Small Business Excellence: Profits over Sales

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Growing a business can be difficult, especially if your business is price sensitive. Many a competitor will try to undercut prices and take a loss in the hopes of winning customers. This “loss leader” strategy works against them in the future as they try to re-coup losses by raising prices anyway. Consumers and clients who play this never ending game are not ones that you want to attract and do business with.

Focusing your attention on maximizing profits based on sustainable relationships is key to enabling moderate and realistic growth well into the future. Top line sales numbers grab attention, but it is profitability that pays the bills and provides cash flow to sustain your operation. I often ask owners and managers what would they rather have, 5 clients and good profitability or 500 clients and breaking even?

We must remember why we got into business in the first place, to make money. If you are working like a dog just to turn a small profit, then your time would be better spent on investing the capital you have in your business.  A good rule of thumb is 7-10% profit before tax. The rate of inflation is roughly 2% and the market historically returns 5-7% per year. If you are not making more than the market + inflation then you need to consider changing your focus or staying in business altogether.

The Discipline of Profit needs to be engrained in every relationship and in every process that is present in your operation. Without that discipline, that focus, you are just turning money over and not improving your life and the lives of those that depend on you and your company.

Till next time

 

Rick Barbosa

 

 

 

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Small Business Excellence: Find your Focus

Focus

  1. Why are you in Business?
  2. What sets you apart from the competition?
  3. How do you plan on growing your business or even staying in business in the future?

These 3 questions should make every business owner pause and reflect on how to answer them. Many times small businesses start out with the premise that they can do things cheaper than the competition. This business model or value proposition (consulting lingo) is the most common way to attract new customers or win contracts. Unfortunately, it can also commoditize your business. When business paint themselves into a corner as the lowest bidder or “cheapest” vendor they often limit themselves on exploring better avenues to separate themselves from the pack.

Here in Canada we’ve always relied on the currency cushion to make our products and services more attractive. When Stephen Poloz continued his race to the bottom with our dollar, he artificially propped up an aging manufacturing sector that has a diminished influence on GDP and is not productive enough to compete globally. How did this happen?

There are many examples of how the “Good Times” lead to a lack of focus on key areas that sustain a business. This laziness on the part of management to continually review, analyze, and invest in their businesses when times are good can mean loss of market share and potential business failure. Getting caught off guard is the product of an attitude that can grip even the best business. Here are some examples of what I’ve heard over the years:

  • “We do alright”
  • “We’ve being doing it this way for the last 10 years, why change now”
  • “My customers are loyal and wouldn’t go anywhere else”

To fight complacency we must learn to focus like a sniper on key areas of our businesses.

3 Key Areas that every business needs to focus on

  1. Innovation
  2. Quality (Product or Service)
  3. Employee Development

Change is constant and in an online and global economy we must learn to focus like never before if we want to compete either on a local or international stage.

Till next time.

 

Rick Barbosa

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5 Things Owners should never say at work

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Today’s business owners have it tough. Increased competition, controlling costs, and finding new customers has never been harder. How do you keep it together?

Most successful business owners know that hiring, keeping and motivating good staff is the key element to ensure your businesses prosperity and theirs. This sense of contribution is vital to the workplace. If employees feel they are not a part of the company then they become complicit in their work and attitudes. This complacency spreads like a virus and affects morale and productivity, and eventually profitability.

After being around many family and owner managed businesses, I’ve had the pleasure of experiencing some of the most dreadful phrases uttered in the workplace. These phrases drive employees to complacency and eventually out the door. If you ever get the urge to say these, take a step back and remember that you can’t do it alone and that you need good people around you.

5 Things Owners should never say in the Workplace

  1. This is my Company, if you don’t like it you know where the door is
  2. Remember who signs your Pay Cheque
  3. You should be happy to even have a job
  4. I don’t pay you to think
  5. I can find a replacement for you next week

‘Till next time

Rick Barbosa

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Small Business Excellence: Manage vs. Micromanage

Manage v Micro2

From Wikipedia
In business management, micromanagement is a management style whereby a manager closely observes or controls the work of subordinates or employees. Micromanagement generally has a negative connotation.

Having worked with a number of small businesses over my career, it’s easy to spot the ones that will flourish and the ones that will hobble along and stagnate. One of the key elements that distinguishes between the two is the management style employed by the owners or senior staff.  Managers or owners have, and should have, a vested interest in the performance of the company, especially if it’s theirs. Because the performance of the enterprise is so closely linked to their or their families livelihood it can lead to protectionist tendencies. This often morphs into micromanagement.

When employees feel the overarching strings of management and are held back from exploring new and better ways to do their jobs, or are afraid to fail, then they become trapped. They relinquish ambitions to improve their surroundings and their natural tendencies to better themselves through their work.  Good employees want to do a better job. Like in Nature, the most common need is to survive and thrive in one’s own environment.

It is up to management to hire the best people for the job and steer them in the general direction of company goals. When bright and talented people are given a wide berth for exploration and ownership in the organization, great things happen.  Mistakes will happen too, but it is crucial that managers see these mistakes as learning points and use them to keep top performers on course. We must mot be afraid to fail, as failure like so many have said before me is the greatest teacher.

Be like the Shepherd, not the Warden.

Rick Barbosa

 

 

 

 

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Why I sold First Capital Stock

First Capital

It  wasn’t any easy decision to make. I have owned this stock for about 8 years and enjoyed the modest returns as a conservative yield play. What tipped the scales was yet another round of debt to equity conversion as a solution to paying off bond debt.  If you look back, these conversions have been taking place for awhile as a means to keep cash in the business and reduce interest expenses. A sound strategy when rates are rising, but they have not. Debt is cheap and when you’re paying a yield of 4.4% on your shares, what incentive is there to further dilute your shareholders value? Their debt load is also increasing to uncomfortably higher levels, hovering around 50% while Boardwalk and CREIT have levels in the 30’s. Their ROE is lower and Price to Book higher than industry peers at this time. The numbers are working against them. They have not done a good job of increasing my shareholder value over the last 2 years and it’s time for me to look for greener pastures.

Sorry FCR you have been eliminated.

Rick Barbosa

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Thank Goodness I’m Canadian…when it comes to taxes

Canam

With tax season winding down for 2015, it’s time for a little reflection. This year I had an increase in the number of new clients that required both Canadian and American returns prepared. If you reference my site, you’ll notice I don’t actively post prices for my U.S returns. This is because many times I need to explain that because of the various individual circumstances it may be impossible to quote how much work is needed. Many states require filing of annual state taxes as well as federal. Also there is a variety of avenues to take to obtain the taxable income. There is a choice of AMT (alternative minimum tax) or Tax based on where you fall in the IRS Tax Tables. There is also a choice between itemized deductions and taking the standard deduction. And finally, lets not even talk about how many different forms and ways there are to calculate depreciation that are available.

The bottom line is that the U.S system has more tax advantages on many deductible items that cannot be claimed in Canada. This has the impact of lowering the individual tax rate. The trick is spending time and money to research, apply and weigh your outcomes. On a pro rata basis fewer U.S citizens prepare their own taxes than do Canadians. This is because of the complexity involved.  This is also why Warren Buffet and other High Income earners wind up paying lower taxes on a % basis than someone earning 40k.

Taking a balanced approach, I am biased towards our tax system. Our simple and straightforward Tax Code along with our tax credit system provides a more even approach to taxation and shares the public burden more broadly. This means a slightly higher personal income tax but lower aggravation when it comes to tax time. Our Corporate rates are now lower than many combined Federal/State rates in the US, and with the advent of a higher TFSA limit, we are closing the gap on personal rates.

Rick Barbosa

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Why kicking the can down the road is never a solution.

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If you’ve ever owned a dog, or even raised a child, you know the best way to teach someone is through consequences. If someone is allowed to keep doing something harmful but never has to answer for their actions, what incentive is there to change behavior? None. So why are we still hearing about a sluggish economy or Greece, Portugal, Spain etc… It’s because know one has made them answer for their actions. We keep trying to avoid the inevitable by only making the inevitable worse. We need to take cues from nature. The strong must be allowed to survive. Keeping the week dangling only hurts the herd as a whole. The “Herd” in this case is our economy. We need to recognize that it’s the well managed companies who have always had to fend for themselves that lead us out of recessions. Instead of allowing them to reap the rewards for doing the right things, in comes the government and big labour to save the day. They artificially prop up losers for their own personal benefit, not societies. By allowing companies, governments and people to fail we are doing them a better service. By making them face the consequences of bad decisions we ensure they will never make them again.

Those who do not know history are doomed to repeat it.

Rick Barbosa

 

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Really Smart People “Buy” when the “Smart” money is selling

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If you’ve ever gone to my “Rick’s Picks” tab you probably have noticed that my picks rarely change. That’s not laziness on my part. That’s just me doing my homework. I like to lump myself into the “Investor” group rather than be labelled a “trader”.  Investors know that market volatility is part of the landscape, especially these days. What gets people into trouble is following the crowd and panicking when numbers start to move. Those who sold their investments after 9/11 , Black Monday and as recently as last week are those that will miss the inevitable rebound once the “Smart Money” moves back in.

Investing is simply putting your capital to work in a trusted company or institution, and letting them run their business. If they have done, are doing, or will do a good job, you will be rewarded with dividends, yield and capital appreciation. It’s that easy. The hard part is doing the homework to find out which companies have a good management team and a good business model that will stand the test of time. Once you or your advisor find those companies then invest and be patient. If you are not that type then consider yourself a trader.

So when you hear what the “Smart Money” is doing, think about what Steve Jobs once said.  “Everything around you that you call life was made up by people that were no smarter than you.”

Till Next time,

Rick Barbosa

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Get your “Shoebox” in order to save money

shoebox

Tax time is almost here and now is as good a time as any to get your “stuff” in order to lower your tax bill with your accountant.  The awful truth is that most accountants don’t care about how organized you are because they can use your lack of preparedness to increase the amount they bill you. I can’t do that. My job is to educate and advise my client’s. Part of that advice includes how to organize your finances to :

  1. Understand them
  2. Lower your year end tax bill

Once client`s understand that the more work that I need to do translates into the more they pay, then they usually change their habits. Although, truth be told, there are some that  accept this and are OK with a higher bill.

How to get prepared

  1. Make sure you wait to get all your T4`s, T5`s, T3`s , and RRSP slips. This cuts down on filing amended returns.
  2. Find all relevant receipts (hopefully they are easy to get at) if not there are usually on-line records that you can access
  3. Sort by type of receipt (Medical, travel, meals, donations, vehicle, entertainment, cell phone, etc.)
  4. Add all receipts up with a calculator (buy a calculator with a print feature) then print tab and circle total amount
  5. Paper clip or bind these receipts with tab on top
  6. Present them in one docket or file to your accountant

This eliminates 80% of what accountants do. From here, the accountant should spot check and verify amounts for eligibility and weed out duplicates. This should result in your accountant lowering your tax bill. If it doesn`t then you need to ask yourself if  you are using the right accountant.

Hope this helps,

 

Your friend,

 

Rick Barbosa

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