place on a weekly basis.  To find them look at a local/regional or industry newspaper.
  • Keep your name out there by writing a blog on your industry containing information which could be helpful to potential clients.
  • Make a presentation to an industry group.

Why Some Businesses Obtain Loans Easily

As a small business owner there are times when you will need a loan to keep the business going.  Some owners will plan and consider applying for a loan when they really don’t need it immediately.  Others will wait until the very last minute, and then they are turned down with no other place to go.

But becoming bankable will take a while even a few years.  Here is why I say that:

  • Of course, you realize that banks like to see a business that is profitable and being well run. Having your finances in order, and taxes paid and current, is the best way to demonstrate that you are running a well-managed business.
  • Owners who want financing yet show very little revenue, a net loss, or have been delinquent in filing taxes perhaps for years, will be turned away.
  • So, what will make you bankable? You should have at least three years of positive financial information on hand.  Often, business owners will try to minimize revenue as a tax planning device to reduce profits, but this strategy can work against you when you seek outside financing.
  • Raise both your personal and corporate credit score by reducing credit balances, paying all debt on time, and avoid applying for new lines of credit during the preparation period.

This process can take several years; therefore, it is important to get sound advice from an accountant and a business banker early and often.  The path may be difficult, but it will soon lead down to the right one.

Are You Thinking of Buying a Business?

Some people often think how great it would be to be your own boss and own a business.  But some want to start their business from scratch and develop the business using their own creative genius.  Others would simply purchase an existing business or franchise because they can more readily see the potential success of it.

If you have decided to start by  acquisition, you should consider several things when preparing and researching the purchase of a business or a company.

  1. A strategic plan must be developed.  Writing this plan will help you analyze and develop and define your market segment and see where you can differentiate your product offerings, distribution channel or customer service.
  2. Consider the perfect seller. Working with your advisers, develop a list of companies or a business that match your strategic interest.
  3. Consider the corporate culture of the target and if that culture will blend with your company culture.  Will the two companies welcome change?  There will always be a need for motivation and training to meld the two cultures.
  4. Look at your technology, is the infrastructure up to date and will it be able to absorb additional employees? Are your email, CRM and ERP systems ready for an upgrade?  You may want to acquire a company because it has more advanced technology.
  5. What are the policies & procedures of the target company, and do you have policies and procedures in your own company or business?  Can the policies be easily incorporated? If not, then look for a company that is process-driven so that the resulting businesses can scale more easily.
  6. What is the competition like?  What will your competitors think when they hear the news that you have purchased that company?  Will they be frightened for the forthcoming competition, or will they laugh because you will spend a lot of time melding the businesses and be distracted from competing.
  7. What about product integration? You will have to review this well in advance of the purchase. Can you develop an analysis that identifies any potential shortfalls in your current product offering?  Will you have created confusion among your customers because you have created competing products which they may not be willing to pay for both products?  Could you have created a new set of competitors?
  8. Once you have identified the target company and may have generally discussed deal terms, you need to organize your thoughts in the form of a letter of intent.  Your adviser, lawyer and accountant should have lots of input on the precise deal structure to meet your goals.  After the letter of intent is accepted the due diligence process begins and then the definitive asset purchase agreement or stock purchase agreement will be crafted.  There probably will be a few drafts of the agreements negotiated, but once the agreements have been signed,  the buyer’s bank will confirm that the money has been wired into the seller’s account, and the deal is officially closed.
  9. However, the due diligence process mentioned above must be managed and followed to make sure that the seller’s questions have been answered.  This list of questions is also referred to as the due diligence checklist.  Once the letter of intent has been signed, your advisers will guide you through the sequence of meetings and data requests. All due diligence items will not be delivered all at once.  You will want to see the financials of the target and the financial projections, as well as customer lists and performance. The buyer will need to coordinate multiple on-site meetings covering topics such as technology, product management, finance and customer contract review.
  10. After the closing there is more work that has to be done to integrate both cultures as well. Starting during the due diligence period, key individuals will be organized into teams to to combine technology infrastructure, corporate locations, product lines, sales and marketing teams, corporate messaging, personnel policies, etc.

Help! I Need an Accountant

Small business owners have many tasks to perform in running their businesses.  They take orders, prepare the shop, order inventory, hire employees and perform bookkeeping.  These varied tasks can become overwhelming especially when you think that you must prepare the accounting and balance the books.  Who has the time?

But you needn’t feel this way.  Consider hiring an accountant.  But what should you look for in an accountant?  The first thing you should do is to determine what you need in an accountant and what he can do for you.  What are the skills and knowledge that you require of an accountant?  Is he a CPA? Where is your business now, is it a start-up or a small company with a small staff?  Will you need financing soon, or are you thinking of an initial public offering of stock? The answers to these questions will help you determine what you need in an accountant.

There are so many accountants with specialty services these days it can be confusing to select someone. And then there are those who are your basic accountants.  Accountants typically provide a wide range of tax services, from filing tax returns to tax planning to examining the tax implications of transactions.  Some even offer assurance services, including audits, reviews and compilations.  Some accounting firms recently have expanded to provide business advisory services, including succession planning, business valuation and forensic services, technology consulting, human resources consulting and investment advice.

If all you need is someone to prepare your quarterly financial reports and year-end financials and income tax reports, you would need an accountant from a small firm.  However, you need to determine whether the accountant is appropriate for you.  You should discuss with him his qualifications and experience. You must ask him about his clients and how large they are. Where would you fit in the client roster in terms of size?   Will he pay attention to you or would you be a low priority to the professional?  An accountant with small business practice would be a better fit for you if you are a small business and expect to remain as you are for several years.  Is the accountant familiar with your industry?  If so, he would then be able to present your financials properly and be able to pinpoint troublesome areas in your business so that you can make improvements. He can help you improve your bottom line.

You need to discuss with the accountant how he will handle your account and how much he will be charging for his services.  How many face-to-face meetings will you need with him for him to understand your business and how he wants to receive your information in paper or loaded onto a disc which syncs with his software.

But the best way to select an accountant is to ask your friends and business contacts who they would recommend.  Make sure that you interview several accountants so that you will have the best fit to meet your business needs.

Business Planning Includes Succession Planning

Not long ago two brothers I knew had a landscaping business.  They told me that they had recently taken out life insurance on each other in case one of them dies so their families and business’s debts would be taken care of.  One brother was against it, while the other was in favor of it.  But he acquiesced.  It is a good thing that he did.

A few years later, one of the brothers had a fatal accident while working.  The other brother was left to run the business.  He was so happy that the insurance was in place that it helped him continue the business and take care of his brother’s family to the extent that his nieces and nephew could attend college without worrying about the expense.  It was due to the fact they had taken out the life insurance policy.  Now that business has been taken over by the surviving brother’s son-in-law and is doing great.  A second-generation business.

Think about this:  if you suffer a heart attack and need time to recover, you need the ability to have other people step in and manage the business and pay the bills.  Exceeding a month’s convalesce could mean that you could lose the business.  A successful neighborhood fish business was being sold.  The agent told me that the owner suffered a debilitating heart attack and could not return to the business.  He had no insurance.

Owners of businesses should plan a “what if” scenario indicating in writing who should take over his tasks.  Perhaps it is a trusted staffer, relative or friend who could sign checks and purchase orders, and have access to accounts and records.  They should purchase insurance that provides money to hire someone to run the business if they become incapacitated for an extended amount of time. If there is no one running the business, vendors and customers might get nervous and discontinue their patronage.  Bankers can decide to start calling in credit.

These stories should make sole proprietors and partners consider succession planning.  Some owners feel that their children will take over the business.  It rarely happens – children want to do their own thing. Other management options to consider are current employees, customers or competitors who would purchase your business.

Finding your replacement is difficult so plan ahead, it is best to start early. Leaders are not always easy to find and it takes time to mentor someone into a management role. You will need to identify potential successors in your family or among your employees. You can hire from outside the company, but it’s helpful to groom someone already in your business over time so the transition to new leadership will be smooth.

Planning for continuity or retirement wise.  Be sure to do it!

Why Do Businesses Fail?

We have a great idea and we are anxious to go into business and become an entrepreneur.  You are advised to do your market research, consult with focus groups to test the market, determine your competitors, and write that business plan.  You look for investors and put your own money and probably friends and family money into the business.  You plan, strategize, write and then you are on your way. You are energized with the hope that your business will be great.  But what can go wrong?

Here are five common reasons why new businesses fail:

  1. Lack of Sufficient Capital

Opening a new business, no matter how small or large takes a lot of money, and many new owners do not foresee this.  I recommend planning your strategy and write a formal business plan.  It is important to understand the difference between a startup budget (money you will need to open your doors) and an operating budget (money for your monthly costs and expenses).

  1. Insufficient Marketing

You may think that you must hire a public relations firm to write your news articles and keep your name out front.  But as a startup you do not have the money to do this.  There is so much out there that is free or relatively inexpensive in the way of social marketing tools, like, Constant Contact, Twitter, Instagram and Facebook. You can use these initially.  You can even have a presence on the Internet by creating a website.  In today’s world, especially with the Millenniums and their use of the smartphones, you need to have a website.

  1. Not Understanding your Target Market

You need to know that the market you are entering is growing or self- sustaining.  It is foolish to enter a market that is declining; you will be unsuccessful and waste the investment you have made in the business.  You need to understand the demographics of the area and what their buying habits are and what they like to do.  Gearing products to the wrong group of people are recipes for disaster.  If you find that you have targeted the wrong market, you may not have enough time to pivot to another market.

  1. No Experience in the Business

It is beneficial to have some experience in the type of business you want to establish.  If you want to open a restaurant, and never have been in a restaurant’s kitchen or know what the margins are for running the business, you are wasting your time and money.  You will need to know what you are getting into.

  1. Going into Business for the Wrong Reasons

The entrepreneur Guy Kawasaki says that going into business to get rich is the wrong reason for going into business.  You should go into business to fulfill a need of society, or what can make life better for us.  It takes a lot of time to run a business, probably up to 80 hours a week, and the entrepreneur can become overwhelmed with the responsibilities.  It is important to have a support group, especially your family, going into it.

When Plan A Doesn’t Work