Small Business Success Tips – Finances

Starting with fifty dollars or starting with five hundred thousand, a small business owner must, must, must have a handle on his finances if his business is going to survive. You don’t need a degree in accounting to apply common sense or to take good advice. You do need a little self-discipline, but that comes fairly easily if you understand the reasons behind keeping track of your finances. After all, you have no problem doing what you consider the important parts of your business.

Accounting, bookkeeping, financial management, call it what you will, is more than a necessary but boring task. Money is a resource that you are using to help create your future — your many futures: next week, next month, next year, ten years from now. To the degree that you do not have control over your money, you are not controlling those futures.

Most people would say, “Here is where I want my business to be in a year; how much money do I need?” That is not controlling your future. The future starts now, today. So the correct approach is, “Here is how much money I have. How do I use it to get where I want to be in a year?”

See? Two necessary conditions: knowing how much money you have, and knowing where you want to get to. These conditions lead to the following necessary, basic rules of business finances.

1) Keep business money separate from personal money. If you put personal money into the business, it becomes business money.

2) Keep track of every penny every day, both the ones coming into and those going out of the business. This may seem obsessive, like keeping track of every nail in your tool bin, but it is not, for several reasons. For one thing, it will save you a lot on taxes to have accurate records. But even more important, you will be able to accurately evaluate your progress toward the goals you have set, and adjust your current actions accordingly.

3) You do not necessarily have to have a full accounting program on your computer to keep track of your income and expenses, but at the very least, you do need a single, specific place where everything is written down. A notebook will do. Stationery stores carry well-organized books designed for that very purpose.

4) Set some money aside each week. No matter how tight things are, or how much you owe, keep a steadily growing fund, and never touch it. Some regular percentage of your income is ideal, but if all you can set aside is a dollar, do that. This fund is not a reserve, to be used for emergencies. This fund is never used, except maybe, someday, as a down payment on a building.

Step Four is where almost all small business owners fall down. They don’t have the complete idea of using the money they have to get where they want to be. So get this straight, right now. Part of where any small business owner wants to be is solvent, and you don’t become solvent by spending everything you make. Always set some aside.

5) Spend only what is absolutely needed, even if you have more cash than usual. It is very easy to splurge on new equipment or extra advertising or whatever, when the money is there. Don’t do it. Spend what you need to, and set the rest aside. This fund is a reserve, a temporary surplus, completely separate from your other don’t-touch fund.

6) Finally, plan your expenses at least a week ahead. By Sunday night, you should know how much you are going to spend and on what during the coming week. Then only spend that much. If it’s not on the list, put it off until you can put it into next week’s planned expenditures. Ideally, you will be spending the previous week’s income, so you know how much you have to start with when you make the plan on Sunday night.

If borrowing is necessary for some major equipment, fine, so long as the payments can be covered by the income like any other regular expense.

These six rules will keep any small business on the path to becoming a big one. No one can reasonably be expected to follow them all perfectly, all the time, but come as close as you can. You will find that by focusing on future income and future expenses, you will have much more control over that future, so you can make it better.

Oh yes, one last note on finances: never, ever, ever spend money you have set aside for taxes. You would do better to go out of business and start over than to fall behind on taxes. If you haven’t experienced it, you can’t imagine the weight of the iron chains around your legs that unpaid taxes can weld in place for years.

A Candid Interview With the “First American” Tony Salzman – How Did This Tiger Earn His Stripes?

As I sat across from Anthony Salzman, better known in the media as “The First American”, I couldn’t help but wonder what in the world could rattle such a charismatic, over-achieving, innovating man. Well, let me tell you not very much…

Having lived and worked in Vietnam for over 18 years, this native New Yorker is tough as nails. I mean how else could he have survived and succeeded in a country under U.S. embargo, with inexistant banking system, no cars and poor infrastructure?

When you search Salzman on the internet, you find out he played a key role in the normalization of the Vietnam-US relationship as well as the signing of the Vietnam-US Bilateral Trade Agreement.

But, you also read he was “the first” at everything in Vietnam… Really? I ask him… the first at everything?

Any powerful man has his detractors, I argue, and those probably wonder if Salzman was indeed the first to ever issue a check… Wasn’t there a banking system in Vietnam before Salzman arrived in 1992? – Was Salzman really the first ever to own a car? that seems so unlikely that in the 90’s a country like Vietnam wouldn’t have cars? and then comes the biggie, the Chicago Tribune states that Salzman was “the first” American to ever do business in Vietnam. Come on! surely there were other Americans who flew to Vietnam with a dollar and a dream and somehow did business there in 1992, no?

Tony Salzman aka “Tony the tiger”, the chairman of V-TRAC Development Co. is a soft-spoken, charismatic (yes I already said that), almost humble man… As he sits across from me while I’m playing the devil’s advocate, he chuckles at my questions and smiles calmly… unbothered he explains:

T.S: “Banks. No, there were no foreign banks in this country when I arrived. No means zero. While I was here, sometime after I arrived, the ANZ bank Australia was the first. Citibank was the second. The country manager for the Australian bank was a wonderful guy named A.M. I chose to deliver the caterpillar banking business to him.

I ran one of the most successful and innovative marketing programs ever: it was a contest to find the oldest operating piece of caterpillar equipment in Vietnam. The reward was $1000. At that point in time the average monthly wage was $80. Submissions poured in from all over Vietnam. And, I thought it was high time that the first check be issued in Vietnam. It was after all a 100% cash society. A virgin banking market. So, we found the oldest caterpillar in the country that was still operating, a bulldozer built in 1937. The runner-up was 1939.

There ought to be some kind of archive photos of this someplace I’ll try to find them. When we announced the winner, it was a celebration attended by a lot of people, and the winner, who was an engineer who owned a tugboat. Sorry, the oldest engine was on the tugboat, the second oldest on the bulldozer. On the tugboat it was used for the propulsion. I remember having seen those huge checks when I was a kid on game shows. The ones the size of the bed. I decided that that was exactly what my company and the bank needed. A gigantic check with both of our logos on it made out to “bearer”. One of my staff members described the smile on the winners face as ear to ear Ivory! Well, the ivory disappeared when he saw this thing, the check, which I announced he had won. During the ceremony I proceeded to explain what a check is: a negotiable instrument. I told the audience that it was about time for Vietnam to start using negotiable instruments, and here is the first one! I invited the very perplexed men to come to the stage, and then I gave him a cheap plastic pen. He looked even more confused. The huge check was held by two bankers as backdrop to me and the very perplexed winner.

At this point in time I asked the bankers to turn the check around to show the blank side to the audience. They did this, and then I asked the winner to sign his name so as to endorse it. You can imagine, he looked even more perplexed then more perplexed then more perplexed! He did not want to sign. I then directed his attention to another representative from the bank who was holding two plastic shopping bags bearing the banks logo. The shopping bags were bursting full of cash. The ivory smile returned. He started to head for the bankers. I said no, you have to sign your name on the back of the check. He really did not know what I was talking about but he realized that he was not going to get near those bags of cash unless he signed his name

So, he signed his name. Then he headed for the bags of cash and once again I told him no, the two other bankers who were holding the gigantic check gave it to him to carry over to the guy holding the two bags of cash he carried the big check over to the other fellow, then an assistant took it from him, and the bags of cash were delivered into his hands. At that point in time probably only me, my wife, and the bankers understood what the heck was going on! Certainly nobody else did! Anyway, that was the first check negotiated in the history of Vietnam, regardless of which government regime one talks about.

Now, you have become the fifth or sixth person in the world to understand the nature of that ceremony and transaction. Unfortunately, I’ve never written any of this any place, or told any reporter. Eventually I’ll find the check picture I hope, in any case it’s quite a story.”

Quite a story indeed, and that takes care of how the tiger earned his stripe as “the first” American to ever issue a check in the history of Vietnam.

But how about being “the first” businessman to do business in Vietnam, that one is pretty preposterous I tell him, now how are you going to explain that Tony?

He smiles, and without a roar he says: “About being the First American doing business, here I confess that the media took some liberties. In fact, there were two others, neither of them had any employees, but there were two others. Oh yes, I am referring to two other Americans in Hanoi, there were some others in South Vietnam, I never knew who they were.”

So that settles it, Anthony Salzman may not have been the only ” first American” ever to do business in Vietnam, but he most certainly was “the first American” ever to have employees in Vietnam. And that is precisely why in 2010 he was bestowed with the most prestigious honor, by receiving the Vietnam Friendship Medal, from President Nguyễn Minh Triết, who recognized the American’s enormous contributions to Vietnam, principally as a pioneer whose personal and business commitment opened a new chapter of friendship and forged the way for others.

While I am impressed with all the anecdotes Salzman shared with me, I point out to him that the devil’s advocate is rarely satisfied…

IDG: I have to ask Tony, the “first” to own a car in Vietnam? Are you kidding? It was the 90’s, every somewhat civilized country had cars… really how could this be?

Without a pause Salzman explains: “NN-35-01, so 35 means United States,and 01 means the first person to register!

The problem arose when the first United States ambassador was appointed. According to protocol, he had to have the number one from the United States!

So I hated negotiation and sued during which I was told that I had to surrender my 01 license plate. There was a solution, typical Vietnamese style: I was given the license number 00 001!

There’s also a story about how I made the match between the ambassador, whose wife had tragically passed away due to terrible illness, and, you guessed it, the female banking officer from the Australia bank.

Now, if your friends the detractors do not believe that I introduced the first American ambassador to his wife, they need to read the next installment of the story!

Hint: The American ambassador had been a prisoner of war in Vietnam. And the lady banker was a Vietnamese immigrant to Australia. So, the Australian newspapers had headlines saying “U.S. ambassador marries Vietnamese girl”.

Well, this young woman was no slouch! She shot back to reporters saying the headline should have said “ex con Marries Australian diplomat”!

Hopes, I blew the punchline. She had been with the Australian aid organization in Vietnam before she joined the bank.”

That indeed takes care of the “First” to own a car in Vietnam, and of the best American matchmaker in Vietnam. Not only is the record straight but engraved in “steel” rather than stone, as Salzman tells me he still owns the older model Mercedes with its 00 001 Vietnam license plate.

As I thank Salzman for this rather uncanny interview, he graciously thanks me and adds: “When I was a kid there were these stories called “the just so stories” by Rudyard Kipling. My favorite was “how the elephant got its trunk”. I feel like I’ve explained a little bit the same way. [laughs]

In our Just So Story, I say this “tiger” has definitely explained how he has earned his stripes.

Job Costing and Estimating

Small business owners are an underserved group. Tax planning and tax preparation should not be the only skills offered by the business’ advisors. And to small business owners, don’t be so stubborn. Read carefully to understand this discussion. This just might save your life long dream from collapsing.

Construction, roofing, and custom manufacturing are all business types that will benefit from a discussion of direct and indirect expenses. Most already know that direct expenses for a given job or project have to be considered in the cost. Direct expenses include the labor and materials used. It is the indirect expense that is most often forgotten or mistakenly allocated to job cost. The indirect expense is a cost that relates to all jobs or projects and not to one job specifically.

Examples of indirect expenses include: depreciation on machinery and equipment in the production process, depreciation on plant facilities if owned by the small business, rent on the plant facilities, shop supplies, vehicle expenses, utilities, insurance, and the compensation of supervisors, plant managers, and owners of the business. And of course, don’t forget about payroll taxes. There could be other indirect expenses in a given business, but the aforementioned will serve to demonstrate my point. It is also important to mention here the compensation of the business owner or owners. If the owner participates in the production process, a portion of compensation (or all) should be treated as an indirect expense to be allocated to the job cost.

Now that there is a list of indirect expenses, how should they get allocated to the job cost? Typically, indirect expenses are allocated based on direct labor dollars, direct labor hours, or direct materials. My personal favorite method of allocation is based on direct labor hours. If there are 20 direct laborers in a given business, and each is projected to work 1,900 hours annually, there will be 38,000 hours of total direct labor in a given year. If the summation of indirect costs is $1,500,000, this business will have an indirect cost per direct labor hour of $39.47. If my average hourly wage for direct laborers is $25.00, then total cost per direct labor hour is $64.47. If this particular business desires an industry average gross margin of say, 36%, it will need to charge $100.73 per labor hour. This billing rate is determined by using the full absorption method of accounting. Full absorption accounting is a required “generally accepted accounting principle” and must be used in all external financial statements unless otherwise disclosed.

5 Financial Freedoms You Must Protect

We’ve all dreamt about the day we can retire, the free time we’ll have to find a new hobby, travel to a new place, or simply, do nothing but sit and relax. But in order to enjoy the retirement years like you want to, you’ve got to plan ahead. In particular, you need to protect five financial freedoms. They are:

1. Guaranteed Income

Have you taken the steps today to secure your financial future: for yourself, your spouse and your family?

Remember when you retire, you won’t receive a regular paycheck. Not having that steady income may come as a shock. You may start to panic as you begin to dip into savings for daily expenses. You may need to live on a strict budget. You may end up needing to find a job. And, if you decide you need to return to work, it most likely won’t be in a full-time position with a full-time salary.

As you think about retirement, you need to realize this: the day you stop working is the day you surrender your guaranteed income. However, by developing a strategic plan now with your financial advisor you ensure that your financial situation is set up so that you can enjoy your retirement years worry free.

2. Travel

The number one thing most people want to do when they retire is travel. In fact, retirees are in the top 3 groups of travelers in the United States and spend about 20% of their retirement income just on travel.

It shouldn’t be a surprise that retirees are on the move. They have the freedom to take vacation whenever they want since the job isn’t tying them down anymore. However, the question that needs to be asked is that as retirees, while you may be able to pack up and go whenever you please, do you have the financial freedom to do so? How can you fulfill your dream of visiting new locales in America or around the globe if you live on a fixed income?

By working with your financial advisor, travel is possible. Together, you can create a retirement plan that includes travel in your financial future so that you don’t need to give up your desire to explore the country and even the world.

3. Legacy

As parents, your instinct is to take care of your children even when they become adults with kids of their own. One of the most important ways you can do this is by giving an inheritance to your kids once you’ve passed on.

While you have many years of making memories with your family, now is the time to make sure you’ve invested your money wisely. Making wise choices means considering the various tax benefits that different financial options have to offer. I know it can be confusing and frustrating to compare the options available to you, and that’s why it’s a good idea to turn to a financial advisor to counsel you on these important decisions. Your family’s well-being is at stake.

4. Autonomy

Life prepares us to be independent, doesn’t it? Sure, at first, we depend on our parents to care for us, to protect us. As we grow older, we build our independence. We start our own families. We become the providers.

However, during the retirement years doubt may begin to creep in about your ability to live autonomously. Without a steady stream of income, you start to wonder if you need to find a job or whether you can afford to live on your own. Talking with your financial advisor and planning for your future can alleviate these doubts and give you peace of mind knowing that you can continue to live the independent life you want.

5. Choice

When you think of retirement, a number of things come to mind, particularly a list of all the things you want to do and the age you want to retire. However, one vital piece of information that you may not have thought about is how much you’ll need to retire AND live comfortably. If this describes you, talk with your financial advisor today. Believe me, you don’t want to wait until you’re close to your targeted retirement age because you might discover that you’ll need more to live the retirement lifestyle you want. Your financial advisor will work with you to make sure you’re saving enough now so your dream lifestyle can be your retirement reality.