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How to Scale Your B2B Services Company

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Independent and ambitious Freelancers, like other business owners, are inclined to brainstorm strategies and tactics that may have the potential to increase their company’s revenue and profit. Central to the entrepreneurial dream is building an entity that attains success as you define it and that often entails making money. But as with all business decisions, it’s necessary to determine which strategy and tactics have the greatest likelihood to reach the pot of gold. As always, the most reliable way to answer that question is to conduct comprehensive marketplace research and examine your company’s key performance indicators.

Grow, scale, or expand?

It is imperative that you recognize which KPIs point to a particular revenue and profit boosting strategy and give you the confidence to follow that solution. To earn more revenue and become more profitable, there are three options—expand, grow, or scale. Each strategy requires certain marketplace conditions and financial and other resources and carries its own kind of risk.

Expansion is a much bigger investment, especially for Freelance professionals, who typically operate a service business, work alone and deliver the service yourself. Launching your operation in a new location typically places a significant demand on financial and logistical capabilities, making growth or scaling, which both entail relatively fewer demands on resources, more accessible to Freelancers.

OK, so how can you recognize which option makes more sense for you? First, let’s know what we’re talking about. Many business owners and Freelancers misunderstand the meanings of growth and scale, so let’s take a sidebar and examine their definitions. Growth means adding more projects, new services and/or signing additional clients as the engine of your strategy to boost revenue and profit—activities that mostly entail more expenses. Scale focuses on increasing revenue and profit without significantly increasing the associated production costs. Essentially, scaling means working smarter, not just harder, and aligns well with the financial and logistical capabilities of the typical Freelance professional.

Nevertheless, scaling a business, particularly a small, service-based company, will require extensive preparation and a well-designed strategy to make it work. To evaluate the possibility of scaling your operation, you’ll dive into company KPIs and conduct an extensive financial analysis, marketplace research and strategic planning. Data-driven decision-making will yield the most trustworthy information and outcomes.

Furthermore, when contemplating your scale, or any other significant business investment, as you study the data, contact your business accountant, who is familiar with your financial situation and is positioned to be your Sherpa and guide you as you climb (scale!) the mountain. There are a couple of obvious questions that you should address before calling the accountant.

  • So, how’s business? Are clients lining up to do business with you? Are you meeting, if not exceeding, your revenue targets? How many clients are on your roster? If business is off the chain, then get your accountant on the phone and share the good news. However, if you’re merely pleased with your performance metrics, set higher goals and observe what happens during the next two or three quarters. if you surpass those metrics by an impressive margin, it may be time to call the accountant and discuss next steps.
  • Client feedback Listening to what clients observe or experience can steer your business toward success and it’s good business to invite them to give their perspective. Invite clients to share their thoughts and suggestions regarding your services. Client insights may open your eyes to add-ons, upgrades and/or new services you can provide and what they tell you could contribute substantially to your scale. Make giving feedback convenient by occasionally including surveys in marketing emails, soliciting online reviews, maintaining an active presence on social media, or making yourself available for in-person conversations. Your objective is to hear and assess what clients say about your services, company and the customer experience you provide. You can use their feedback to better understand what clients like, what you can do better and get early warnings of emerging trends and how your clients feel about what’s on the horizon. With this knowledge, you can tailor your services to meet this demand and strengthen your positioning as a go-to provider in the industry, whether or not you decide to scale.

Use data to evaluate a potential scale

Analyzing and interpreting company performance data will do more than answer the expand, grow, or scale question. KPIs will also spotlight company strengths and weaknesses, help you recognize competitive advantages and call your attention to gaps that limit progress and need fixing. With the help of your accountant, your KPI data analysis will also indicate the overhead expenses, staffing and other resources, so that a realistic budget can be developed.

Moreover, your analytics tools can build reliable data-driven sales forecasts for the proposed scale that will include the number of new clients needed, average billable hours/ hourly rate and sales revenue you must generate within a particular time frame. BTW, if you were wondering when and how to incorporate AI into business operations, evaluating a potential scale could be your motivation.

Find your money-making niche

Turn to marketplace and industry data to point you to a niche you might enter. You might also consider how you to diversify your current service line? In either scenario, consult your data projections to suggest whether client price tolerance will allow you to achieve a profit margin that covers the expense of delivering at scale. Competitive intel is also likely to be useful; for example, there may be few competitors in certain market segments because there’s no money to be made. Once you’ve learned where the opportunities are, you can start making changes to scale successfully.

Upgrade marketing and branding

Build up company visibility and reputation with robust marketing and branding. Sharpen your marketing messages and establish a presence on inbound and outbound marketing channels that are a fit for your services. Search Engine Optimization, social media and content marketing should be especially useful. Nearly half of all clicks on search engines come from organic searches, which suggests that prospects are more likely to trust the results they find naturally.

Your marketing and branding strategies will also be more impactful when guided by data. By analyzing metrics such as website traffic, conversion rates and client engagement, you’ll be likely to discover actionable insights that may shape marketing strategies and campaigns that produce the results you need.

Standardize service delivery, invest in automation

Scaling a service-based business requires being able to deliver those services in the same way, every time. A strategy that will both save time and ensure that your profit margin is sufficient to cover the expense of delivering at scale is to package your services as a menu of products and eliminate the need for you to customize every order. Next, create standard operating procedures to ensure quality, efficiency and consistency in how your services are delivered. Map the step-by-step workflow, provide written or video instructions for clients and if applicable, ensure that your team is trained on best practices, so that clients will receive the same excellent results every time.

With a service-based business it is you, Freelancer friend, perhaps assisted by a team member, who will provide your services. In order to scale, you must develop and perfect turn-key, streamlined processes that allow you to work with the number of clients necessary to realize the scale. From your client onboarding procedure to billing and invoicing, automation will make your organization more efficient, appear more professional, inspire trust and build your brand at every touch point. Not only that, you’ll have more time to focus on improving your business and optimizing the scale.

Thanks for reading,

Kim

Image: Jack’s First Beanstalk, illustration from Jack and the Beanstalk, a circa 1734 English fairy tale. Author and illustrator unknown.

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Build A Budget, Build A Business

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Fact of life—if you run a company, even as a Freelance solopreneur, you’re going to have to suck it up and put together a business budget every year. If you fall into avoidance behavior and tell yourself that you’ll do it “next month,” it is almost certain that 1) you won’t do the budget anytime soon; and 2) your business could eventually slide into financial chaos, taking with it the money and time you invested. Failure to mind business finances is business sabotage.

For many people the mere thought of budgeting brings a sour feeling to their stomach, but the fact remains—budgeting supports business success and your organization is unlikely to thrive, and may not survive, unless you do it. You may find budgeting to be an onerous task, but there is a silver lining—a budget is empowering!

Budgeting is integral to effective financial management and allows you to make informed decisions and take calculated risks that can move your company into a stronger position. Budgeting brings to light the reality of your company’s fiscal health and performance. Problem areas will be recognized and you’ll be able to propose and implement remedies designed to rectify the lapse. You will be positioned to develop reasonable, reachable, goals.

The budget is your buddy

While budgeting often brings to mind thoughts of scarcity and sacrifice, saying no when you want to say yes, you’ll feel much better when you reframe your thinking about budgets; budgeting need not always result in cutbacks. Instead of focusing on limitations, why not flip the script and think about growth? It is reasonable to view budgeting as a pathway to business success, a tactic that enables your entrepreneurial ambitions. Rather than obsessing over cutting expenses, utilize your budget as an element of your strategy to manage expenses and drive growth and profitability.

In fact, only when finances are in order can you operate from a position of strength and make good decisions. When the cash-flow and business reserve fund are healthy, you can demonstrate business savvy—you might hire one or more employees, whose productivity will positively impact sales revenue; you might move the company into a larger space; you might upgrade office or manufacturing equipment that introduce operational efficiencies that benefit anything from your marketing campaigns to the customer service and customer experience your company offers, enhancements that reward your business with loyalty, good word of mouth and returning customers.

Build the budget

Your primary goal will be to ensure that there will be enough money to operate the business, from covering selling and marketing expenses that generate revenue to meeting fixed expenses such as payroll, rent, utilities and insurance. Among the projected expenses you’ll calculate will be those specific to acquiring or creating your product or service, that is, the cost of materials or the time involved in crafting what you sell. You’ll budget for the year, so it will be necessary to make reasonable projections of future expenses and sales revenue. You also want to set aside funds you can invest in business growth, whether to carry out specific initiatives or maybe take advantage of an unexpected opportunity as well.

You will be wise to structure your budget to predict somewhat modest sales revenue and anticipate expenses that are somewhat higher than the previous year. Planning for a less than rosy scenario is the safest strategy, giving budgetary wiggle room by encouraging you to trim expenses where possible to help you build up the business growth fund.

Once you make revenue and expense projections, you can run different potential scenarios and refine your estimates of likely cash-flow and sales revenue income, to enhance your trust in your estimate of how much will be available to finance marketing and business growth.

Create a spreadsheet

A spreadsheet is one of the most powerful tools available to create a budget, not only to make it easy to view and analyze your data, but also to make it easy to change your projected data and evaluate different business scenarios. You can do the same when reviewing projected costs and sales revenue associated with carrying out a proposed business goal.

Get comfortable with the Microsoft Excel spreadsheet and learn to call up different combinations of projected revenues and fixed and variable expenses that will enable prudent decisions in every aspect of your business, from pricing to hiring additional employees. Take a Microsoft Excel for Beginners tutorial .

Monthly budget reviews

Your budget will be useful only if you review it regularly, to assess your company’s performance. Get ready for the big reveal when you discover whether (or not) actual spending aligns with the amount budgeted. If certain expenses are consistently higher than anticipated, you may need to revise the budget to reflect reality, or find ways to reduce those costs. Likewise, your budget will also reveal if sales revenue projections are either too optimistic or too conservative.

Responding to changes in your business environment ensures that your budget functions as a useful tool for financial planning. Finally, the budgeting process will, over time, become a repository of company performance data and provide an important historical overview that could be useful when anticipating seasonal fluctuations or other patterns that support your projections of future business performance.

Thanks for reading,

Kim

Image: © Mee Ko Dong for Shutterstock

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Close- Up: Revenue and Profit

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Does the thought of managing finances more complicated than your household budget fill you with fear and loathing? You are not alone! Many share that sentiment but in the world of Freelancing, getting your arms around the management of company finances comes with the territory. Outsourcing your bookkeeping and accounting functions can be a smart move that allows you to focus on client acquisition and retention or other things that only you can do, for example, but you cannot afford to be in the dark about what’s happening with your money. You can’t plan and execute a marketing campaign or an expansion strategy until you know how much money will be available to carry it through.

You can ask your bookkeeper or accountant to suggest a reasonable budget for your plan, but it’s better if you have the answer before you ask the question. In order to know how much money you’ve got, you’ll need to get comfortable with reading your Income Statement, also known as the Profit and Loss (P&L) Statement. The P&L details all the money that is earned (sales revenue) and expenses paid, e.g., rent, utilities, professional association dues, or payroll.

Financial management is a big topic so today we’ll limit our focus to money that comes into the business—revenue—and the money that remains after expenses are paid—profit. The two categories are very similar and are frequently used interchangeably by those of us who are not accountants or bookkeepers, but there is a subtle difference between the two and it makes sense for Freelancers to grasp what each term says about your entity.

Revenue

Revenue is money generated through the sale of products and services plus other money-making activities that take place within the business. The initial tally of revenue indicates what’s been generated before expenses are deducted. Calculate revenue by using this equation:

Revenue = Price x Quantity sold

Sales generated when clients pay for your products and services, along with other income streams if applicable, is classified as revenue derived from normal business operations. However, since a business may generate revenue from different sources (income streams) it’s useful to consider each line of business separately, so that you can scrutinize how each performs. When you separate revenue by source and type you’ll quickly see which is lucrative and which is lagging—and you’ll be positioned to make smart business decisions.

So if you begin to regularly teach a class in addition to your Freelance consulting work, you can record that revenue separately, as it’s own income stream. If you also sell a tangible physical product in addition to your intangible B2B services, you can record revenue from your tangible products and intangible services separately. Or maybe you own a restaurant? If so, you’ll separate and analyze each revenue source by categorizing your menu offerings: side dishes, main dishes, appetizers, nonalcoholic and alcoholic beverages.

As well, you can separate your revenue into operating and non-operating sources. Operating revenue represents sales from a company’s core business. For instance, in a restaurant, operating revenue is derived from the sale of food and beverages to customers.

  • Annual Recurring Revenue

Another category of revenue that you would be wise to record and examine separately is known as annual recurring revenue (ARR). ARR is revenue that is associated with subscription agreements or other contractually dependable, expected revenue streams. Documenting ARR is critical because it provides companies with a predictable revenue stream. There is nothing sweeter than money you can depend on!

  • Non-operating Revenue

Non-operating revenue is sort of like selling an add-on—it’s revenue earned from sources outside of the primary (core) function. So in your hypothetical restaurant, non-operating revenue might represent sales of loyalty program cards, gift cards, branded T-shirts, or mugs, for example. Non-operating revenue might be unpredictable or mostly seasonable (associated with Valentine’s Day, or whatever) and is considered nonrecurring. Selling an asset is also categorized as non-operating revenue. Maybe you bought a non-fungible token (NFT) art work that’s now worth big money and you’ve decided to sell?

Revenue vs. Income

For an intermezzo we can also consider income, which in the world of accounting is distinct from revenue, despite the obvious similarities—-both categories mean money in your pocket. Recall that revenue represents money earned from core business operations, that is, the sale of your products and services and also ARR and money classified as non-operating revenue. Income is the money that (thankfully!) remains after all fixed (operating) and variable (sales, marketing, professional development, etc.) expenses have been paid. Income has more in common with net profit, or earnings, than with revenue.

Profit

Profit describes the total gain (or loss) of money that a business has at the close of the period (e.g., month). As is the case with revenue, there are various aspects of profit to calculate and consider. Gross profit, operating profit and net profit are three metrics recorded on your P&L Statement. In general, profit is calculated by subtracting the total fixed and variable expenses, taxes and calculated amortization and depreciation values from total revenue. Calculate profit by using this basic equation:

Profit = Revenue – Expenses

  • Gross profit

The amount of money brought in from the sales of products and services, minus the acquisition or manufacturing costs of the products or services that were sold, is known as gross profit. The number reflects the Cost of Goods Sold (product or service acquisition or production costs, including direct labor) but does not reflect the impact of fixed or variable expenses. Calculate gross profit by using this equation:

Gross Profit = Revenue – Cost of Goods Sold (COGS)

The interim assessments of profit, in addition to gross sales revenue (also called the top line) allow you to scrutinize the numerous expenses incurred between the top line (gross sales revenue) and the bottom line (net profit) and expose points of profitability weakness (i.e., worrisome expenses) in the acquisition or production of the solutions you sell, all of your fixed and variable costs and even taxation, of your business. In fact, if your top line number is strong but your bottom line number disappoints, an adjustment of COGS or fixed or variable expenses could remedy the problem.

  • Operating profit

Operating profit is the next step in the P&L progression toward the big reveal that is net profit, the bottom line. It’s similar to gross profit but includes three more categories of expenses. Calculate operating profit by using this equation:

Operating Profit = Revenue – COGS – Operating Expenses – Depreciation – Amortization

Depreciation and amortization are also values you’ll want to understand as one who manages money, even if you outsource to a bookkeeper and/ or an accountant. Depreciation reduces the actual value of equipment or vehicles due to time or use—wear, tear and age. This calculation puts a numerical value on the asset’s cost versus its operating and residual value.

Amortization refers to the value of intangible assets, such as patents or trademarks and is calculated in the same way that depreciation is calculated. Both of these accounting methods exist to spread out the cost of assets over their useful lives and provide a more accurate picture of a company’s expenses and profits.

  • Net profit

Net profit is the final assessment of actual profit and it’s calculated by subtracting all fixed and variable expenses, plus taxes, amortization and depreciation, from your total revenue. Net profit illustrates the overall health and profitability of the entity. It is the final word and is found on the bottom line of your P&L Statement. You can calculate net profit by using this equation:

Net Profit = Gross Profit – Total Expenses – Taxes– Depreciation – Amortization

Differences between revenue and profit

These very similar values are calculated in different ways and each tells a somewhat different story. Revenue reflects your company’s sales and market share growth. Profit is the company’s indicator of financial health. Another difference between these two values is the potential for fluctuation throughout the year. Revenue is prone to fluctuate from month to month because it is subject to marketplace demand which, for example, can be seasonal. In contrast, profit tends to remain more stable over time.

Finally, net profit earnings may also be known as net income or net earnings. Net earnings may be the most important number on your P&L Statement not only because it comprehensively shows the company’s total earnings performance but also, the value is carried over to your company’s Balance Sheet and Cash-Flow Statement.

Thanks for reading,

Kim

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6 Digital Trends to Make Doing Business Faster and Easier

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Maybe you and I are alike when it comes to technology—-neither in love with tech-based products and services, nor afraid of them. I’ve never played a video game in my life but when fax machines were still a new thing, I bought a (Panasonic) combination phone and fax. You may remember that first wave fax machines required special paper that was sold in rolls. When plain paper fax machines became available, it was a big thing.

When a new product or service brings a significant improvement to my life or business, I’m happy to be an Early Majority Adaptor, in marketing parlance. I do not rush forward with my arms wide open when a big media rollout announces that a flashy new product or service has come to market but before too long, I’ll investigate. Might this new arrival be useful for my life and business? Will it help me to make money, save money, save time, or enable me to do business more efficiently or amplify my impact somehow? Can I afford to buy it? Can I afford not to?

Presented below are six relatively recent technological inventions or developments that are reshaping how we work and live. Nearly everyone on Earth is almost guaranteed to utilize at least four of these six tech- based services, whether or not you realize it. The presence of these resources—-and that is what they are—-will only become more entrenched over time. It’s up to you to be proactive and figure out how to harness the power and tap into benefits that these resources can deliver to you.

  1. Artificial Intelligence

I’ll bet you’ve used a chat bot —-an AI-powered service— when you visited a website and wanted your basic questions answered quickly. No? We’ll, does the keypad on your tablet, desktop, or smartphone have autocorrect typing? I thought so! AI has seeped into so many routine functions that we take for granted.

A common use of artificial intelligence is for what’s called machine learning, algorithms that through repetition appear to “learn” over time. Artificial intelligence is also making inroads into Customer Relations Management (CRM) systems. With the introduction of AI, CRM systems transform into self-updating functions that allow business owners, marketers and accounts payable specialists, for example, to set up AI generated order confirmations, customer birthday greetings, or subscription renewal notices.

Artificial intelligence is also a mechanism for detecting gaps in computer network hacking defenses. AI systems can recognize a cyberattack, as well as other cyberthreats, by monitoring patterns from data input. If a threat is detected, it can backtrack through your data to find the source and help to prevent a future cybersecurity threat.

2. Automation

Routine administrative tasks are unavoidable in most jobs and getting it done is often time-consuming. The practical benefits of intelligent automation companies increasingly enable the automating of many repetitive tasks so they do not require manual input from you or other team members. Today, payroll, invoicing, event registrations and numerous data entry functions are handled by automated services.

Expect more business solutions to be powered by AI for analytics, data protection, security and search algorithms. As a result, many businesses will run leaner as business owners find ways to employ automation.

3. Hybrid workplace

We turned on a dime and responded most efficiently to the reconfigured workplace (and classroom) environment brought about by the coronavirus shutdown. The pandemic proved a virtual workplace is possible.

But also, it has shown that a work-from-home setup is not ideal for everyone. The solution is to design your hybrid workplace to fit the needs of your workers, as directed by their functions and deliverables they produce.

Workflow development specialists will be especially useful for helping hybrid teams, some that may even work across national boundaries, decide how to approach decisions about how the work can be efficiently executed, how to promote good communication and camaraderie and even who should work from home and who should work in the office.

4. Cybersecurity and privacy

As of July 1, 2022, 4.95 billion of the 7.95 billion global population are internet users (source: United Nations). That about 62% of the world is online has all sorts of implications, for better—-more opportunities for communication and exchanging information!—and worse—an urgent need for user data protection, to protect privacy and promote security.

Online business owners should already have encryption security measures in place, to safeguard financial transactions and customer information. Online customers are becoming more concerned about the security of their personal data that by necessity is in the hands of many organizations, including banks, employers, insurance companies, retailers and social media platforms. Freelancers and small business owners are expected to guarantee security measures to protect their customer data just like global enterprise companies.

Data breaches are embarrassing and expensive. They’re bad for business, especially for smaller companies, that don’t have the budget to engineer a reputation rescue executed by a crisis communication marketing team. To ensure the data integrity at your organization enact all of the standard data protection protocols. Verify the security of your cloud-based software systems, cloud data storage service and your online and mobile payment providers. Protect all company internet devices, as well as personal devices, by using two-factor sign-in and strong passwords.

5. 5G

In 2021, I took my sweet time to trade in my 3G smartphone for a 5G smartphone and my cellphone provider was unhappy with me for a while. We’ve been hearing about the 5G revolution for, what, 5 years now? More networks and devices have moved—-more like been pushed—-to 5G in response to increased demand for faster connectivity, but 5G is more than just faster downloads.

Speed of data transmission on all of your mobile devices is a huge plus. Online meetings, streaming movies, listening to music and watching live TV are so much more seamless and satisfying with 5G bandwidth. You may not have noticed, but your phone and tablet are already faster now and they’ll soon become faster still with successive 5G upgrades and rollouts. Expect to see very soon expansions of fast, powerful and more reliable wireless internet service at home and at the office.

5G will also impact your car. Automobiles coming to the market this year will offer 5G capabilities. In the not-too-distant future, expect high-speed cloud connectivity to bring AI powered smart mirrors, super premium audio systems and self-driving trucks and other delivery vehicles—-yikes!

6. Digital payments

We’ve witnessed an expansion of digital payments and related banking options courtesy of the of pandemic shutdown. But the need for secure and fast mobile and online payment systems was already in a slow boil. The steady rise of e-commerce demanded secure online payments. Outdoor festivals, flea markets, farmers markets, art festivals and every imaginable business conference found someone. with a self-published book to sell or motivational videos to buy, enabled by remote payments.

Banks and other consumer financial institutions such as Venmo, Square, Wallet and PayPal, continue to invest more in online solutions for their customers.

  • Online payment channels.
  • Online loan applications and approvals.
  • Cashless payment transactions.
  • Online personal identification.
  • Faster and user-friendly online banking apps

Thanks for reading,

Kim

Image: “Digital rain” computer code in The Matrix (1999)

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KPI Spotlight

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Good data supports good decision-making and good decisions lead to success in your endeavors. Trusting your gut and following intuition have their place but when evaluating the efficacy of business strategy, as you work to drive results in the near and long term, it’s imperative that you listen to the story the data tells. Why waste time and money on guess work?

The biggest question is, which metrics should you follow? Dozens of data points can be generated and examined, but which metrics will adequately address your questions and guide you? The ability to select KPI (Key Performance Indicator) metrics that reveal your company’s performance against objectives you’ve determined are relevant is the most critical factor of analysis. Tracking only the most important KPIs is meant to narrow your focus to those metrics that impact the objectives you want to achieve.

Your company business model and the industry in which you operate will largely determine the KPIs that make sense for you to monitor. As usual, you’ll need to give the matter some thought. Ask yourself—what company goals should you pursue? Have you identified major areas in need of improvement? What are the top priorities? Answering those questions will bring you a step closer to identifying the right KPIs for your organization. Choose metrics that help you further understand and achieve company goals.

Below are a sampling of KPIs that give potentially useful insights into any business. Maybe you’ll find two or three that you’d like to include in your monthly review of business operations?

Overall company performance KPI metrics

Gross revenue (top line)

  • Total income generated from the sale of company goods and services. This value matters because it tells the unvarnished truth of what the company is selling. Gross revenue reporting excludes the cost of goods sold and includes only the money earned from sales. On the Income (Profit and Loss) Statement it is the first entry, the top line.

Net income (Bottom line)

  • Net income indicates a company’s profit after all of its expenses have been deducted from revenues. Net income is the uber metric for profitability and provides insight into how well all aspects of the business. Net income is often referred to as the “bottom line” due to its positioning at the bottom of the income statement.

Number of clients

  • The number of active (within the last three years) clients on your roster.

Lead conversion rate

  • This helpful metric points to the power of your leadgen marketing strategy and tactics, including your website landing page. For example, if your Call-to-Action invites visitors to register for a webinar or complete an online survey, learning the percentage of visitors who respond to the CTA, that is, those who were converted from a mere website browser to an actual lead by taking an action that signals engagement, is highly instructive.

Financial KPI metrics

Gross revenue

  • The sum total of the sales of all products and services, within a given period (day, week, month, quarter, year)

Net Income

  • After all fixed (operating) and variable (selling) expenses have been deducted, inventory has been added (if applicable) and interest, taxes, depreciation and amortization have been calculated and deducted, the net profit (income) or loss is revealed in the bottom line of the Income Statement.

Cash-flow

  • Operating cash-flow is the amount of cash generated by a company’s normal business operations and it indicates whether a company can generate sufficient positive money to stay in business. If making upgrades of some sort, scale or grow are a goal, operating cash-flow reveals whether borrowed financing will be needed. This figure confirms whether or not accounts receivable are paid to service providers.

Cost of Goods Sold

  • The sum total of all costs used to create a product or service that your company sells. This number is often a challenge for service providers to calculate. We sometimes forget that our time has a price tag attached. How many hours were devoted to revamping a client’s social media campaign? How many hours did you spend creating Power Point slides for a workshop that you’ll teach? This figure should be accurately reflected in the prices you charge. Along with being aware of the time spent on providing a service, there is also the matter of the wholesale value of your hourly rate. Basically, it is wise to consider the value your client will derive from the work you do, in addition to the hourly rate for your labor.

Client KPI

Client churn rate

  • The opposite of retaining clients is losing them through the process known as churn. It’s a disturbing metric but one that every business owner must confront and diminish. For many B2B service providers, as well as other business owners, a client will do business with an organization only once and it is not a negative judgment against the business. Some projects are one-off by nature. Still, it’s important to understand why certain clients are not returning. What can you do better? Along with your final project invoice, a brief client survey could yield valuable and actionable follow-up information.

Number of clients

  • How many active (within the past three years) names are on your list? Also, how many give you repeat business and how well known are they?

Client acquisition cost

  •  Assess the cost effectiveness of your marketing campaigns when you calculate the total sales and marketing cost needed to land a new client. Divide your marketing and other client courting activities contained in total acquisition costs by the number of new customers, in the time frame you’re examining.

Client retention rate

  •  The number, or percentage, of clients who return to do business with you. This is an indication of client satisfaction and a great compliment to you and your team.

Marketing KPI

Website traffic

  • Measuring the number of people who visit your website is one of the more basic KPI metrics, but it’s still important. Your website is home base home to everything that’s needed to inform, convert and close a sale with your buyer. If your marketing campaign isn’t getting people to visit your website, then you must rev up your marketing strategy and execution. Hubspot, Google Analytics and a few other can report the total traffic numbers, tell you how many new visitors are browsing and also show you where those visitors are coming from. If you operate marketing campaigns on different social media platforms, you can learn which ones send the most traffic to your website and which ones are failing to stir up any interest.

Marketing ROI

  • Return on Investment metric reveals if the money spent on marketing activities is generating the desired sales revenue. Keeping track of your marketing ROI will make it easier for you to justify marketing budgets, calculate marketing efficiency and ultimately help you plan future marketing strategies. 

Referral traffic

  • Discover where website visitors are coming from, how potential prospects find your company. Learn which social media platforms bring in the most and the highest-quality leads. Does voice search show potential and should you invest time in long-tail phrases to grow this segment? Does your newsletter bring leads? This could be useful information when building your overall marketing strategy.

Thanks for reading,

Kim

Image: © Nick Bassett (2014)

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Pandemic Era Businesses to Launch in 2020 – 2021

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It appears that the pandemic era is settling in to become our nightmare new normal. Working from home will continue in many companies. Public schools and universities will not open their classrooms and will offer virtual instruction once again. Musicians, dancers, actors and singers cannot take to the stage and perform. Baseball teams are competing in empty stadiums, with no fans to cheer them on.

Billions of dollars have been lost and there’s no end in sight. Yet parallel to the turmoil, business continues to be done where permitted and plenty of money is being made, admittedly by a much smaller cohort than in pre- pandemic times. Whether the economy is expanding or shrinking; whether the stock market is up or the bond market is down; no matter if war breaks out or peace reigns, someone will make money. Maybe this time it will be you?

Please look over the short list of new business opportunities that I’ve put together. Business experts have identified these ventures as being able to either largely escape losses associated with the pandemic or directly benefit from its presence. The barriers to entry for these businesses are comparatively low, aside from the time and money invested to attain the necessary educational and certification requirements. Just one option requires a significant financial outlay to start the business.

Should you decide to open a business or become a Freelance independent expert, make the most of your entrepreneurial aspirations by writing a business plan. Include in your plan a business model, to give yourself hyper-focus on how to find customers and make sales.

The U.S. Bureau of Labor Statistics reports that when a business fails, 82% of the time it is because of inadequate financial resources. Examine your expenses and spending habits and take steps to pay off debts and accumulate savings, to prepare for either self-financing or bank financing. Be advised that customer acquisition and pricing are the top two elements a business owner or Freelancer must get right. Making sales and pricing correctly are the principal money-making enablers. Create a thorough and realistic financial plan for your business, with the guidance of a business accountant.

Skilled trades

The skilled trades have long been a professional path that paid off, in particular if there are a good deal of building and infrastructure projects planned in your area. Home renovations can also be a very lucrative avenue, spurred on by popular television shows.

Most college educated people are unfamiliar with the depth of training that blue collar tradesmen must earn. They may earn a 2-year degree in mechanical, electrical, or civil engineering, for example, in addition to completing the intensive training/ apprenticeship and certification/ licensing required to enter their particular field.

Many in the trades will eventually launch a business that may be small or grow to employ dozens. Other tradesmen prefer to be Freelance solopreneurs. Start-up costs are relatively low: the tools of the trade, business cards, website and a small truck or van.

Among the lucrative specialties are plumbing, welding, carpentry/ general construction (the profession of both of my grandfathers), electrician, masonry, HVACR (heating, ventilation, air conditioning, refrigeration) and steel working.

Bicycle sales, services, rental

The League of American Bicyclists reported that in the period 2010-2017, commuting by bicycle grew by 43%. The health benefits derived from the vigorous exercise involved, the incremental lowering of air pollution and the modest easing of rush hour traffic has inspired numerous city and state officials to invest in bike lanes to make the practice safer for peddlers, pedestrians and drivers.

If you, or you and a friend or two, are cycling enthusiasts and at least one of you knows bike repair basics and maintenance servicing, then owning a bike shop will allow you to monetize your passion. Online bike sales are robust, so be sure to budget for a well-designed and high- functioning e-commerce website.

In terms of product diversification, there is a niche market for electronic bikes (good for those who live in a hilly geography), which have a small battery powered motor that makes pedaling much easier. E-bikes are also useful for those who’d like to bike to work but face a long commute. Bike rentals are also popular.

Self storage units

As real estate prices escalated, the ability to afford a home that could house all of our treasured possessions became a challenge, if not impossible. In the mid-1980s, the basement storage space that nearly every apartment building provided as a standard benefit disappeared, as landlords began to create basement apartments. With increasing frequency, people who lose a job also, tragically, lose their home. They may be forced to give up their apartment and move in with family.

The growing demand for storage space has outstripped supply in some locations and prices per square foot are rising in many metro areas. The start-up costs for this venture are hefty because storage space entrepreneurs must either construct a new building or rehab an existing structure, and parking is a must (except in very high- density cities). But there is money to be made.

If the high-end appeals to you, then build a high-security, climate controlled facility that customers will use for fine furniture and art. Otherwise, minimal temperature control and a bring your own padlock system will suffice (and that is the norm). Commercial enterprises also rent storage units to hold merchandise and supplies. Tradesmen sometimes keep their tools in a self-storage unit. Whatever you can afford to invest, the rental income you’ll be able to command will quickly guide this enterprise to break-even and into robust profitability.

Videoconference and webinar tech support

The newest tech support career has arrived, born of the COVID-19 work from home craze. Many thousands of organizations have switched over to virtual communication to maintain contact with their team and with their clients. Videoconferences are mostly straightforward, but webinars and classroom instruction are more complicated.

Organization leaders, including school administrators, are mostly out of their depth with the technology and know that they have only one chance to make a good first impression now that they’ve persuaded a client or prospect to participate in a video sales call. A knowledgeable video tech support professional can be much in demand.

IT pros who pursue this avenue must be proficient in cloud computing, Windows (including Power Point), IoT and Linux (CentOS).

Videoconference and webinar support is part technology, part show biz. In advance, an assessment of the client’s tech equipment, including the webcam, audio quality (headset mic, or lavalier [mini-mic] could be needed). Identifying flattering lighting for the speaker’s face is another critical duty, as is recommending the right visual scene behind the speaker: the company logo or a bookcase are good choices. The lighting behind the speaker is another important aspect when setting the webinar or videoconference stage.

Private Tutor

If you are a certified teacher with classroom experience and hold at least a master’s degree in the subject that you’d like to teach, your services will be much in demand right now in the affluent communities of America for the duration of pandemic-related school closings and perhaps beyond. Zoom may be helpful to keep education going in a crisis, but it is not equivalent to face2face instruction.

There is at present a free-for-all patchwork of teaching solutions that worried parents are exploring, including home schooling and “pods,” which are small group training. Parents may hire a tutor to buttress the child’s understanding of what the school lessons cover, or add subjects that have been dropped in the transition from classroom to video.

Tutoring can cover any subject taught in a classroom—-geometry, English grammar, American history, biology—-and enrichment subjects—-music lessons, physical fitness, art, foreign language. There are tutors for special needs children as well.

Requests for tutors are trending on social media and educators will find many opportunities to evaluate, from becoming part of a pandemic pod teaching team to traditional private tutoring.

Thanks for reading,

Kim

Photograph: Kim Clark. Bike shop on Tremont Street in Boston’s South End neighborhood.

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Guiding Light: Your Business Plan

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Business plans and email marketing have something in common. The two stalwarts have often been declared dead by so-called experts, yet both continue to demonstrate value to current and aspiring business owners. Despite the naysayers, business plans are the foundation of business success, for the unavoidable reason that many new businesses fail.

Of the 400,000 companies started in 2014, 44% had failed by year four and just 18% of first-time Entrepreneurs were able to launch and sustain a successful entity. As the saying goes, “No one plans to fail. They just fail to plan.” Don’t let that be you, Dear.

The primary reason for aspiring Freelance consultants and Entrepreneurs to write a business plan is to test assumptions about the viability of the business idea against credible information that reveals the likely demand for the product or service and customer groups that have the money and possible motive to buy those products and services. The potential viability of a business is revealed in factors such as the size of the market (i.e., those with money and motive to buy), the founder’s access to potential customers (a big factor in B2B and B2G sales), competitors who sell an identical or similar product or service (are they thriving or just hanging on?) and the amount of money required to set up shop and start doing business.

A second compelling reason to write a business plan is to develop strategies that provide a roadmap, or blueprint, that will guide the founder as s/he builds and launches the venture. Confirming target customers, identifying possible niche markets, choosing the pricing strategy and the sales strategy; creating the financial plan, the operations plan, a realistic business model and selecting the most advantageous legal structure will also be thought through in advance of the company launch.

During the process, the founder will make discoveries that may persuade him/her to refine certain aspects of the products and services intended to be sold, or adjust perceptions of who the ideal customers will be. This information may have the power to substantively improve the venture’s chances of success and sustainability.

A third reason that motivates aspiring Freelance consultants and Entrepreneurs to write a business plan is the need to seek financing for their venture, whether the funds will be used to launch or scale the company. The financing source may be a bank or credit union, a micro financing organization, private investment (friends and family), or even self-financing. Those holding money will use the business plan to make funding decisions, so founders would be wise to develop a realistic financial blueprint that projects three years into the future, as well as a credible marketing plan that accurately defines target customer groups and identifies key competitors.

In sum, a powerful business plan needs to be three-dimensional, so it distills lessons from the real world and allows the founder(s) to test and when necessary revise assumptions. This ongoing process will give the business the highest chance of success while also increasing your credibility with investors, your team and most of all, yourself.

Thanks for reading,

Kim

Image: © Ubisoft Entertainment SA, artist’s rendering of the Lighthouse of Alexandria. The lighthouse stood on the island of Pharos, guiding ships as they entered the harbors of Alexandria, Egypt on the Mediterranean coast. The structure was built during the reigns of Ptolemy I and II, c. 300 – 280 BC. With a height of over 330 feet, the lighthouse was so impressive that it was named one of the Seven Wonders of the Ancient World. Now lost, the lighthouse was a welcomed navigational aid for over 1600 years.

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Is Your Idea a Business or a Dead End?

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Ha! So you think you have an idea that you can parlay into a good business, whether it’s a cutting edge technology or a tried and true formula, like a car wash.

Regardless of the industry that you’d like to enter, there is a more or less standard checklist of factors you should consider before investing your money, time and hopes. Before fantasies of entrepreneurship carry you away, do yourself a favor and answer these questions first. You’ll know how to proceed from here, whether it means that you meet with the Branch Manager at your bank to learn about business financing options, or you take a trip back to the drawing board.

1. Who are the target customers and what is the size of the market?

Define your market demographic. Who will pay to buy what you plan to sell? Is this a product or service that is growing in popularity, or maintaining its broad appeal, or is there a shift in customer preference on the horizon as those who would be your customers learn about a new choice that may persuade them to switch to The Next Big Thing?

In addition to demand for your intended product or service, are there enough customers in your location to support the business? By the way, how are your competitors doing? Do they appear to be thriving?

2. What is the problem that target customers want to solve or avoid when they do business with companies like your proposed venture?

Understand the back story of why customers would buy the solutions that you plan to sell. What is it that they’d like to achieve or avoid? One calls a window washer when the windows are dirty because clean windows demonstrate the owner’s desire to protect and enhance the value of his/her home.

3. How are target customers meeting their need today?

What businesses would be your primary three or four competitors? What factors persuade their customers to do business with them—a convenient location, exceptional product variety, discount pricing, the right relationships?

What advantage can you offer that customers might be drawn to—more convenient hours of operation, for example? Can you provide a product or service that meets a need that is valued but not currently addressed?

4. What is your solution (product or service)?

Describe your proposed product or service. You should be able to easily and clearly describe (and sell) your product. Develop an off-the-cuff sales pitch, record your delivery of it, then listen and evaluate. Would you buy this product or service?

5. How will you reach your customers?

If your business is B2C and requires a physical location, can you afford to set up shop in an area that potential customers will visit? If your business idea is B2B, do you have a plan to access customers and referrals? If your plan is for e-commerce, how will potential customers learn about your website?

6. Do you have the credibility and credentials to do business in this industry?

Especially if you plan to enter the B2B sector, be certain that your education and experience will command respect and trust. If obtaining certain licensing, certifications, or an educational degree is vital (even if not required), investigate the process, plus the time and money involved.

7. Do you have the funding to launch the business?

Research the expected business start-up costs and think objectively about how long it might take you to start making sales you can live on.

Pay your bills and get your credit score. Build up your savings. Whether you expect to self-finance, ask to borrow from friends, family, or your retirement account or apply for outside funding, you will need a lump sum of cash on hand when you launch a business.

Thanks for reading,
Kim

Photograph: Financial District, Boston, MA. Kim Clark, September 23, 2018

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Budget Plan: The Unexpected Windfall

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Now check this out—what if Santa Claus comes to town and leaves a nice financial windfall under your Christmas tree? What a sweet surprise! You took a chance and competed for a very lucrative assignment and by some miracle, you won.  Along with making sure that you’ll deliver, if not surpass, your new client’s expectations, you should as well think about how you can most effectively utilize the proceeds from the billable hours.

Most often, we approach the subject of financial contingency planning from the negative side and prepare ourselves for unexpected expenses that could ruin a budget or seriously deplete our savings.  But why not manifest prosperity and think about what you can do if your ship comes in? Here’s a sampling of where extra money can be applied:

Erase debt.  Without a doubt, pay down and pay off all outstanding debts.  Interest rates are at loan sharking level and eliminating the burden will increase your credit score and decrease your stress level.  If you are not in debt, then pay ahead monthly installment obligations such as health and auto insurance policies or renewable business licenses and certifications.  Payment of these types of accounts payable is recorded as an asset on your Balance Sheet.

Professional development.  Are there continuing education workshops and courses or certifications that if acquired stand to enhance your stature and brand? Is there a conference that not only provides good business information, but also excellent networking opportunities? Explore how you might be able to raise the bar on your qualifications and make yourself a more employable Freelance consultant.

Business investment.  Maybe your billable hours are sufficiently generous to allow you to buy a new car? Ask your accountant or business attorney if the proposed new automobile can be designated as a company vehicle and permit you to write off some portion of the expenses plus depreciation, so that you could sweeten the investment.  You might also consider computer or other technology upgrades, or office equipment such as a new desk or an ergonomically correct office chair.  Much smaller but still significant branding upgrades include personalized business note cards, holiday greeting cards, stationery and your invoice statement.

Retirement account.  Fund your retirement account to the maximum annual amount with pre-tax dollars.  If you have extra money, open a Roth IRA account in tandem with your primary retirement account and enhance your financial future with after-tax dollars. Verify first the financial guidelines required for simultaneously holding these two retirement funds.

General savings. You might also meet with a wealth manager, if you meet the investment minimum and can find someone who can be trusted.  Alternatively,  on your own you can research and invest a couple of thousand dollars in a mutual fund that is indexed to the stock market and watch it grow (and it will, despite some ups and downs along the way).

Splurge.  Oh, go ahead! When’s the last time you took a wonderful vacation? Freelancers work so hard and we worry so much about how we will be able to satisfy our clients, find new clients, win back lapsed clients, generate relevant content marketing, distinguish ourselves from our many competitors and on and on.  I don’t know about all of you, but I am so exhausted it’s absurd.  I’ve been able to take brief local vacations, but I dream of taking two weeks or even more in Marrakesh, Morocco. Or Bahia, Brazil. Or Shanghai. Or Rome. Or Tokyo. Or Buenos Aires. Mmmmm….!

Thanks for reading,

Kim

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Understanding Break-Even Financial Analysis

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Most business owners are familiar with the big three financial control documents: the Income (Profit & Loss) Statement; Cash-Flow Statement (or projection, when used for budget planning); and Balance Sheet. Those three statements are compiled monthly, quarterly and annually. They give useful insight into the fiscal health of the company. The smart business owner consults these statements each month, teases out the story that is revealed and makes decisions accordingly.

A fourth financial document, the Break-Even Analysis, provides forecasting information. The Break-Even is used when a new product or service will be introduced, or when a capital improvement or other upgrade is scheduled to be made.  The Break-Even indicates the amount of sales revenue the product or service must generate to cover the roll-out costs associated with its introduction or acquisition and therefore, positioned to become a decision that pays off.  A Break-Even is also generated when a new business venture is launched. The Break-Even allows the business leader to predict how long losses must be sustained and how to anticipate cash-flow comditions and management in response.

Break-Even is achieved when revenues = expenses; the business is neither making nor losing money. Business expenses are of two types, Fixed and Variable. Fixed Costs are the standard monthly operating costs and they are not impacted by sales revenue generated.  Office space rent, insurance, utilities and payroll are Fixed Costs.

Variable Costs are largely tied to sales: product acquisition or manufacturing costs, inventory purchases, the cost of materials used to manufacture the products sold and all aspects of marketing and selling costs.  As sales increase, Variable Costs increase proportionately, because more product must be purchased or manufactured to be available for sale.  Total Expenses = Fixed + Variable Costs, as recorded on the Income Statement.

When calculating expenses, it is standard to determine the relationship of Variable Costs to sales revenues.  The Variable Cost amount is divided by the number of product units sold,  yielding the Variable Cost per Unit.  In other words,  Variable Costs = units sold  X  variable cost per unit.  For the purpose of calculating Break-Even,  Total Expenses = Fixed Costs + Variable Costs (expressed as units sold  X  variable cost per unit). As always, sales revenues = unit price  X  number of units sold.

The Break-Even Point is reached when

Price  X  Units Sold = (Units  Sold  X  Variable Cost/Unit) + Fixed Costs

The difference between selling price per unit and the variable cost per unit sold reveals the amount that can be applied to Fixed Costs each time a unit is sold.  Think of it this way: if monthly Fixed Costs are $2000 and the average price of your product units sold is $2, with an average Variable Cost of $1 each,  when you sell a unit, you earn $1 to apply to Fixed Costs. With monthly Fixed Costs of $2000, Break-Even is reached when the business sells 2000 units per month.

Knowing how many units must be sold each month to achieve Break-Even is essential for effective financial management of the venture.  One can also calculate Break-Even in terms of dollars that must be generated each month.  In this example, Break-Even Revenue is achieved at $4000 in monthly sales, since the sales price is $2/unit and 2000 units must be sold each month to cover expenses.

A basic knowledge of the process of business financial calculations and the ability to interpret the data generated are must-have skills for all business owners and Freelance consultants. While it is true that one’s bookkeeper or accountant will perform the Break-Even on Quickbooks by plugging in numbers derived from the Income Statement,  it is always in your best interest to understand how the calculations are made and how to make sense of what the financial documents reveal.

When it is proposed that a new product or service might be sold, which might be the development of a new workshop to propose and teach or some other intangible service, a Break-Even Analysis will indicate how many units must be sold, billable hours generated, or classes must be taught before the production costs will be re-couped and the new offering will be positioned to generate ROI.

Thanks for reading,

Kim