Business Plan: Change As Needed

A business plan is a vital management tool. It allows you to create a road map of your business and look ahead while, at the same time, plot the necessary steps to achieve your goals. However, paraphrasing the poet Robert Burns, the best laid plans of mice and men often go askew. How true in business.

The world has learned much from the recent recession. One of the more important business lessons that the recession has taught us is that nothing is guaranteed. How many of us watched as financial giants, titans of the business world, tumbled like a house of cards? Who would have envisioned the swift changes that changed the way we live, not over a generation but over the course of a year or two?

Change is the key. The businesses that best survived the recession were those that understood the necessity of change. A business plan is not set in stone. Rather, as a useful management tool, it should not be allowed to gather dust. Just the opposite. It should be, and can be, changed. Business, like life itself, is a rollercoaster. Even if some of the ride is scary, you can't get off in the middle. You need to be flexible and allow yourself to adapt to new situations.

If you see a new business opportunity, change your business plan to incorporate it. Allow yourself the flexibility to explore new options. Don't be afraid to try new ideas. Sometimes, even bad situations can create new opportunities. If your plan went awry when the markets went in a different direction, turn everything around to incorporate the new reality. You may wake up one day and realize that your goals are no longer attainable. Don't try to change the world to meet your goals. Change your goals to accommodate the world. The most successful entrepreneurs have learned that opportunities present themselves and the winners are those who seize those opportunities. Always use the situation at hand to your best advantage.

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If You Fail, Try, Try Again!

Legendary football coach Vince Lombardi once said, "Winning isn't everything; it's the only thing." While the coach may have been an inspiration to his players, was he also stating a mantra for everyday life?

As children, we often were told by parents and teachers to learn from our mistakes. Would that life were so easy to enable us to succeed after every failed attempt. Anyone who has ever established a business will attest to the fact that the goal of success is not always realistic. Business is a mélange of so many details; many of which are beyond our control yet have a direct influence on our business. The fact is that winning all the time simply is not possible (with all due respect to Coach Lombardi). The question is what you do with the failure. Perhaps it is better to quote from the Coach who also said, "The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack of will."

Canadians often compare themselves to their neighbours to the south. Yet, despite the many similarities, Canadians and Americans differ greatly in their respective business cultures. In both Canada and the U.S., for each business success story, there are dozens of failures. In either culture, entrepreneurs prepare and plan, hoping that they will be the next Fortune 500 leader or, at the minimum, establish a profitable business. Some succeed, some don't. The different reactions, though, are startling. Canadians tend to view a business failure as the end of the road. Americans, on the other hand, accept failure as part of the learning cycle and build upon the knowledge gained. The Canadian accepts his fate and the American drives forward.

Canada may be recovering well from the recession. Yet, it seems there is still much that can be learned from the American business community.

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Canadian Tax Deductions to Keep in Mind

Get ready, Canada – April 30th is rapidly approaching. As most Canadians are aware, this auspicious date heralds the end of the tax season for the previous year. It is your last opportunity to make any adjustments to your taxable income and, hopefully, reduce the tax due.

Tax deductions exist within the legal system to allow a degree of parity amongst taxpayers and create a balance between earned income and the relevant taxes. However, as most accountants will point out, although the government will allow you legal deductions on your tax return, they will not contact you to point out possible deductions that you missed claiming. Therefore, research and consulting may be worth money in your pocket.

Here are a few sample deductions you may have missed:

Certain adult family members living at home can reduce your taxable income. If you have a relative over 18 with a physical or mental disability, and they live with you, you can deduct more than $4,000 of your taxable income for the expenses incurred for them.

Do you work from home in your rented apartment? If you have dedicated workspace at home, and work there at least 50% of your time, a portion of your rent and maintenance expenses may qualify as a tax deduction

If you are required to use your own car for business purposes, and do not receive a nontaxable allowance from your employer, you can deduct a portion of your auto expenses including lease payment, loan interest, maintenance, licence and repairs.

Who ever thought that your hobby may be tax deductible? If you earn some side income from your hobby and travel in order to do so, a portion of the travel expenses can be claimed against your taxable income.

A person who drives for a living can claim a portion of their food expenses while traveling. Similarly, when you travel for work, it is expected that you need lodging and showers. These, too, are deductible expenses.

If you are filing a simple return, it may not be necessary for you to incur the expense of a professional tax preparer. The Canada Revenue Agency maintains a highly informative website. On the other hand, if you feel you may be missing something, consult with a professional. After all, as honest hardworking Canadians, we all pay our taxes. But, we wouldn't mind paying just a little less.

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Customer Red Flags to Watch Out for

If you are in business, you know that you have to constantly be on alert on all fronts. You try as hard as you can to plan and operate your business with clear guidelines. Sometimes, though, all the planning cannot prevent the unexpected. Many business leaders will tell you that the problems from outside are the biggest challenge.

In order for you to operate, you count on suppliers for goods and services. Your cash flow is dependant on timely payment by your customers. Any disruption from your suppliers or customers can be harmful to your operations. Continued disruption can become fatal. However, by being vigilant and spotting the early warning signs of potential problems, you can avoid trouble before it happens.

Keep abreast of a customer's payments. If the payments start becoming delinquent on a regular basis, they may be in trouble. Don't wait, though, until they stop paying. Open up a dialogue early to help you collect payments while their doors are still open.

Another warning sign is commonly known as nit-picking. You owe a customer a small credit and they refuse to pay their large bill until the credit is received. This stalling tactic should indicate to you that all is not well, as they could obviously just deduct the credit and send the balance. Perhaps, the customer suddenly begins sending you the balance in several payments, without consulting with you. Your early warning signal should be blaring loudly.

Have you noticed that there has been a large turnover of employees at your customer or supplier? Is this a sign that the passengers are jumping ship before it sinks? When you called to speak to someone over there, the usual perky, friendly reception was replaced by a rather laconic, curt reply or a disinterested, half-hearted response. Be on the alert and assess the situation carefully. You need to protect your interests.

Keeping one step ahead of the storm can be your best insurance plan.

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Keeping a Handle on Your Business

Operating a business successfully has often been compared to a high-speed train. When it runs at peak performance, it arrives at its destination on time. However, if it sits unused in the station, or is not maintained properly, it will cease running well and ultimately break down and fail completely.

Studies have shown that more than half of large business failures result from poorly designed business strategies. Many business leaders have the drive and desire but fail to properly assess the market or their abilities. It is not uncommon for a thriving business to adopt a new idea on the assumption that their notoriety alone will make it happen. "Biting off more than one can chew" has led to the downfall of many business giants.

Another common, and sometimes fatal, error is operating without any accountability. Even the boss has to answer to the board. When decisions are accountable, it makes them open to review by others and allows other sets of eyes to detect possible flaws. The smallest of companies – even one-person operations – should consult with someone else on major decisions. After all, none of us is perfect.

Sometimes change is necessary. Companies that have dominated certain markets have to change with the times or market conditions if they want to maintain their position. Failure to adapt can be suicidal, as there is always someone waiting in the wings to pick up the slack.

Leadership is a 24/7 position. Your employees look up to you and receive their inspiration from the top. A strong leader motivates by example. Failure to convey positive attitudes and emotions can lead to the downfall of your business. Even if your business takes a downturn, you need to continue inspiring your employees to work together with you to overcome. If you appear downtrodden, you can't expect your team to pick you up. The ship will go down with its captain.

Keep a handle on your business by charting your goals and progress. By maintaining control of a situation, rather than it’s controlling you, your train will speed forward to its next destination.

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How to Use Failure to Your Advantage

The word "failure" has negative connotations. It is hard to think of anything positive when discussing failures. Yet, many business leaders will tell you that failure is not the end of the world, nor is it only negative. While a business failure certainly implies setback, it also leaves the door open for improvement, change and opportunity.

American business leaders have embraced the opportunities presented by failures while Canadians lag behind in this respect. The inability or unwillingness to compete is a common denominator of many Canadian business disasters. One of the first lessons to be learned from a business failure is not to cut back but, rather, to dive into the marketplace and compete with all your might. Learn from failure and allow it to be the catalyst that is your driving force. In California's Silicon Valley, business has embraced the concept of "failing well." You made good decisions but circumstances were beyond your control. If you are good at what you do, you'll eventually succeed. In Canada, the opposite is more common. If your business attempt failed, you'll have a very tough time securing capital for another venture.

Failure in business can be one of your greatest teachers. Successful corporate leaders have learned from their mistakes and impart that wisdom to their employees as well. By sharing this wisdom with one's staff, it carries the message that even the boss is not perfect. Moreover, it encourages staff to also learn from their mistakes. Every successful mega-company started small and did not achieve greatness overnight. When your staff appreciates the growing pains of a company, they can become part of the driving force to continue propelling the business forward.

This doesn't mean that one should create a culture that focuses on failure. Just the opposite is true. A business environment should strive for success. Ultimately, that is the goal that we wish to achieve. However, every successful path has setbacks and failures. Learn to appreciate that none of us is perfect and we can learn something new everyday. The only way to avoid failure is to stop trying to achieve. Use every setback to your advantage and ultimately you will win.

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How the Self-Employed Can Save on Taxes

If you are like more than two million Canadians, you own your own business, either fulltime or part-time. Despite the sometimes heartaches of being self-employed, there are many advantages. Many entrepreneurs, though, are unaware of the various tax benefits available to them. In fact, running your own business can increase your after-tax income and contribute to family wealth.

Entrepreneurship and self employment promote a spirit of innovation, ultimately contributing to economic growth and vibrancy. As such, the government encourages entrepreneurship by taxing it at lower rates than regular income.

It is not uncommon for a new business to incur losses as it gets off the ground. These losses can be used to offset revenue from other sources, assuming you have a reasonable profit expectation as the business progresses. As your business begins to turn a profit, you can incorporate and the profits can remain in the corporation as a reinvestment in your operations. It is also possible to leave the profits in the business if you do not need a salary immediately. Thus, you can defer paying personal income tax. A salaried individual cannot schedule when to pay taxes. However, when you are self-employed, you can time payments to yourself when the tax payments are to your benefit.

Profits held in the corporation are taxable in the year they are earned. But, the corporate tax rate is low on the first $500,000 of active business income. While rates vary between provinces, all are below 20%. Personal tax rates on comparable amounts can be as high as 45%. It is also possible to pay salaries to family members in the business and have it taxed at their lower rates. Another possibility is to pay dividends to family members who own shares of the company and, thus, benefit from capital gains exemptions.

There are numerous possibilities for self-employed Canadians to benefit from management of taxes and income. All possibilities and options should be discussed at length with your tax advisor.

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Ways to Finance Your Business

With so many types of business financing available today, it is advisable to check carefully which type is best for your specific purpose.

The most traditional type of financing is debt financing. This is a straightforward loan that is repaid with interest over a certain pre-determined period of time. Generally, it is not an unsecured loan and will require some form of collateral against default. Debt financing can be either short or long term.

Your business may qualify for a line of credit. This loan is generally attached to your chequing account and can help when your cash flow fluctuates greatly. Some business entrepreneurs have secured lines of credit using their personal assets as collateral.

The easiest money that is available quickly is borrowing from your credit card. Although the cash is available immediately, the rates of interest are extremely high compared to commercial loans. This truly should be a last choice option.

Often, a supplier of equipment or machinery will offer financing for your purchase by providing payment terms of 30 – 45 days or extended payment plans with interest. Merchandise is sometimes sold on consignment whereby the buyer only pays for merchandise that is actually sold.

Equity investing involves funding by investors who, in return for their investment, receive a share in the ownership of the business as well as a percentage of the profits. Generally, equity funds are unsecured against the company's assets. If a business owner is trying to raise a large amount of money, it may be possible to use both equity funding and loans against assets to secure the needed amount.

Depending on the type of business you own, there are various types of equity funding available. Angel investors generally are wealthy investors who invest in small businesses and are looking for a healthy return on their investment. Venture capitalists primarily invest in high-tech or leading edge businesses in return for partial control and management.

Large businesses seeking finance may sell shares of their business on the stock exchange. Profits from the company's growth are shared among the shareholders.

Whichever method you choose, be sure that you and your financial advisor examine all the options carefully before any cheques are written.

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Tips for Business Financing

The bottom line is that most businesses need some type of financing, if you don't have enough personal capital. There are numerous options available in today's market. Before borrowing from any source, conduct thorough research to learn how much the loan will actually cost and if that is the best option for you.

Before you approach any type of lender, you will need to prepare or update your business plan. Every lender needs to be convinced that you have the ability to repay the loan. A well written, detailed professional business plan will demonstrate to the lender that your business will indeed generate profits to enable repayment.

In some cases, a lender may require more collateral than the business can offer. The business may seem to have potential but the actual projected profits are slightly questionable. You may be asked to put up personal assets (car, home, personal investments) as additional collateral for your business loan.

Keep in mind that lending money is based on assessing risk and return. You may seem like a terrific person but that will only get you through the pleasantries of meeting with the lender. Getting down to the issues, the lender is in the business of lending money and making a profit from that loan. Therefore, you will have to demonstrate that your business does not present a risk and, moreover, that the loan will be guaranteed and will yield the return that the lender is interested in earning. Anything less than meeting the lender's expectations may result in not securing the loan or investment.

As a business loan or investment can be quite complex, and there are various tax issues to be concerned with, both personal and business; so it is most advisable to discuss all your options with your personal tax advisor. Although your business may need an immediate influx of cash, take the time to examine and consider the best options for your needs.

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What Government Funding Can I Get for my Business?

If you are like most Canadians in business, you've probably wondered if you can ever get something back from the government, after you've paid all those taxes over the years. It seems only fair.

The best situation is discovering that you are eligible for a government grant or contribution. Grants do not need to be repaid and contributions are only repaid in certain cases. The problem is that these are few and far between. Generally, grants are available for specific programs and have very specific criteria. For the most part, grants usually are provided for specific industry sectors or for certain demographic groups.

On the other hand, there may be other government options that are applicable to your business. For example, you may be eligible for a government loan guarantee. This would enable you to get a loan that you might otherwise not receive approval for. With the government behind you, the bank will be far more willing to talk with you.

If you hire employees that have certain characteristics, you may be entitled to wage subsidies to help offset their salaries. Check with your tax advisor who is currently on the subsidy list and whether your business can benefit from these employees.

If your business makes certain investments, you may be entitled to a tax credit or refund. Check the current information with the relevant tax authorities.

If your business does not qualify for a commercial loan, you may be entitled to a loan from various government departments. Also, these government offices sometimes offer loans to businesses at lower rates than commercial lending institutions. A little research may save you some money.

In general, before assuming that your neighbourhood bank is the only lending option that you have, check what's available from the government. You may be pleasantly surprised.

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How to Valuate Your Business

There comes a time for many businesses when it may be necessary to find investors or a buyer. In either case, it will be imperative to assess the value of your business. Long before you approach a potential investor or buyer, you need to know exactly where the negotiations will begin.

Valuating a business is by no means an exact science. There are several common methods that can be employed. Each method uses different assumptions and, logically, each method will result in a different value. Obviously, part of the negotiation will involve agreeing upon the method employed to determine the business' worth.

Many investors prefer the Discounted Cash Flow method to determine the value of the business. It is based on future cash flows. By employing this method, the investor can see a projection of the actual cash that will come to the company and thus determine the investor's return on investment. A similar method is determining the Going Concern Value. This method compares the current investment to future cash inflows. The revenues of previous years are used to project future revenues, on the assumption that the revenues will not change drastically.

Another common method to determine the value of a company is based on assets. A determination of the book value of the company is quite straightforward. The company's net worth, or shareholders' equity, is determined based on the financial statements of the company. Quite simply, subtract liabilities from gross assets and the result is the net worth or book value.

A similar method is determining the liquidation value of the company, based on the company's assets. This method calculates the income from the sale of all the company's assets. The assumption is that equipment and land would be sold at a price close to their market value. Inventory and receivables generally yield a reduced value. A liquidation value is generally employed for the sale of a business, rather than investment purposes.

Whichever method you use, it is best to consult with a professional advisor who can help avoid mistakes that could prove costly.

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Customers at the Centre

An all too common mistake of many businesses is losing sight of what is truly important. It is relatively easy to get caught up in strategic planning, marketing techniques, employee relations, technological upgrading, and a milieu of other items that are important to the successful operation of a business. But, when the dust settles, we tend to forget the most important element of our business – the customer.

The customer is the core of our business. Without customers, business is just…a business. It won't sell but it will be there, though not for long. In today's market, customers are bombarded with information and have more choices available than ever. Gone are the days of Pop's General Store. Pop sold everything and when he didn't, you made do without. Today, it's a buyer's market. Customers can shop for virtually everything they want. Internet shopping makes the world their marketplace. In order for a business to attract buyers, they must be able to reach out to that customer in a way that will get the business noticed.

Find out what the customer really needs or wants, not what you think. What issues are affecting the customer that will cause them to need your product or service? Why should the customer identify with you?

Sometimes, the customer is unsure of what they need. They may know that they are in a certain situation and "something" could help them, if they only knew what it was. This is a chance for your business to fill that void. Customize your service or product to help the customer.

Think outside the box. Inside the box is your business. The customer is outside. Find out what your business must do to break through the constraints. Remember that you need the customer more than they need you. However, when you can create the link that makes their needs your needs, you'll put your business on the winning track.

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