I came across ‘Dokkodo’ recently which is a small book written by Miyamoto Musashi a week before he died in 1645. Based on the date, I was quite amazed at how many of the following rules or principles if you like have stayed with us and are still very relevant today.
The 21 precepts below were written just as Miyamoto was giving away all his possessions in preparation for death and I think many of them still apply to our modern society and lifestyles.
I’m not one to simply copy the work of others and put it here, but in this case I believe that the precepts by Miyamoto deserve to be shared. Many of them fall into the same line of thinking that I have and the same line of teaching that I’m trying to share here.
This post is long so I recommend you scan the points and if there are any you don’t understand or want to have my views on then read the comments by me below them.
21 Rules to Live Your Life
Below I’ve included the 21 ‘rules’ from 1645 and also added my own commentary; I would love to hear yours in the comments at the end.
1. Accept everything just the way it is
I’ve already stated that I think acceptance is the way to instant happiness so I always try to implement acceptance into my life. If you aren’t accepting things then you are simply resisting what is, resistance causes internal conflict and then tends to lead to negative emotions or downward spirals.
Often things we resist are in the past i.e. not accepting that someone has died or still being angry about a previous relationship. These are things we simply can not change and that is why it makes no sense to resist what has happened. Total acceptance also allows you to live in the now and much more consciously.
2. Do not seek pleasure for its own sake
This is one I really had to think about to start to understand. What I believe Miyamoto was suggesting here is that you should not look for pleasure simply in order to have pleasurable feelings. Another interpretation of this by the University of Minnesota suggests that it means you shouldn’t seek pleasure solely for yourself.
In my opinion, you should focus on the things that you enjoy then pleasure will exist as a byproduct, rather than pleasure something you’ve had to work on specifically in order to receive the benefits.
3. Do not, under any circumstances, depend on a partial feeling
This is quite self explanatory, but, simply put; don’t act in high importance or high risk situations based on a partial feeling. It’s great to go with your instinct now and then and just ‘go with the flow‘ but when something is crucial, make sure you know what you are getting into.
4. Think lightly of yourself and deeply of the world
You are who you are, nothing more and nothing less. You are not the car that you drive and you are not the size of your bank balance. It’s fine for others to think of you as funny, cool, rich or any of those things, but if you place a large importance on them and start to identify with what these words represent then you’ll start to live a much more reactive life.
Accept who you are, know your strengths and weaknesses, don’t over qualify yourself to the world but definitely don’t under estimate your potential. The world and everything in it is truly amazing, see it, explore, make the most of everything; take nothing for granted.
5. Be detached from desire your whole life long
Detachment is to be disinterested in the outcome of an event or situation. Therefore, being detached from desire your whole life long means that you shouldn’t care about the outcome of the things you want in life. Worry about the outcome projects negative emotions such as fear. As with a point earlier, attachment to something means you are identifying with it, you see it as part of yourself in one way or another.
Whatever your desires are in life, don’t make the outcome necessary. If something doesn’t happen then be OK with that, realize everything in life is abundant.
6. Do not regret what you have done
I have a favorite saying for when I look back after having taken action on something that says “I’d rather regret the things I DID do rather than the things I DIDN’T do”. However, if you look at this on a presence and acceptance level, you should never regret the things you have done, simply because you can’t change what has happened.
7. Never be jealous
What reasons do you have to be jealous of anybody? If you are jealous of somebody with lots of money then you should re-frame your thinking. Be glad there are people out there that show you there is potential for you to make lots of money as well.
If you are jealous of somebody’s looks then you identify with superficiality much more than is even necessary. You never know what ‘problems’ people can have under the surface, fitting in with society standards doesn’t make you a happier person, it just makes you more socially conditioned.
8. Never let yourself be saddened by a separation
According to the Buddha, attachment is the source of all suffering and as far as separation goes this certainly applies. Separation can apply to losing a partner, a pet, money, possessions or anything of the sort. I think what Miyamoto is referring to here is once again live in total acceptance of what happens and don’t hold on to things that have occurred previously.
You have the choice to be angry or happy at all times, there’s no point wasting time in the frame of the former. When I was mugged at knife point recently I lost my drivers license, lots of money, my credit card, mobile phone (worth over $300) and more. I was disappointed for a short while, but I was more pleased about the fact the knife wasn’t used on me or my brother during the incident.
9. Resentment and complaint are appropriate neither for oneself or others
Once again this is pretty self explanatory. Resentment and complaint aren’t going to get you anywhere in life, except to be troubled with negative emotions. Accept everything for what it is and always appreciate the moment, nothing else applies.
10. Do not let yourself be guided by the feeling of lust or love
I don’t think that this means anything to do with celibacy like others have interpreted this as, but more about controlling your own destiny. If you have a good grasp on reality a.k.a. an abundance mindset then you will know there are literally billions of potential partners out there for you. I don’t believe that there is always just ‘the one’ but I believe there are many people you can connect with and love.
If you feel you want to marry someone then go down that route, but don’t let your strong attachment and emotions guide the direction of your life. Take control and enjoy lust / love on the way, don’t completely immerse yourself in their powers and detach from other areas of your life.
11. In all things have no preferences
Before you are so quick to dismiss this, think about what it is saying. Obviously we all have a preference over things such as Coke vs Pepsi or Cars vs Motorbikes but that isn’t the main message. I think the message here is not about having no preferences but rather about not letting certain preferences control your emotions.
For example, if there is a noisy party next door and you are trying to sleep then wishing there was silence (preferred) isn’t going to help. Instead, you should just accept the noise, don’t create any internal conflicts and you’ll be asleep before you know it. [Example Source]
12. Be indifferent to where you live
The word indifferent is best described as “that which does not matter, one way or the other” and in reality where you live shouldn’t make any difference to you internally. Whether Miyamoto was referring to the idea that you should travel more or the underlying fact that it was much harder to move around in 1645 I’m unsure.
13. Do not pursue the taste of good food
I have a feeling that this doesn’t refer to food literally but haven’t found anyone that has yet to explain this in more detail. Maybe a copy of the book is needed or if anyone can leave a comment I’ll update this one.
14. Do not hold on to possessions you no longer need
Letting go of the things that you don’t need can give you multiple benefits. First of all you get a lot more clarity in your life (and environment) due to lack of clutter. Secondly, someone else can benefit from your possessions and put them to good use.
This may seem quite negative to the likes of collectors and those who are very materialistic but it makes a lot of sense. Also, we tend to attach ourselves to our possessions and feel strong negative emotions if anything happens to them, even if we don’t need / use them.
15. Do not act following customary beliefs
We live in a society where a large majority of people spend their time living in spectator mode, just like everybody else. We follow celebrities in the media, we play computer games and we watch a lot of TV. These are all influences on how we should live our lives and are actually a place where a lot of this ‘life’ is wasted.
Make your own life rules based on reference points, experience and with proper, truthful mindsets such as those of abundance and potential.
16. Do not collect weapons or practice with weapons beyond what is useful
In 17th-century Japan this was a lot more relevant due swords being a commonality and the many forms of Martial Arts were in full swing. I take this message as saying ‘Don’t waste time with things (weapons) that aren’t going to benefit you‘.
Sure, there are hobbies such as fencing that involve weapons which aren’t necessarily used in this way because they are useful. People take part in fencing because they enjoy what they do. However, in terms of learning to perform skills with weapons which serves no purpose, this could be seen as protecting you from acts which simply inflate the ego.
17. Do not fear death
I’m a big preacher of living in the moment and doing things for the now, I started learning more about ‘The Now’ through the teachings of Eckhart Tolle. In his first book Eckhart states that there is ‘no such problem in the now’. In my lack of understanding, I hesitantly asked on an Eckhart Discussion Forum how the likes of having a knife in your chest could not be seen as a problem in the now.
One of the responses I received that I liked went along the lines of “Death is no different to birth, they are both natural. They are one and the same. If you fear death then that is like fearing birth.”
18. Do not seek to possess either goods or fiefs for your old age
Stated very strongly in the book ‘The Four-Hour Workweek’, we tend to try to save up our money so that we can start to enjoy life once we retire from our jobs. However, as you will discover, if you can live in the moment you will see how stupid and incorrect our societal views on this actually are.
Think about it, most of us actually do plan to save money so that we can enjoy life when we retire and do the things we love. However, this is silly because we are planning for something that:
•a) We may never reach
•b) Involves our form being in it’s worst ever condition (aging)
•c) We could be doing right now
19. Respect Buddha and the gods without counting on their help
I’m not Christian or involved in any other religions so I don’t believe in the common view behind the word ‘God’. However, that isn’t to say I would judge or look down upon anyone that chooses to have belief that such Gods exist.
Respect the teachings and messages of others, but don’t use them as a crutch to keep you balanced.
20. You may abandon your own body but you must preserve your honour
The one thing we all have in common when we born, albeit deemed as negative, is that we are going to die. We can’t stop the aging process (although we can limit its affects through the likes of plastic surgery) and we can’t cheat death.
Despite that, this precept is saying that along the way you should always stand to live by your own moral values. Don’t change them due to pressure from others or the usual conforms of society.
21. Never stray from the Way
‘The Way’ may be viewed as something monumental like finding and acting our your life’s purpose and it may also be viewed as something small like keeping on top of your goal progress. Either way, you should always try to remain focused on the things you want to achieve and stay on that path.
There are many distractions these days with drug or alcohol abuse, financial worries and much more. However, you should simply see these distractions as hurdles that filter out those that really want to achieve something and those that don’t. Never stray from the way.
3/25/11
Flash Reports Definition
Flash Reports Definition
The Flash Report or financial dashboard report is defined as a periodic snapshot of key financial and operational data. It's a one-page report that helps management assess the key performance indicators of the company. The flash report should cover the shortest time period that is feasible, usually a weekly basis. The whole process should be based on the KISS principle (Keep It Simple Stupid) and should not take any longer than 30 minutes to prepare and get ready. If it takes any longer than that, then the flash report is too detailed and will be too difficult to maintain!
There are 3 sections to the flash report: Liquidity, Productivity and Profitability.
Flash Reports are a rough measure of change. They are not meant to be 100% accurate. If the data is 80-90% accurate, it will be enough to manage the business. For complete accuracy, the firm can defer to its monthly financial statements, which come out 2-4 weeks after the month closes. For management purposes, it is timeliness and "mostly accurate" is good enough. If one were to wait for complete accuracy, the competitive landscape may have change so completely that the "accurate" financial statements may not be of any use.
Flash reports should be done on a weekly basis. However, some companies elect to do it every two weeks in order to more naturally capture the payroll cycle in terms of monitoring cash flow.
The CFO/Controller should get together with the Owner(s)/Management to arrive at a set of metrics for the Productivity Section. This is the hardest part to arrive at and will require the input of both operations as well as finance/accounting.
After the initial metrics have been determined, the CFO/Controller can have someone in the client's accounting staff to gather the data for the Liquidity, Productivity and Profitability sections.
Each section tells a different story about the firm.
The Liquidity Section tells management about the cash situation of the firm. Is the company generating cash? Does it have enough money to pay the bills?
The Productivity Section gives an indication of the key performance metrics of the business. These metrics are tied to operations and are a way to combine the operations of a company to its financial performance.
The Profitability Section gives a rough indication of how much money the company has made during the period of measure. It is important to emphasize again that complete accuracy is not necessary. Timeliness, however, is. Management can work off of 80-90% accuracy. What they need to focus on is the change in trends over a period of time.
Flash Reports:Liquidity Section
The purpose of the Liquidity Section is to measure the change in working capital of the company. In so doing, the company will have a rough estimate of whether or not they can pay the bills and how much money they will have left over.
Monitoring the company's working capital over time will allow the firm to see: how cash increases/decreases, any effects of seasonality and effects of management decisions. If a company is making a profit then the Working Capital should increase over time!
As part of the overall Flash Report, the Liquidity Section ought to be monitored and reported on a periodic basis. What is that period? It is recommended that the entire Flash Report at a minimum be reviewed on a weekly basis. The more management reviews the information, the faster they can respond to crises.
The frequency of monitoring depends on several factors: Availability and commitment of the management team to review the information, Frequency of certain cash inflows/outflows (i.e. payroll), Ease of access and/or generation of information and Timeliness of data entry of information pertaining to this section (i.e. are all A/R and Inventory entered into the system on a timely basis?).
Someone in accounting, preferably a person who is in charge of bookkeeping.
Information for the Liquidity Section can be found in the Balance Sheet section of the company's financial statements (so long as it is updated). If the firm uses a software program (i.e. PeachTree, QuickBooks, Great Plains, etc) to manage its books, then the information can be easily retrieved.
NOTE: Make sure that the ending period on the Balance Sheet matches that of the Flash Report. Both are snapshots of the company in time. Make sure we are talking about the same time period!!!
Cash: Look in the check register to see how much cash is there. Do not use the bank balance because there may still be outstanding checks. Be leery of using the cash position off of the balance sheet. The information is good only if it is updated. This may not always be the case. This is why the check register is bes
Accounts Receivable: Look at the Accounts Receivable detail report for total accounts receivable. Deduct any bad debts reserved.
Inventory: Look at the inventory detail report for total inventory on hand.
Accounts Payable: Look at the Accounts Payable detail report for total accounts payable.
Working Capital: Sum up the values for Cash, Accounts Receivable, and Inventory. Subtract the value of Accounts Payable. This will give you the value for working capital.
Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in your company's process.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started. For the Liquidity Section, some companies have also added the following items:
Cash Receipts - This gives a feel for the cash that has come in during the period of concern.
Cash Disbursements - This gives a feel for the cash that has gone out during the period of concern.
Taken together, The Cash Receipts and Cash Disbursements give an indication of whether the cash flow for the firm is positive or negative.
Days Sales Outstanding (DSO)
DSO= 365 x Average A/R / Total Credit Sales
This tells you how many days it takes on average to collect on A/P.
Days Payable Outstanding (DPO)
DPO= 365 x Average A/P / Total Annual Purchases
This tells you how many days it takes on average to pay your liabilities
Days Inventory Outstanding (DIO)
DIO= 365 x Average Inventory / Cost of Goods Sold
This tells you how many days it takes on average it takes to turnover your inventory Cash Conversion Cycle (CCC)
CCC= DSO + DIO - DPO
This tells you how many days it takes to convert raw material to cash
Flash Reports:Productivity Section
A major issue that businesses of all sizes face is the inability for the Operations people to connect with the Finance/Accounting people and vice versa. The Productivity Section seeks to address this disconnect by measuring and tracking certain metrics that both Finance/Accounting and Operations can agree upon. By identifying and monitoring these non-accounting metrics, management can now manage the productivity of the company in a more meaningful way.
How do you get these metrics? An important by-product of this process is the communication process that both Finance/Accounting and Operations must have with one another. In essence, coming up with these metrics forces each party to “stand in the other person’s shoes.” In so many ways, this section is the most difficult to create, but it is by far the most powerful section.
For companies that have multiple profit centers, it may be worthwhile to have the key performance metrics grouped by profit centers.
The CFO/Controller sets it up. Then someone in the accounting department inputs the information into the template. The majority of the metrics should be formulas.
Since the goal is to tie operations to financial numbers, it is important to come up with operational metrics that will have significant impact on the financial performance of the company.
Step 1 - It is important for both the operations and financial departments to both grasp the general economics of the firm. Some key questions to ask are: What are the key drivers of the business? What/Where is the process bottleneck? How can we measure the bottleneck? What are the unit economics of the business? What is the breakeven point for the business? Note: Breakeven may be done on a dollar basis or unit volume basis.
Step 2 - Map out the business process. Ask yourself how does each part of your business contribute to the key performance indicators identified in step one?
Step 3 - Come up with business metrics that tie in the unit economics of the firm (Step 1) to the business process (Step 2).
Out of this process you will come up with several key performance metrics that will indicate how the business is doing. These metrics may not relate directly to dollars, but indirectly they will. Two great ways to approach this is to look at process bottlenecks and sales in terms of volume (i.e. # of feet, # of barrels, # of units).
Focus only on the most important metrics. Four to five will do. If you focus on too many, it will be hard to measure and difficult act upon. Here are some examples for various businesses:
Business - Metric Manufacturing - % Utilization of Machine (Bottleneck Machine) Consulting Firm - Average Bill Rate Jet Refueller - Gallons Per Aircraft Fueled
Step 4 - Also find some metrics that tie your business process down to the employee level. Relating this to the employee gives management a way to see how each employee contributes to business performance. Here are some examples for various businesses:
Business - Metric Construction Firm - # of Active Projects per Employee Construction Firm - Construction Cost per Employee Consulting Firm - Hours Billed per Employee
Step 5 - Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in the business process. Flash reporting is an ongoing process until you have identified the key performance drivers for the business.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started.
For the Productivity Section, some companies have also added the following items: Metrics for each Product Line or Business Unit, Separated out FTE employees versus Sales Employees (Example: Sales per Sales Person) and Sales per Full Time Employee.
Flash Reports:Profitability Section¶
This section gives you an estimate of how much money the company has made during the period. It is important to emphasize the word "estimate" for several reasons. First, the Flash Report itself was not meant for complete accuracy. This cannot be overstated. The Flash Report is used best when it is timely and mostly accurate- (80-90%) is good enough. Second, you will notice that profitability was derived from the estimate of the volume throughput for that period. This makes sense as sales and productivity are often a function of volume throughput (i.e. # of barrels, # of gallons, etc.). Another option is to obtain the values for Revenue, Cost of Goods Sold (COGS), Gross Profit, Overhead, and Net Income directly from your accounting system.
The second method is the simplest, but there is a hidden risk that you must account for. Not all the items associated with sales and cost/expenses may have been entered into your accounting system during that time period. Thus, there is a risk that the numbers you use may not even be "mostly accurate". It may or may not be. Thus, backing into your profitability estimate can help remove that risk. Now, you just need to make sure that you have a good grasp of how many units were sold as well as the associated costs.
Note, the metrics in the Productivity Section can be an excellent guide in helping you to start estimating the profitability of the firm.
The CFO/Controller sets it up. Then someone in the accounting department inputs the information into the template. Regular monitoring should be done by the Owner(s)/Management of the firm. Here are some ideas on how to get things started:
Option 1: Obtaining information directly from your accounting system. If you are obtaining revenue and cost information directly from your accounting system, then anyone with the proper authorization can obtain the numbers.
Option 2: Backing into the Profitability Numbers. The CFO/Controller, as well as, the key person(s) in charge of operations. Initially, it may be wise to have both parties involved. Operations will have the feel for units sold. Finance/Accounting may have a better grasp for costs.
Later on, you may decide to create a system where such numbers are automatically reported by someone as part of that person's responsibilities.
For those choosing to obtain numbers directly from the company's accounting system, it will be relatively simple to obtain. Just go to the Income Statement section to retrieve information regarding Revenue, Cost and Expense. However, please understand the risks as described above in the Goals section. You may be taking on some hidden risks by going directly to the Income Statement for the profitability information. Not all the information pertaining to sales and costs/expenses for that period may have been entered.
For those of you electing to indirectly arrive at profitability using sales volume and unit costs and unit price, please refer to the following steps:
Step 1 - Obtain data on the # of units sold, cost per unit, and estimate of monthly expenses. Having a good understanding of the unit economics of the firm will be key to making this step easier. Initially, this may be somewhat challenging to be able to collect. However, over time it will become easier. Here are some helpful tips:
Number of Units Sold: The operations department will need to keep records to in order to record how many units have been sold. There is no short cut here. However, if you can know 80-90% of the # of units sold, then that is enough.
Unit Sales Price: Sales and Accounting will need to keep good records on prices. Please note that sometimes, prices may have changed in the middle of the period.
Unit Sales Cost: Sometimes you can easily determine the cost using vendor invoices. If it becomes difficult, a helpful way is to look at historical P&L Statements. You can estimate the COGS amount for this period by seeing what historically they were as a percentage of revenue. For instance, if COGS was 60% of sales last year, then you can estimate COGS for this year as 60% of current revenue.
Step 2 - Plug in the data for Revenue, COGS, and Overhead Expense. Sum up as per the example in the Basic Format section.
Step 3 - Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in the business process.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started.
For the Profitability Section, some companies have also done the following: Report just the Gross Margin and/or Net Income. You can do this, but this does not excuse you from understanding the underlying unit economics. You still have to do your homework. Include profitability on a per employee basis.
Flash Reports:Monitor & Review
Now that you have assembled all the parts of the Flash Report, it is time to review your results. Again, it deserves mention that the purpose of the Flash Report is to provide management with a timely, "mostly accurate" tool to assess the current state of affairs. Thus, any changes that need to be made can be made quickly. Emergencies can be proactively addressed at the problem stage, rather than reactively in the crisis stage. If you want complete accuracy, wait until the financial statements for the period are complete 2-4 weeks after the month has ended. In the meanwhile, 80-90% accurate is fine for managing a business.
The Owner(s)/Management of the firm should review the results of the Flash Report after it has been completed. If possible, review on a weekly basis in order to expedite the decision making process. This way, the company can react to trends faster.
Any person or parties involved in the active management of the firm should certainly be included in the performance review of the firm. It is especially important that representatives from Operations, Finance, and Accounting be there as well.
In and of themselves, the numbers do not tell you a whole lot. They serve as a point of reference for discussion. It is recommended that you start off with the review of the firm's cash position. The cash position may provide questions as to why cash is short, which in turn will generate questions regarding A/R or sales.
Step 1 - Review the Liquidity Section This section will provide management an idea of whether or not they can pay the bills. Deficiencies will usually spring from a collections issue, sales issue or cost/expense issue. It will be up to management to explore each of these areas to see where potential problems lie.
Step 2 - Review the Productivity Metrics Section Ultimately, if done right, this section gets to the heart of the business process. It is important that the Finance/Accounting people are in accord with Operations people that these metrics are meaningful. If they are not, keep working at them until they are. This may be several iterations later.
Review of this area can tell management in a very simple way, how the business process is doing. These metrics should provide a simple read as to the how the heart of the business is beating. Should there be problems, these metrics should capture them in some way. In turn, revenue should be affected as well. For instance, revenue may be down, because a certain machine was down for repairs. Thus, % utilization could tell you indirectly why revenue was down for the period.
Step 3 - Review the Profitability Section Because the firm's productivity affects its profitability, so too will the results from the Productivity Section be seen in the Profitability Section. It is important for management to confirm this.
Continue to monitor results from period to period. If changes to Productivity Metrics need to be made, please feel free to do so. The key to successful implementation and use of the Flash Report is the commitment to its use and the commitment to communication and discussion.
Some companies may choose to graph the results in addition to having the flash report in a tabular format. A graph may at times be easier to understand than numbers, especially for analyzing trends.
For the purposes of the flash report, it may be useful to include 3 historical periods in addition to the current period. This will aid in the analysis of trends.
http://www.wikicfo.com/Wiki/Default.aspx?Page=How%20to%20Prepare%20a%20Flash%20Report&NS=&AspxAutoDetectCookieSupport=1
The Flash Report or financial dashboard report is defined as a periodic snapshot of key financial and operational data. It's a one-page report that helps management assess the key performance indicators of the company. The flash report should cover the shortest time period that is feasible, usually a weekly basis. The whole process should be based on the KISS principle (Keep It Simple Stupid) and should not take any longer than 30 minutes to prepare and get ready. If it takes any longer than that, then the flash report is too detailed and will be too difficult to maintain!
There are 3 sections to the flash report: Liquidity, Productivity and Profitability.
Flash Reports are a rough measure of change. They are not meant to be 100% accurate. If the data is 80-90% accurate, it will be enough to manage the business. For complete accuracy, the firm can defer to its monthly financial statements, which come out 2-4 weeks after the month closes. For management purposes, it is timeliness and "mostly accurate" is good enough. If one were to wait for complete accuracy, the competitive landscape may have change so completely that the "accurate" financial statements may not be of any use.
Flash reports should be done on a weekly basis. However, some companies elect to do it every two weeks in order to more naturally capture the payroll cycle in terms of monitoring cash flow.
The CFO/Controller should get together with the Owner(s)/Management to arrive at a set of metrics for the Productivity Section. This is the hardest part to arrive at and will require the input of both operations as well as finance/accounting.
After the initial metrics have been determined, the CFO/Controller can have someone in the client's accounting staff to gather the data for the Liquidity, Productivity and Profitability sections.
Each section tells a different story about the firm.
The Liquidity Section tells management about the cash situation of the firm. Is the company generating cash? Does it have enough money to pay the bills?
The Productivity Section gives an indication of the key performance metrics of the business. These metrics are tied to operations and are a way to combine the operations of a company to its financial performance.
The Profitability Section gives a rough indication of how much money the company has made during the period of measure. It is important to emphasize again that complete accuracy is not necessary. Timeliness, however, is. Management can work off of 80-90% accuracy. What they need to focus on is the change in trends over a period of time.
Flash Reports:Liquidity Section
The purpose of the Liquidity Section is to measure the change in working capital of the company. In so doing, the company will have a rough estimate of whether or not they can pay the bills and how much money they will have left over.
Monitoring the company's working capital over time will allow the firm to see: how cash increases/decreases, any effects of seasonality and effects of management decisions. If a company is making a profit then the Working Capital should increase over time!
As part of the overall Flash Report, the Liquidity Section ought to be monitored and reported on a periodic basis. What is that period? It is recommended that the entire Flash Report at a minimum be reviewed on a weekly basis. The more management reviews the information, the faster they can respond to crises.
The frequency of monitoring depends on several factors: Availability and commitment of the management team to review the information, Frequency of certain cash inflows/outflows (i.e. payroll), Ease of access and/or generation of information and Timeliness of data entry of information pertaining to this section (i.e. are all A/R and Inventory entered into the system on a timely basis?).
Someone in accounting, preferably a person who is in charge of bookkeeping.
Information for the Liquidity Section can be found in the Balance Sheet section of the company's financial statements (so long as it is updated). If the firm uses a software program (i.e. PeachTree, QuickBooks, Great Plains, etc) to manage its books, then the information can be easily retrieved.
NOTE: Make sure that the ending period on the Balance Sheet matches that of the Flash Report. Both are snapshots of the company in time. Make sure we are talking about the same time period!!!
Cash: Look in the check register to see how much cash is there. Do not use the bank balance because there may still be outstanding checks. Be leery of using the cash position off of the balance sheet. The information is good only if it is updated. This may not always be the case. This is why the check register is bes
Accounts Receivable: Look at the Accounts Receivable detail report for total accounts receivable. Deduct any bad debts reserved.
Inventory: Look at the inventory detail report for total inventory on hand.
Accounts Payable: Look at the Accounts Payable detail report for total accounts payable.
Working Capital: Sum up the values for Cash, Accounts Receivable, and Inventory. Subtract the value of Accounts Payable. This will give you the value for working capital.
Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in your company's process.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started. For the Liquidity Section, some companies have also added the following items:
Cash Receipts - This gives a feel for the cash that has come in during the period of concern.
Cash Disbursements - This gives a feel for the cash that has gone out during the period of concern.
Taken together, The Cash Receipts and Cash Disbursements give an indication of whether the cash flow for the firm is positive or negative.
Days Sales Outstanding (DSO)
DSO= 365 x Average A/R / Total Credit Sales
This tells you how many days it takes on average to collect on A/P.
Days Payable Outstanding (DPO)
DPO= 365 x Average A/P / Total Annual Purchases
This tells you how many days it takes on average to pay your liabilities
Days Inventory Outstanding (DIO)
DIO= 365 x Average Inventory / Cost of Goods Sold
This tells you how many days it takes on average it takes to turnover your inventory Cash Conversion Cycle (CCC)
CCC= DSO + DIO - DPO
This tells you how many days it takes to convert raw material to cash
Flash Reports:Productivity Section
A major issue that businesses of all sizes face is the inability for the Operations people to connect with the Finance/Accounting people and vice versa. The Productivity Section seeks to address this disconnect by measuring and tracking certain metrics that both Finance/Accounting and Operations can agree upon. By identifying and monitoring these non-accounting metrics, management can now manage the productivity of the company in a more meaningful way.
How do you get these metrics? An important by-product of this process is the communication process that both Finance/Accounting and Operations must have with one another. In essence, coming up with these metrics forces each party to “stand in the other person’s shoes.” In so many ways, this section is the most difficult to create, but it is by far the most powerful section.
For companies that have multiple profit centers, it may be worthwhile to have the key performance metrics grouped by profit centers.
The CFO/Controller sets it up. Then someone in the accounting department inputs the information into the template. The majority of the metrics should be formulas.
Since the goal is to tie operations to financial numbers, it is important to come up with operational metrics that will have significant impact on the financial performance of the company.
Step 1 - It is important for both the operations and financial departments to both grasp the general economics of the firm. Some key questions to ask are: What are the key drivers of the business? What/Where is the process bottleneck? How can we measure the bottleneck? What are the unit economics of the business? What is the breakeven point for the business? Note: Breakeven may be done on a dollar basis or unit volume basis.
Step 2 - Map out the business process. Ask yourself how does each part of your business contribute to the key performance indicators identified in step one?
Step 3 - Come up with business metrics that tie in the unit economics of the firm (Step 1) to the business process (Step 2).
Out of this process you will come up with several key performance metrics that will indicate how the business is doing. These metrics may not relate directly to dollars, but indirectly they will. Two great ways to approach this is to look at process bottlenecks and sales in terms of volume (i.e. # of feet, # of barrels, # of units).
Focus only on the most important metrics. Four to five will do. If you focus on too many, it will be hard to measure and difficult act upon. Here are some examples for various businesses:
Business - Metric Manufacturing - % Utilization of Machine (Bottleneck Machine) Consulting Firm - Average Bill Rate Jet Refueller - Gallons Per Aircraft Fueled
Step 4 - Also find some metrics that tie your business process down to the employee level. Relating this to the employee gives management a way to see how each employee contributes to business performance. Here are some examples for various businesses:
Business - Metric Construction Firm - # of Active Projects per Employee Construction Firm - Construction Cost per Employee Consulting Firm - Hours Billed per Employee
Step 5 - Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in the business process. Flash reporting is an ongoing process until you have identified the key performance drivers for the business.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started.
For the Productivity Section, some companies have also added the following items: Metrics for each Product Line or Business Unit, Separated out FTE employees versus Sales Employees (Example: Sales per Sales Person) and Sales per Full Time Employee.
Flash Reports:Profitability Section¶
This section gives you an estimate of how much money the company has made during the period. It is important to emphasize the word "estimate" for several reasons. First, the Flash Report itself was not meant for complete accuracy. This cannot be overstated. The Flash Report is used best when it is timely and mostly accurate- (80-90%) is good enough. Second, you will notice that profitability was derived from the estimate of the volume throughput for that period. This makes sense as sales and productivity are often a function of volume throughput (i.e. # of barrels, # of gallons, etc.). Another option is to obtain the values for Revenue, Cost of Goods Sold (COGS), Gross Profit, Overhead, and Net Income directly from your accounting system.
The second method is the simplest, but there is a hidden risk that you must account for. Not all the items associated with sales and cost/expenses may have been entered into your accounting system during that time period. Thus, there is a risk that the numbers you use may not even be "mostly accurate". It may or may not be. Thus, backing into your profitability estimate can help remove that risk. Now, you just need to make sure that you have a good grasp of how many units were sold as well as the associated costs.
Note, the metrics in the Productivity Section can be an excellent guide in helping you to start estimating the profitability of the firm.
The CFO/Controller sets it up. Then someone in the accounting department inputs the information into the template. Regular monitoring should be done by the Owner(s)/Management of the firm. Here are some ideas on how to get things started:
Option 1: Obtaining information directly from your accounting system. If you are obtaining revenue and cost information directly from your accounting system, then anyone with the proper authorization can obtain the numbers.
Option 2: Backing into the Profitability Numbers. The CFO/Controller, as well as, the key person(s) in charge of operations. Initially, it may be wise to have both parties involved. Operations will have the feel for units sold. Finance/Accounting may have a better grasp for costs.
Later on, you may decide to create a system where such numbers are automatically reported by someone as part of that person's responsibilities.
For those choosing to obtain numbers directly from the company's accounting system, it will be relatively simple to obtain. Just go to the Income Statement section to retrieve information regarding Revenue, Cost and Expense. However, please understand the risks as described above in the Goals section. You may be taking on some hidden risks by going directly to the Income Statement for the profitability information. Not all the information pertaining to sales and costs/expenses for that period may have been entered.
For those of you electing to indirectly arrive at profitability using sales volume and unit costs and unit price, please refer to the following steps:
Step 1 - Obtain data on the # of units sold, cost per unit, and estimate of monthly expenses. Having a good understanding of the unit economics of the firm will be key to making this step easier. Initially, this may be somewhat challenging to be able to collect. However, over time it will become easier. Here are some helpful tips:
Number of Units Sold: The operations department will need to keep records to in order to record how many units have been sold. There is no short cut here. However, if you can know 80-90% of the # of units sold, then that is enough.
Unit Sales Price: Sales and Accounting will need to keep good records on prices. Please note that sometimes, prices may have changed in the middle of the period.
Unit Sales Cost: Sometimes you can easily determine the cost using vendor invoices. If it becomes difficult, a helpful way is to look at historical P&L Statements. You can estimate the COGS amount for this period by seeing what historically they were as a percentage of revenue. For instance, if COGS was 60% of sales last year, then you can estimate COGS for this year as 60% of current revenue.
Step 2 - Plug in the data for Revenue, COGS, and Overhead Expense. Sum up as per the example in the Basic Format section.
Step 3 - Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in the business process.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started.
For the Profitability Section, some companies have also done the following: Report just the Gross Margin and/or Net Income. You can do this, but this does not excuse you from understanding the underlying unit economics. You still have to do your homework. Include profitability on a per employee basis.
Flash Reports:Monitor & Review
Now that you have assembled all the parts of the Flash Report, it is time to review your results. Again, it deserves mention that the purpose of the Flash Report is to provide management with a timely, "mostly accurate" tool to assess the current state of affairs. Thus, any changes that need to be made can be made quickly. Emergencies can be proactively addressed at the problem stage, rather than reactively in the crisis stage. If you want complete accuracy, wait until the financial statements for the period are complete 2-4 weeks after the month has ended. In the meanwhile, 80-90% accurate is fine for managing a business.
The Owner(s)/Management of the firm should review the results of the Flash Report after it has been completed. If possible, review on a weekly basis in order to expedite the decision making process. This way, the company can react to trends faster.
Any person or parties involved in the active management of the firm should certainly be included in the performance review of the firm. It is especially important that representatives from Operations, Finance, and Accounting be there as well.
In and of themselves, the numbers do not tell you a whole lot. They serve as a point of reference for discussion. It is recommended that you start off with the review of the firm's cash position. The cash position may provide questions as to why cash is short, which in turn will generate questions regarding A/R or sales.
Step 1 - Review the Liquidity Section This section will provide management an idea of whether or not they can pay the bills. Deficiencies will usually spring from a collections issue, sales issue or cost/expense issue. It will be up to management to explore each of these areas to see where potential problems lie.
Step 2 - Review the Productivity Metrics Section Ultimately, if done right, this section gets to the heart of the business process. It is important that the Finance/Accounting people are in accord with Operations people that these metrics are meaningful. If they are not, keep working at them until they are. This may be several iterations later.
Review of this area can tell management in a very simple way, how the business process is doing. These metrics should provide a simple read as to the how the heart of the business is beating. Should there be problems, these metrics should capture them in some way. In turn, revenue should be affected as well. For instance, revenue may be down, because a certain machine was down for repairs. Thus, % utilization could tell you indirectly why revenue was down for the period.
Step 3 - Review the Profitability Section Because the firm's productivity affects its profitability, so too will the results from the Productivity Section be seen in the Profitability Section. It is important for management to confirm this.
Continue to monitor results from period to period. If changes to Productivity Metrics need to be made, please feel free to do so. The key to successful implementation and use of the Flash Report is the commitment to its use and the commitment to communication and discussion.
Some companies may choose to graph the results in addition to having the flash report in a tabular format. A graph may at times be easier to understand than numbers, especially for analyzing trends.
For the purposes of the flash report, it may be useful to include 3 historical periods in addition to the current period. This will aid in the analysis of trends.
http://www.wikicfo.com/Wiki/Default.aspx?Page=How%20to%20Prepare%20a%20Flash%20Report&NS=&AspxAutoDetectCookieSupport=1
10 efficient ways to produce useful metrics
Takeaway: Accurate metrics are essential for assessing performance and making informed decisions, but companies often rely on flawed information that paints a misleading picture. Alan Norton explains the most efficient strategies for obtaining valid, useful metrics.
The one constant in my career has been the collection and distribution of company information. I didn’t know the cost of the metrics I was producing. Those costs were never measured. But I did know my labor costs and the costs of the supplies I was purchasing. Multiply that by each department in the company where I worked and I knew that the numbers had to be getting real big, real fast. I also knew that there were opportunities there for big cost savings.
It is not difficult to make a case for more efficient metrics. Significant cost savings can be realized by reviewing and improving how and what metrics your company produces. Metrics are expensive. Add up the true total costs and they can be quite considerable:
•Printers
•Paper
•Printing supplies
•Labor
•Development
•Production
•Distribution
•Maintenance
And the costs don’t end at document creation. Metrics are shared multiple times, either electronically or physically. The security of company sensitive metrics is an additional responsibility and cost. The metrics must be managed, stored, and retrieved –all activities more costly than you might guess.
I won’t try to argue that metrics are in any way fun to discuss. However, their importance to the health of a company is undeniable. Get the metrics wrong and a company’s full potential will not be realized. I have seen enough to know that the metrics used by companies both large and small can be improved. Here are 10 ways to do just that.
Note: This article is also available as a PDF download.
1: Measure performance at aggregate levels and exceptions at lower levels
I have produced a lot of charts in my time. In retrospect, I realize that I produced too many charts. Many of those charts provided no value at all — they showed performance on schedule or close to on schedule for a number of subassemblies. Printing these charts might have given managers a reassuring sign that all was well, but little else. The better approach is to use exception reporting and set upper and lower limits. Sure, go ahead and measure performance at higher levels. But report only exceptional performance, good or bad, at the more granular levels.
2: Eliminate metrics with little or no value
Know the cost of each metric. Are all your metrics worth reporting? A cost benefit analysis can help identify reports that are costing more than they are worth. A best guess estimate of potential savings must be included in the analysis, so it is not as simple a process as it might first appear.
It can be difficult to discard those old, comfortable shoes when you’re rummaging through your closet. But if they’re no longer useful, they should go. The same applies to those charts and reports that managers have become comfortable seeing. Nevertheless, if they are of little or no value, they should go.
3: Avoid tying incentives to lower level metrics
Meeting goals at the department level can be detrimental to the company’s overall performance. For example, a help desk manager might be paid a bonus for increasing completed tickets at tier one. But this is counterproductive if the overall costs rise due to the increased workload at tier two and lower. Bonuses and other incentives should be tied to the corporate bottom line and not departmental performance.
4: Avoid metrics that are inaccurate, misleading, or ambiguous
Producing metrics that are inaccurate or ambiguous can be costly to correct if they lead to bad decision making. There are a number of reasons why metrics can be inaccurate, misleading, or ambiguous:
•Invalid assumptions
•Errors in data collection
•Incomplete data
•Outdated data
•Questionable/unverified data
•Difficult to measure data
•Subjective (not objective) data
•Complex and multifaceted data
Some metrics are difficult if not impossible to measure. Managers are nevertheless tasked with boiling down metrics like software development into one or two charts. Similarly, other metrics, like employee happiness, just don’t translate well into numbers and should be avoided. I’m not suggesting that measuring this type of information should be avoided altogether, just not presented as numbers in chart format.
5: Avoid skewing the data
One simple example of data skewing is reporting costs over a long period of time. 2010 dollars are not the same as 2005 dollars. If you are not compensating for inflation, you are delivering misleading information. Obtaining too small a sample or a non-random sample are other common ways that data can be skewed.
6: Standardize and consolidate
Reduce the amount of information generated by eliminating redundancies and standardizing where possible. Financial reports, like manpower metrics, can usually be centralized and standardized for all departments. There are those unique metrics that can’t be standardized for all departments, but many of these can be standardized across divisions.
7: Use unbiased personnel or outsource connect
Being a reporting guy my entire career, it isn’t surprising that I ran across a manager or two who wanted to game the system. There are countless ways to lie with numbers or, at a minimum, hide poor performance by the appropriate (or should I say inappropriate) manipulation of the data. One example I saw was to use fiscal YTD values instead of a 12-month moving window. The obvious problem with this is that when a new fiscal YTD starts you have no previous data points to show a trend. And that is exactly the goal. It’s a great way to hide bad numbers. I reported directly to the manager asking for the fiscal YTD format, so I was in no position to question his motives. The inherent problem created with this type of working relationship is another reason why metrics production should be centralized and reported directly to upper management or outsourced.
8: Automate whenever possible
Gathering data by hand and entering numbers into a charting program is a labor intensive and costly endeavor. Since charts are often generated weekly or even daily, one or more people can spend most of their time preparing the charts. If the data is available online, the charts should be automated. If the data is not available online and must be collected by hand, consider developing systems that can collect the data at a reasonable cost.
9: Consider going paperless
If your company hasn’t already done so, going paperless can save a lot of money. However, paper should still be an option and care should be taken before converting a report to online only. If it takes more time to look up a metric online, the additional labor costs can far outweigh the savings.
10: Be careful what you measure
All too often, overly simplistic metrics focus on only part of the whole picture. A metric like “IT spending as a percentage of revenue” treats IT services as a cost. But such incomplete information can lead to poor decision making. The challenge for IT managers is to develop metrics that show the value added by IT and get them under the CEO’s nose.
The very act of measurement determines where managers will place time and resources — often at the expense of other unmeasured metrics or other departments’ metrics. Measure too little and important performance metrics can be missed. Measure too much and the focus can be lost from the mission-critical metrics. The costs of measuring the metrics can then quickly exceed the benefits. The metrics package should be carefully selected to balance these tradeoffs.
The bottom line
Metrics are like laws. They are born but never seem to die. An annual review of the company’s metrics package provides a good opportunity to add new metrics, update out-of-date metrics, and discontinue those metrics that are no longer needed. Select your metrics package carefully. What you measure is what you get.
For further information, check out the whitepaper Efficient Metrics: Be Careful What You Measure.
http://www.techrepublic.com/blog/10things/10-efficient-ways-to-produce-useful-metrics
The one constant in my career has been the collection and distribution of company information. I didn’t know the cost of the metrics I was producing. Those costs were never measured. But I did know my labor costs and the costs of the supplies I was purchasing. Multiply that by each department in the company where I worked and I knew that the numbers had to be getting real big, real fast. I also knew that there were opportunities there for big cost savings.
It is not difficult to make a case for more efficient metrics. Significant cost savings can be realized by reviewing and improving how and what metrics your company produces. Metrics are expensive. Add up the true total costs and they can be quite considerable:
•Printers
•Paper
•Printing supplies
•Labor
•Development
•Production
•Distribution
•Maintenance
And the costs don’t end at document creation. Metrics are shared multiple times, either electronically or physically. The security of company sensitive metrics is an additional responsibility and cost. The metrics must be managed, stored, and retrieved –all activities more costly than you might guess.
I won’t try to argue that metrics are in any way fun to discuss. However, their importance to the health of a company is undeniable. Get the metrics wrong and a company’s full potential will not be realized. I have seen enough to know that the metrics used by companies both large and small can be improved. Here are 10 ways to do just that.
Note: This article is also available as a PDF download.
1: Measure performance at aggregate levels and exceptions at lower levels
I have produced a lot of charts in my time. In retrospect, I realize that I produced too many charts. Many of those charts provided no value at all — they showed performance on schedule or close to on schedule for a number of subassemblies. Printing these charts might have given managers a reassuring sign that all was well, but little else. The better approach is to use exception reporting and set upper and lower limits. Sure, go ahead and measure performance at higher levels. But report only exceptional performance, good or bad, at the more granular levels.
2: Eliminate metrics with little or no value
Know the cost of each metric. Are all your metrics worth reporting? A cost benefit analysis can help identify reports that are costing more than they are worth. A best guess estimate of potential savings must be included in the analysis, so it is not as simple a process as it might first appear.
It can be difficult to discard those old, comfortable shoes when you’re rummaging through your closet. But if they’re no longer useful, they should go. The same applies to those charts and reports that managers have become comfortable seeing. Nevertheless, if they are of little or no value, they should go.
3: Avoid tying incentives to lower level metrics
Meeting goals at the department level can be detrimental to the company’s overall performance. For example, a help desk manager might be paid a bonus for increasing completed tickets at tier one. But this is counterproductive if the overall costs rise due to the increased workload at tier two and lower. Bonuses and other incentives should be tied to the corporate bottom line and not departmental performance.
4: Avoid metrics that are inaccurate, misleading, or ambiguous
Producing metrics that are inaccurate or ambiguous can be costly to correct if they lead to bad decision making. There are a number of reasons why metrics can be inaccurate, misleading, or ambiguous:
•Invalid assumptions
•Errors in data collection
•Incomplete data
•Outdated data
•Questionable/unverified data
•Difficult to measure data
•Subjective (not objective) data
•Complex and multifaceted data
Some metrics are difficult if not impossible to measure. Managers are nevertheless tasked with boiling down metrics like software development into one or two charts. Similarly, other metrics, like employee happiness, just don’t translate well into numbers and should be avoided. I’m not suggesting that measuring this type of information should be avoided altogether, just not presented as numbers in chart format.
5: Avoid skewing the data
One simple example of data skewing is reporting costs over a long period of time. 2010 dollars are not the same as 2005 dollars. If you are not compensating for inflation, you are delivering misleading information. Obtaining too small a sample or a non-random sample are other common ways that data can be skewed.
6: Standardize and consolidate
Reduce the amount of information generated by eliminating redundancies and standardizing where possible. Financial reports, like manpower metrics, can usually be centralized and standardized for all departments. There are those unique metrics that can’t be standardized for all departments, but many of these can be standardized across divisions.
7: Use unbiased personnel or outsource connect
Being a reporting guy my entire career, it isn’t surprising that I ran across a manager or two who wanted to game the system. There are countless ways to lie with numbers or, at a minimum, hide poor performance by the appropriate (or should I say inappropriate) manipulation of the data. One example I saw was to use fiscal YTD values instead of a 12-month moving window. The obvious problem with this is that when a new fiscal YTD starts you have no previous data points to show a trend. And that is exactly the goal. It’s a great way to hide bad numbers. I reported directly to the manager asking for the fiscal YTD format, so I was in no position to question his motives. The inherent problem created with this type of working relationship is another reason why metrics production should be centralized and reported directly to upper management or outsourced.
8: Automate whenever possible
Gathering data by hand and entering numbers into a charting program is a labor intensive and costly endeavor. Since charts are often generated weekly or even daily, one or more people can spend most of their time preparing the charts. If the data is available online, the charts should be automated. If the data is not available online and must be collected by hand, consider developing systems that can collect the data at a reasonable cost.
9: Consider going paperless
If your company hasn’t already done so, going paperless can save a lot of money. However, paper should still be an option and care should be taken before converting a report to online only. If it takes more time to look up a metric online, the additional labor costs can far outweigh the savings.
10: Be careful what you measure
All too often, overly simplistic metrics focus on only part of the whole picture. A metric like “IT spending as a percentage of revenue” treats IT services as a cost. But such incomplete information can lead to poor decision making. The challenge for IT managers is to develop metrics that show the value added by IT and get them under the CEO’s nose.
The very act of measurement determines where managers will place time and resources — often at the expense of other unmeasured metrics or other departments’ metrics. Measure too little and important performance metrics can be missed. Measure too much and the focus can be lost from the mission-critical metrics. The costs of measuring the metrics can then quickly exceed the benefits. The metrics package should be carefully selected to balance these tradeoffs.
The bottom line
Metrics are like laws. They are born but never seem to die. An annual review of the company’s metrics package provides a good opportunity to add new metrics, update out-of-date metrics, and discontinue those metrics that are no longer needed. Select your metrics package carefully. What you measure is what you get.
For further information, check out the whitepaper Efficient Metrics: Be Careful What You Measure.
http://www.techrepublic.com/blog/10things/10-efficient-ways-to-produce-useful-metrics
3/24/11
10 Quick Pickups for Your Personal Finances
You don't have to be an expert to manage your money and prepare for life's unexpected twists and turns.
If you're like most people, your New Years Resolutions have already expired. You haven't lost 10 pounds, you're not going to the gym five days a week, and when was the last time you called your mother?
Chances are, your financial goals have fallen by the wayside too. I don't want to discourage you from paying down debt, saving a down payment for a house, or any of those big goals that you may have set for yourself at the beginning of the year. But if you sort of tuckered out on the big things (or even if you're still going strong -- go you!), maybe it's time to set some more achievable goals. Here are 10 things you can do in an hour or less apiece to make yourself -- or your household -- more financially sound.
1. Join Mint
I'm an unabashed fan of the site, and not just because they do some great data-mining on their blog. (Don't worry, all at the very aggregate level). It will track and aggregate your spending for you, showing you where the money is going, and what's happening to your net worth over time. If you have sort of complicated finances -- as I do, living in a two-journalist household -- then it's an absolute godsend at tax and expense time. And in the last year they've added goals, allowing you to set your spending, saving, and debt-reduction goals and then track how you're doing with a thermometer. It's surprisingly motivating, and it's free.
I probably spend 20 minutes a week in Mint, categorizing our expenses and monitoring our financial position. But even if you don't put in that kind of time (and most of you don't have to keep track of which meals are tax-deductible), it's still incredibly helpful at tracking the broad outlines of your spending.
2. Get Your Papers Together
If you die, someone is going to have to clean up the financial aftermath. Make it easy on them by putting everything in one place where they can find it. Dave Ramsey calls this a "Legacy Drawer," and suggests putting in a cover letter and letters to your loved ones as well as the financial papers. But we're trying to keep this under an hour, so the notes are optional. Here's what it should contain:
• Insurance papers.
• Loan documents.
• A list of every financial account: loans, bank accounts, investment accounts, 401(k)s, whatever. Security experts will kill me for saying this, but I'd say this list should have the account numbers, the PINs, and the passwords.
• Deeds and titles to any property you own (cars, land, etc).
• Birth certificate and social security card, if you have them.
• Information about your will/estate plans: who has them, who the executor is.
• Funeral instructions (if any; mine are "cheapest coffin you can find").
• Tax returns.
• A list of your major recurring expenses (so people know which bills to pay).
Start by putting this in a drawer; eventually, you should move this to a safe-deposit box, and tell whoever's likely to be taking care of your final details where to find the key. This should only take you an hour -- if it takes you longer than that, well, you really needed to get these documents while you could find them anyway.
3. Buy Life Insurance
If you're single, you don't need this unless you have a kid or someone else depending on you -- your job usually offers you enough to bury you. If you're married, I think you do need a little, even if you don't have kids. Married life is usually built on the expectation of two incomes: a mortgage (or lease), the cars, all sorts of other recurring expenses. At a minimum, make sure your partner will have enough to bury you and pay off any outstanding debt -- including not only mortgages and cars, but credit cards and student loans in their name alone, if you own property. You don't want to have to hassle with someone coming after their half of the house or car to pay off their unsecured debt. Obviously, if your partner is at home, or makes very little money, you're also going to want to replace some of your income.
You do not want "whole life" insurance, "return of premium" or any other product that promises you to give you some or all of your money back -- all this is is a savings vehicle with bad rates of return, bundled with expensive term life insurance. Buy a simple term life policy for 20 or 30 years -- long enough for you to accumulate enough assets to take care of your partner if you die. You can compare rates online or mosey down to your local insurance office, but either way, this shouldn't take you too long provided that you resist the blandishments of insurance agents who will attempt to upsell you "features" you don't need. Stand firm, buy term.
4. Cancel Stupid Recurring Expenses
Remember when you thought you'd try Stamps.com? How about that credit monitoring service you signed up for eighteen months ago? The dual subscriptions to Netflix left over from before you moved in together? For many of you, I am sad to say, your gym membership also falls into this category.
Whatever it is, if you haven't used it in three months, cancel it. Cancel it whether or not you think you should be using it. You can always rejoin the gym after you've developed a burning desire to actually go. With the hundreds of dollars you will save between now and then, you will easily be able to afford any re-initiation fees.
5. Ramp Up for Retirement
Unless you are already at the legal maximum, increase your 401(k) contribution by 1% of your income. Unless you are already pinching pennies so hard that Abraham Lincoln is actually screaming in pain, you can afford to put an extra 1% of your pre-tax income into your 401(k). Then every time you get a raise, you increase your contribution by another 1% until you hit the legal limit ($16,500) or 15-20% of your income. Almost painless, and you'll feel a lot safer in retirement. (Of course, if you want to save faster, you can -- try 2% or 3%).
6. Start Saving
If you don't have an emergency fund, you need one. Here's how to do it so that you almost won't notice: set up an automatic transfer into your savings account from every paycheck. Figure out how much can you afford, but even if it's only $25, transfer it from every paycheck, and resolve not to touch that money unless it's an actual emergency. (Emergency: my car won't start. Not an emergency: I really need a break, so I'm going to the beach for a week.)
The ideal way to handle this is to have a separate account that isn't linked to your other bank accounts, and to have the transfer done as part of your auto-deposit. That way, you never see the money -- and I think you'll be surprised to find that you don't much miss it. But if you don't want to go to the trouble, you can do this with your regular savings account, as long as you're resolved not to touch the money in that account for anything but an emergency: just use online banking to do a recurring transfer on the same day as your paycheck hits the account.
Over time, increase the amount that you're saving. Eventually you'll have a tidy nest egg, and because the money was never in your checking account, you won't have been tempted to spend it on incidentals.
7. Re-balance Your Portfolio
If you already have substantial assets, it's time to make sure they're correctly structured for your priorities. Are your mutual funds allocated the way that you want them, or over time, has one grown faster than the others, leaving your portfolio lopsided (many companies now automatically re-balance, but you should check.) You should also be thinking about your portfolio's life-cycle. If you're in your fifties, you should already be transitioning some of your money to bonds.
I know what you're going to say: you'll never be able to retire at those kinds of returns. My response is a piece of wisdom that I picked up from my driving instructor: "If you left late, you're going to get there late." Trying to flout that simple equation only gets you in trouble. Just as it's a bad idea to race through red lights in the hopes of making up the lost time, it's a bad idea to leave your assets in 100% equity because you're hoping that higher returns will still let you retire in comfort at 65. Risking destitution now is just compounding your earlier planning errors.
8. Make a Will
If your finances are pretty simple, you can do this in half an hour with something like Quicken Willmaker, which took Lifehacker half an hour. LegalZoom will also do it for you for a pretty modest fee. If your finances are complicated -- well, OK, this won't take under an hour, and you need a lawyer. But if your finances are complicated, you really need a will. If it freaks you out too much to meditate upon your own death, pretend that you are preparing this will so you can drop out of sight and assume your new identity as Agent 007 of Her Majesty's Secret Service.
9. Fix Your Withholding
Are you looking forward to a nice big refund from the IRS this year? Don't look so happy -- that refund means that you made the government an interest-free loan for most of the year. And if you're like many freelancers, and you owe the government a hefty chunk, then you may be liable for interest and penalties.
The easy way to fix either problem is to adjust your withholding. HR can help you do this. If you're getting a big refund every year, raise your exemptions; if you're having to pay, lower them. (If they're already as low as they can get, look at what you owe this year, adjust for what you'll owe next year ... and start making estimated payments every quarter.)
10. Shop for Better Deals
Can you get a better interest rate on your credit cards? How about your bank accounts? You don't have to follow through, if you decide it's not worth it. But it's worth taking 15 minutes on the web to find out. Also worth doing: threaten to cancel your cable. You don't have to actually do it -- though with Netflix and Hulu and Amazon Prime's new subscription service, it's possibly worth it. But if you call to cancel, they'll usually offer you a better deal.
http://financiallyfit.yahoo.com/finance/article-112368-8971-3-10-quick-pickups-for-your-personal-finances
If you're like most people, your New Years Resolutions have already expired. You haven't lost 10 pounds, you're not going to the gym five days a week, and when was the last time you called your mother?
Chances are, your financial goals have fallen by the wayside too. I don't want to discourage you from paying down debt, saving a down payment for a house, or any of those big goals that you may have set for yourself at the beginning of the year. But if you sort of tuckered out on the big things (or even if you're still going strong -- go you!), maybe it's time to set some more achievable goals. Here are 10 things you can do in an hour or less apiece to make yourself -- or your household -- more financially sound.
1. Join Mint
I'm an unabashed fan of the site, and not just because they do some great data-mining on their blog. (Don't worry, all at the very aggregate level). It will track and aggregate your spending for you, showing you where the money is going, and what's happening to your net worth over time. If you have sort of complicated finances -- as I do, living in a two-journalist household -- then it's an absolute godsend at tax and expense time. And in the last year they've added goals, allowing you to set your spending, saving, and debt-reduction goals and then track how you're doing with a thermometer. It's surprisingly motivating, and it's free.
I probably spend 20 minutes a week in Mint, categorizing our expenses and monitoring our financial position. But even if you don't put in that kind of time (and most of you don't have to keep track of which meals are tax-deductible), it's still incredibly helpful at tracking the broad outlines of your spending.
2. Get Your Papers Together
If you die, someone is going to have to clean up the financial aftermath. Make it easy on them by putting everything in one place where they can find it. Dave Ramsey calls this a "Legacy Drawer," and suggests putting in a cover letter and letters to your loved ones as well as the financial papers. But we're trying to keep this under an hour, so the notes are optional. Here's what it should contain:
• Insurance papers.
• Loan documents.
• A list of every financial account: loans, bank accounts, investment accounts, 401(k)s, whatever. Security experts will kill me for saying this, but I'd say this list should have the account numbers, the PINs, and the passwords.
• Deeds and titles to any property you own (cars, land, etc).
• Birth certificate and social security card, if you have them.
• Information about your will/estate plans: who has them, who the executor is.
• Funeral instructions (if any; mine are "cheapest coffin you can find").
• Tax returns.
• A list of your major recurring expenses (so people know which bills to pay).
Start by putting this in a drawer; eventually, you should move this to a safe-deposit box, and tell whoever's likely to be taking care of your final details where to find the key. This should only take you an hour -- if it takes you longer than that, well, you really needed to get these documents while you could find them anyway.
3. Buy Life Insurance
If you're single, you don't need this unless you have a kid or someone else depending on you -- your job usually offers you enough to bury you. If you're married, I think you do need a little, even if you don't have kids. Married life is usually built on the expectation of two incomes: a mortgage (or lease), the cars, all sorts of other recurring expenses. At a minimum, make sure your partner will have enough to bury you and pay off any outstanding debt -- including not only mortgages and cars, but credit cards and student loans in their name alone, if you own property. You don't want to have to hassle with someone coming after their half of the house or car to pay off their unsecured debt. Obviously, if your partner is at home, or makes very little money, you're also going to want to replace some of your income.
You do not want "whole life" insurance, "return of premium" or any other product that promises you to give you some or all of your money back -- all this is is a savings vehicle with bad rates of return, bundled with expensive term life insurance. Buy a simple term life policy for 20 or 30 years -- long enough for you to accumulate enough assets to take care of your partner if you die. You can compare rates online or mosey down to your local insurance office, but either way, this shouldn't take you too long provided that you resist the blandishments of insurance agents who will attempt to upsell you "features" you don't need. Stand firm, buy term.
4. Cancel Stupid Recurring Expenses
Remember when you thought you'd try Stamps.com? How about that credit monitoring service you signed up for eighteen months ago? The dual subscriptions to Netflix left over from before you moved in together? For many of you, I am sad to say, your gym membership also falls into this category.
Whatever it is, if you haven't used it in three months, cancel it. Cancel it whether or not you think you should be using it. You can always rejoin the gym after you've developed a burning desire to actually go. With the hundreds of dollars you will save between now and then, you will easily be able to afford any re-initiation fees.
5. Ramp Up for Retirement
Unless you are already at the legal maximum, increase your 401(k) contribution by 1% of your income. Unless you are already pinching pennies so hard that Abraham Lincoln is actually screaming in pain, you can afford to put an extra 1% of your pre-tax income into your 401(k). Then every time you get a raise, you increase your contribution by another 1% until you hit the legal limit ($16,500) or 15-20% of your income. Almost painless, and you'll feel a lot safer in retirement. (Of course, if you want to save faster, you can -- try 2% or 3%).
6. Start Saving
If you don't have an emergency fund, you need one. Here's how to do it so that you almost won't notice: set up an automatic transfer into your savings account from every paycheck. Figure out how much can you afford, but even if it's only $25, transfer it from every paycheck, and resolve not to touch that money unless it's an actual emergency. (Emergency: my car won't start. Not an emergency: I really need a break, so I'm going to the beach for a week.)
The ideal way to handle this is to have a separate account that isn't linked to your other bank accounts, and to have the transfer done as part of your auto-deposit. That way, you never see the money -- and I think you'll be surprised to find that you don't much miss it. But if you don't want to go to the trouble, you can do this with your regular savings account, as long as you're resolved not to touch the money in that account for anything but an emergency: just use online banking to do a recurring transfer on the same day as your paycheck hits the account.
Over time, increase the amount that you're saving. Eventually you'll have a tidy nest egg, and because the money was never in your checking account, you won't have been tempted to spend it on incidentals.
7. Re-balance Your Portfolio
If you already have substantial assets, it's time to make sure they're correctly structured for your priorities. Are your mutual funds allocated the way that you want them, or over time, has one grown faster than the others, leaving your portfolio lopsided (many companies now automatically re-balance, but you should check.) You should also be thinking about your portfolio's life-cycle. If you're in your fifties, you should already be transitioning some of your money to bonds.
I know what you're going to say: you'll never be able to retire at those kinds of returns. My response is a piece of wisdom that I picked up from my driving instructor: "If you left late, you're going to get there late." Trying to flout that simple equation only gets you in trouble. Just as it's a bad idea to race through red lights in the hopes of making up the lost time, it's a bad idea to leave your assets in 100% equity because you're hoping that higher returns will still let you retire in comfort at 65. Risking destitution now is just compounding your earlier planning errors.
8. Make a Will
If your finances are pretty simple, you can do this in half an hour with something like Quicken Willmaker, which took Lifehacker half an hour. LegalZoom will also do it for you for a pretty modest fee. If your finances are complicated -- well, OK, this won't take under an hour, and you need a lawyer. But if your finances are complicated, you really need a will. If it freaks you out too much to meditate upon your own death, pretend that you are preparing this will so you can drop out of sight and assume your new identity as Agent 007 of Her Majesty's Secret Service.
9. Fix Your Withholding
Are you looking forward to a nice big refund from the IRS this year? Don't look so happy -- that refund means that you made the government an interest-free loan for most of the year. And if you're like many freelancers, and you owe the government a hefty chunk, then you may be liable for interest and penalties.
The easy way to fix either problem is to adjust your withholding. HR can help you do this. If you're getting a big refund every year, raise your exemptions; if you're having to pay, lower them. (If they're already as low as they can get, look at what you owe this year, adjust for what you'll owe next year ... and start making estimated payments every quarter.)
10. Shop for Better Deals
Can you get a better interest rate on your credit cards? How about your bank accounts? You don't have to follow through, if you decide it's not worth it. But it's worth taking 15 minutes on the web to find out. Also worth doing: threaten to cancel your cable. You don't have to actually do it -- though with Netflix and Hulu and Amazon Prime's new subscription service, it's possibly worth it. But if you call to cancel, they'll usually offer you a better deal.
http://financiallyfit.yahoo.com/finance/article-112368-8971-3-10-quick-pickups-for-your-personal-finances
3/22/11
Skimp or Splurge - Millionaire’s Car
We live in a very nice neighborhood where the houses and yards are well-tended, and new, shiny luxury cars are parked in most of the garages. I’m proud to say that in our garage are two of the least impressive cars in the neighborhood - an eight year old Pontiac and 11 year old Ford. Why do we skimp? Because doing so pays handsomely, and by handsomely I mean to the tune of $1.9 million dollars. Here’s my cost-benefit analysis.
Costs of the new car
I compared the costs of two imaginary families. The image conscious Jones family must drive $60,000 luxury SUVs, and wouldn’t be caught dead in a model that is more than three years old. Across the street, lives the Thriftys, a family with less invested in their image and more invested in their future. They feel no pressure to keep up with the Joneses, or anyone else. They buy $24,000 Fords and keep them for ten years.
Depreciation - Cars depreciate at a greater rate when they are new.
Sales tax - The Joneses pay a much greater tax, every three years, vs. the Thriftys.
Ownership tax - Most states impose a license tax based on the value of the car.
Insurance - More expensive cars cost more to insure.
Gasoline - The SUV gets 13 MPG while the Ford economy car gets 26 MPG.
Maintenance - Everything is covered on the SUV - The Ford has an average cost of $1,000 after the first three years.
Costs of the new car
I compared the costs of two imaginary families. The image conscious Jones family must drive $60,000 luxury SUVs, and wouldn’t be caught dead in a model that is more than three years old. Across the street, lives the Thriftys, a family with less invested in their image and more invested in their future. They feel no pressure to keep up with the Joneses, or anyone else. They buy $24,000 Fords and keep them for ten years.
Depreciation - Cars depreciate at a greater rate when they are new.
Sales tax - The Joneses pay a much greater tax, every three years, vs. the Thriftys.
Ownership tax - Most states impose a license tax based on the value of the car.
Insurance - More expensive cars cost more to insure.
Gasoline - The SUV gets 13 MPG while the Ford economy car gets 26 MPG.
Maintenance - Everything is covered on the SUV - The Ford has an average cost of $1,000 after the first three years.
On average, each of the two Lexus SUVs cost $15,060 annually, while the Ford clocks in at $10,000 less. This leaves the Thriftys with $20,000 annually to invest. If the investments return seven percent annually, the Thriftys will have built up a $1.9 million portfolio after 30 years. Of course to get that rate, you’ve got to keep expenses and emotions out of the equation and be a rational investor.
Benefits of the new car
You’ll get no argument from me that the Lexus SUVs are a little slice of automobile heaven. And I admit that I enjoy being a passenger in someone else’s Lexus. Getting a new car, with that new car smell, brings a certain pleasure and psychological well being. But studies show that this happiness is inevitably short-lived, even turning into anger or sadness, as soon as you notice that first ding.
The unsexy, boring truth is that the Ford gets to any destination just as fast as the Lexus. The comfort factor seems to disappear as one gets used to the ride in any car. So, for the most part, splurging on the Lexus gets you only one thing that you don’t get with the Ford - status.
Bottom line
If you have more money than you can ever spend, then have at it with my envious blessings, and get whatever kind of car you’d like. But if you are concerned about your financial well being, skimping on a car is the single most important thing you can do to cut expenditures without giving up a single economic good since you can still go anywhere you’d like. You need only give up the psychological value of status and, if you can reframe your view of psychological value, you may be even better off there too.
My advice is to get off of the hedonic treadmill and break the chains of status-seeking. Before you know it, the Joneses will be trying to keep up with your portfolio.
Top 10 Benefits of a Millionaire’s Car
1.You can actually be a millionaire rather than only looking like one.
2.You won’t have to worry about getting a ding on your car - go ahead and park in that tight space.
3.You know your friends won’t like you only for your car.
4.You won’t be accused of being materialistic.
5.You’ll get from point A to B just as fast as the luxury car.
6.When you drive somewhere with your friends, they will want to take their car.
7.If you get pulled over, the police officer won’t give you attitude because he can’t afford your car! (Okay - I’m reaching here.)
8.When your friends make fun of it, you’ll learn which friends are snobs.
9.You’ll demonstrate your self-image can’t be manipulated by advertising agencies.
10.Did I mention it will make you a millionaire?
http://moneywatch.bnet.com/investing/blog/irrational-investor/skimp-or-splurge-millionaires-car/1705/
3/13/11
How Great Entrepreneurs Think
Think inside the (restless, curious, eager) minds of highly accomplished company builders.
What distinguishes great entrepreneurs? Discussions of entrepreneurial psychology typically focus on creativity, tolerance for risk, and the desire for achievement—enviable traits that, unfortunately, are not very teachable. So Saras Sarasvathy, a professor at the University of Virginia's Darden School of Business, set out to determine how expert entrepreneurs think, with the goal of transferring that knowledge to aspiring founders. While still a graduate student at Carnegie Mellon, Sarasvathy—with the guidance of her thesis supervisor, the Nobel laureate Herbert Simon—embarked on an audacious project: to eavesdrop on the thinking of the country's most successful entrepreneurs as they grappled with business problems. She required that her subjects have at least 15 years of entrepreneurial experience, have started multiple companies—both successes and failures—and have taken at least one company public.
Sarasvathy identified 245 U.S. entrepreneurs who met her criteria, and 45 of them agreed to participate. (Responses from 27 appeared in her conclusions; the rest were reserved for subsequent studies. Thirty more helped shape the questionnaire.) Revenue at the subjects' companies—all run by the founders at that time—ranged from $200 million to $6.5 billion, in industries as diverse as toys and railroads. Sarasvathy met personally with all of her subjects, including such luminaries as Dennis Bakke, founder of energy giant AES; Earl Bakken of Medtronic; and T.J. Rodgers of Cypress Semiconductor. She presented each with a case study about a hypothetical start-up and 10 decisions that the founder of such a company would have to make in building the venture. Then she switched on a tape recorder and let the entrepreneur talk through the problems for two hours. Sarasvathy later collaborated with Stuart Read, of the IMD business school in Switzerland, to conduct the same experiment with professional managers at large corporations—the likes of Nestlé, Philip Morris, and Shell. Sarasvathy and her colleagues are now extending their research to novice entrepreneurs and both novice and experienced professional investors.
Sarasvathy concluded that master entrepreneurs rely on what she calls effectual reasoning. Brilliant improvisers, the entrepreneurs don't start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, corporate executives—those in the study group were also enormously successful in their chosen field—use causal reasoning. They set a goal and diligently seek the best ways to achieve it. Early indications suggest the rookie company founders are spread all across the effectual-to-causal scale. But those who grew up around family businesses will more likely swing effectual, while those with M.B.A.'s display a causal bent. Not surprisingly, angels and seasoned VCs think much more like expert entrepreneurs than do novice investors.
The following is a summary of some of the study's conclusions, illustrated with excerpts from the interviews. Understanding the entrepreneurs' comments requires familiarity with what they were evaluating. The case study and questions are too long to reproduce here. But briefly: Subjects were asked to imagine themselves as the founder of a start-up that had developed a computer game simulating the experience of launching a company. The game and ancillary materials were described as tools for teaching entrepreneurship. Subjects responded to questions about potential customers, competitors, pricing, marketing strategies, growth opportunities, and related issues. (The full case study and questions can be found here.)
Quotes have been edited for length, though we wish we had room to run them in their entirety. Sarasvathy remained almost silent throughout, forcing the founders to answer their own questions and externalize their thinking in the process. The transcripts, riddled with "ums" and "ers," doublings-back on assumptions, and references to personal rules of thumb, read like verbal MRIs of the entrepreneurial brain in action.
Do the doable, then push it
Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible.
That is not to say entrepreneurs don't have goals, only that those goals are broad and—like luggage—may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research. (Inc.'s own research backs this up. One survey of Inc. 500 CEOs found that 60 percent had not written business plans before launching their companies. Just 12 percent had done market research.)
When asked what kind of market research they would conduct for their hypothetical start-up, most of Sarasvathy's subjects responded with variations on the following:
"OK, I need to know which of their various groups of students, trainees, and individuals would be most interested so I can target the audience a little bit more. What other information...I've never done consumer marketing, so I don't really know. I think probably...I think mostly I'd just try to...I would...I wouldn't do all this, actually. I'd just go sell it. I don't believe in market research. Somebody once told me the only thing you need is a customer. Instead of asking all the questions, I'd try and make some sales. I'd learn a lot, you know: which people, what were the obstacles, what were the questions, which prices work better. Even before I started production. So my market research would actually be hands-on actual selling."
Here's another:
"Ultimately, the best test of any product is to go to your target market and pretend like it's a real business. You'll find out soon enough if it is or not. You have to take some risks. You can sit and analyze these different markets forever and ever and ever, and you'd get all these wonderful answers, and they still may be wrong. The problem with the businessman type is they spend a lot of time with all their great wisdom and all their spreadsheets and all their Harvard Business Review people, and they'd either become convinced that there's no market at all or that they have the market nailed. And they'd go out there big time, with a lot of expensive advertising and upfront costs, because they're gonna overwhelm the market, and the business would go under."
The corporate executives were much more likely to want a quantitative analysis of market size:
"If I had a budget, I could ask a specialist in the field of education to go through data and give me ideas of how many universities, how many media, how many large companies I will have to contact to have an idea of the work that has to be done."
Sarasvathy explains that entrepreneurs' aversion to market research is symptomatic of a larger lesson they have learned: They do not believe in prediction of any kind. "If you give them data that has to do with the future, they just dismiss it," she says. "They don't believe the future is predictable...or they don't want to be in a space that is very predictable." That attitude is a bit like Voltaire's assertion that the perfect is the enemy of the good. In this case, the careful forecast is the enemy of the fortuitous surprise:
"I always live by the motto of 'Ready, fire, aim.' I think if you spend too much time doing 'Ready, aim, aim, aim,' you're never going to see all the good things that would happen if you actually started doing it. I think business plans are interesting, but they have no real meaning, because you can't put in all the positive things that will occur...If you know intrinsically that this is possible, you just have to find out how to make it possible, which you can't do ahead of time."
That said, Sarasvathy points out that her entrepreneurs did adopt more formal research and planning practices over time. Their ability to do so—to become causal as well as effectual thinkers—helped this enduring group grow with their companies.
Woo partners first
Entrepreneurs' preference for doing the doable and taking it from there is manifest in their approach to partnerships. While corporate executives know exactly where they are going and follow a prescribed path to get there, entrepreneurs allow whomever they encounter on the journey—suppliers, advisers, customers—to shape their businesses.
"I would literally target...key companies who I would call flagship: do a frontal lobotomy on them. There are probably a dozen of those I would pick. Some entrepreneurial operations that would probably be smaller but have a global presence where I'm dealing with the challenges of international sales...Building rapport with partners, with joint-venture colleagues as well as with ultimate users....The challenge then is really to pick your partners and package yourself early on before you have to put a lot of capital out."
Chief among those influential partners are first customers. The entrepreneurs anticipated customer help on product design, sales, and identifying suppliers. Some even saw their first customer as their best investor.
"People chase investors, but your best investor is your first real customer. And your customers are also your best salesmen."
Sarasvathy says expert entrepreneurs have learned the hard way that "having even one real customer on board with you is better than knowing in a hands-off way 10 things about a thousand customers." Merely gathering information from a large number of potential customers, she says, "increases all the different things you could do but doesn't tell you what you should do." Toward that end, many of her subjects described their preference for an almost anthropological approach to customer interaction: observing a few customers as they work or actually working alongside them.
"You can't go out and survey customers and say, 'OK, what kinda car do you really want?' I believe very much in living it. If you're gonna write a book about stevedores, go work as a stevedore for a period of time. My company was going to design and sell products for physical therapy, so I worked in rehab medicine for two years."
Corporate executives, by contrast, generally envisioned more traditional vendor-customer interactions, such as focus groups.
"I would like to get from them...by meeting with them or getting their input on what they think of the limitation of existing programs....just kind of sit and listen to them telling me...what new features they'd like. And I'd just listen to them talk, talk, talk and then be thinking and develop something between what they want and what's possible technically."
Sarasvathy says executives rely less on firsthand insights, because they can afford to place bets on multiple segments and product versions. "Entrepreneurs don't have that luxury," she says.
Sweat competitors later
The study's corporate subjects focused intently on potential competitors, as eager for information about other vendors as about customers. "The corporate guys are like hunter-gatherers," says Sarasvathy. "They are hired to win market share, so they concentrate fiercely on who is in the marketplace. The first thing they do is map out the lay of the land."
"What information do I want about my competition? I want to see what kinds of resources they have. Do they have computer programmers? Do they have educational experts? Do they have teachers and trainers who can roll out this product? Do they have a support structure in place? Geographically, where are they situated? Have they got one center or lots of centers? Are they doing this just in English, or do they have different languages? I'd be wanting to look at the finances of these companies....I'd probably be looking at their track record to see what kind of approach they take to marketing and advertising so I know what to expect. I might look and see what people they hire, see if I can hire away someone who might have experience."
By the time entrepreneurs start seeking investment, of course, they should be as far inside competitors' heads as they can get. But the study subjects generally expressed little concern about the competition at launch.
"Your competition is a secondary factor. I think you are putting the cart before the horse...Analyze whether you think you can be successful or not before you worry about the competitors."
And:
"At one time in our company, I ordered our people not to think about competitors. Just do your job. Think only of your work. Now that isn't entirely possible. Now, in fact, competitive information is very valuable. But I wanted to be sure that we didn't worry about competitors. And to that end, I gave the annual plan to every employee. And they said, 'Well, aren't you afraid your competitors are gonna get this information and get an advantage?' I said, 'It's much riskier to not have your employees know what you need to do than it is to run the risk of competitors finding out. Cause they'll find out somehow anyway. But if one of your employees doesn't know why they're doing their job, then you're really losing out.'"
Entrepreneurs fret less about competitors, Sarasvathy explains, because they see themselves not in the thick of a market but on the fringe of one, or as creating a new market entirely. "They are like farmers, planting a seed and nurturing it," she says. "What they care about is their own little patch of ground."
Don't limit yourself
Corporate managers believe that to the extent they can predict the future, they can control it. Entrepreneurs believe that to the extent they can control the future, they don't need to predict it. That may sound like monumental hubris, but Sarasvathy sees it differently, as an expression of entrepreneurs' confidence in their ability to recognize, respond to, and reshape opportunities as they develop. Entrepreneurs thrive on contingency. The best ones improvise their way to an outcome that in retrospect feels ordained.
So although many corporate managers in Sarasvathy's study wanted more information about the product and market landscape, some entrepreneurs pushed back on the small amount of information provided as being too limiting. For example, the description of the product as a computer game for entrepreneurship:
"I would cast it not as a product but as a family of products, which might perform a broader function like helping people make career decisions. I always look for broad market opportunities."
And:
"I wanna use this product as a platform to attract other products literally to build a market-share play. I see this as a missionary product, an entrée into some of the best users and buyers."
The most fascinating part of the study relates to the product's potential. Asked about growth opportunities, the corporate managers mostly restricted their comments to the game as described:
"It depends on how it's marketed. I'm a little bit skeptical....I'm not certain entrepreneurs would go for that. Maybe they think they already know everything. But in terms of simulations for business schools or in further education, they seem to be very popular. And entrepreneurship degrees seem to be very popular as well. So, yeah, it could well be a lot of growth."
Here is where the entrepreneurs really let loose. Starting with the same information as one another and as the executives, they collectively spun out opportunities in 18 markets—not just academic institutions but also venture capital firms, consultancies, government agencies, and the military. As much as the ability to concoct new products, it is this tendency to riff off whatever ideas or materials are handy that defines entrepreneurs as a creative breed. Reading the transcripts, you can almost hear the enthusiasm mounting in their voices as the possibilities unfold:
"This company could make a few people rich, but I don't think it could ever be huge...You might have a successful second product about how to succeed and get promoted within a large company....That would give you a market of everybody with aspirations at IBM, AT&T, Exxon, etc....You could make another product for students. How do I graduate in the top 10 percent of my class at Stanford or Harvard or Yale?...A lot about how to be a good student is teachable. Now you've got a product you can sell to every student in the country. Next there is negotiation. You could practice being a good negotiator. There's not a salesman in the United States who wouldn't buy one of those. Then you could genericize the thing to any situation which requires some sort of technical knowledge. Or learning situations within companies where you are trying to get people to understand that company's methods or objectives. So maybe I'm gonna change my opinion about the growth potential. It's easy to see how within an hour you could name 10 products that would each address huge markets, like all employees in Fortune 500 companies, who are rich enough to pay $100 for it. It could be a hit on the scale of the Lotus spreadsheet. You can see a several-hundred-million-dollar company coming from it."
You might also glean from the preceding that entrepreneurs are eternal optimists. But you don't need an academic study to tell you that.
What distinguishes great entrepreneurs? Discussions of entrepreneurial psychology typically focus on creativity, tolerance for risk, and the desire for achievement—enviable traits that, unfortunately, are not very teachable. So Saras Sarasvathy, a professor at the University of Virginia's Darden School of Business, set out to determine how expert entrepreneurs think, with the goal of transferring that knowledge to aspiring founders. While still a graduate student at Carnegie Mellon, Sarasvathy—with the guidance of her thesis supervisor, the Nobel laureate Herbert Simon—embarked on an audacious project: to eavesdrop on the thinking of the country's most successful entrepreneurs as they grappled with business problems. She required that her subjects have at least 15 years of entrepreneurial experience, have started multiple companies—both successes and failures—and have taken at least one company public.
Sarasvathy identified 245 U.S. entrepreneurs who met her criteria, and 45 of them agreed to participate. (Responses from 27 appeared in her conclusions; the rest were reserved for subsequent studies. Thirty more helped shape the questionnaire.) Revenue at the subjects' companies—all run by the founders at that time—ranged from $200 million to $6.5 billion, in industries as diverse as toys and railroads. Sarasvathy met personally with all of her subjects, including such luminaries as Dennis Bakke, founder of energy giant AES; Earl Bakken of Medtronic; and T.J. Rodgers of Cypress Semiconductor. She presented each with a case study about a hypothetical start-up and 10 decisions that the founder of such a company would have to make in building the venture. Then she switched on a tape recorder and let the entrepreneur talk through the problems for two hours. Sarasvathy later collaborated with Stuart Read, of the IMD business school in Switzerland, to conduct the same experiment with professional managers at large corporations—the likes of Nestlé, Philip Morris, and Shell. Sarasvathy and her colleagues are now extending their research to novice entrepreneurs and both novice and experienced professional investors.
Sarasvathy concluded that master entrepreneurs rely on what she calls effectual reasoning. Brilliant improvisers, the entrepreneurs don't start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, corporate executives—those in the study group were also enormously successful in their chosen field—use causal reasoning. They set a goal and diligently seek the best ways to achieve it. Early indications suggest the rookie company founders are spread all across the effectual-to-causal scale. But those who grew up around family businesses will more likely swing effectual, while those with M.B.A.'s display a causal bent. Not surprisingly, angels and seasoned VCs think much more like expert entrepreneurs than do novice investors.
The following is a summary of some of the study's conclusions, illustrated with excerpts from the interviews. Understanding the entrepreneurs' comments requires familiarity with what they were evaluating. The case study and questions are too long to reproduce here. But briefly: Subjects were asked to imagine themselves as the founder of a start-up that had developed a computer game simulating the experience of launching a company. The game and ancillary materials were described as tools for teaching entrepreneurship. Subjects responded to questions about potential customers, competitors, pricing, marketing strategies, growth opportunities, and related issues. (The full case study and questions can be found here.)
Quotes have been edited for length, though we wish we had room to run them in their entirety. Sarasvathy remained almost silent throughout, forcing the founders to answer their own questions and externalize their thinking in the process. The transcripts, riddled with "ums" and "ers," doublings-back on assumptions, and references to personal rules of thumb, read like verbal MRIs of the entrepreneurial brain in action.
Do the doable, then push it
Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible.
That is not to say entrepreneurs don't have goals, only that those goals are broad and—like luggage—may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research. (Inc.'s own research backs this up. One survey of Inc. 500 CEOs found that 60 percent had not written business plans before launching their companies. Just 12 percent had done market research.)
When asked what kind of market research they would conduct for their hypothetical start-up, most of Sarasvathy's subjects responded with variations on the following:
"OK, I need to know which of their various groups of students, trainees, and individuals would be most interested so I can target the audience a little bit more. What other information...I've never done consumer marketing, so I don't really know. I think probably...I think mostly I'd just try to...I would...I wouldn't do all this, actually. I'd just go sell it. I don't believe in market research. Somebody once told me the only thing you need is a customer. Instead of asking all the questions, I'd try and make some sales. I'd learn a lot, you know: which people, what were the obstacles, what were the questions, which prices work better. Even before I started production. So my market research would actually be hands-on actual selling."
Here's another:
"Ultimately, the best test of any product is to go to your target market and pretend like it's a real business. You'll find out soon enough if it is or not. You have to take some risks. You can sit and analyze these different markets forever and ever and ever, and you'd get all these wonderful answers, and they still may be wrong. The problem with the businessman type is they spend a lot of time with all their great wisdom and all their spreadsheets and all their Harvard Business Review people, and they'd either become convinced that there's no market at all or that they have the market nailed. And they'd go out there big time, with a lot of expensive advertising and upfront costs, because they're gonna overwhelm the market, and the business would go under."
The corporate executives were much more likely to want a quantitative analysis of market size:
"If I had a budget, I could ask a specialist in the field of education to go through data and give me ideas of how many universities, how many media, how many large companies I will have to contact to have an idea of the work that has to be done."
Sarasvathy explains that entrepreneurs' aversion to market research is symptomatic of a larger lesson they have learned: They do not believe in prediction of any kind. "If you give them data that has to do with the future, they just dismiss it," she says. "They don't believe the future is predictable...or they don't want to be in a space that is very predictable." That attitude is a bit like Voltaire's assertion that the perfect is the enemy of the good. In this case, the careful forecast is the enemy of the fortuitous surprise:
"I always live by the motto of 'Ready, fire, aim.' I think if you spend too much time doing 'Ready, aim, aim, aim,' you're never going to see all the good things that would happen if you actually started doing it. I think business plans are interesting, but they have no real meaning, because you can't put in all the positive things that will occur...If you know intrinsically that this is possible, you just have to find out how to make it possible, which you can't do ahead of time."
That said, Sarasvathy points out that her entrepreneurs did adopt more formal research and planning practices over time. Their ability to do so—to become causal as well as effectual thinkers—helped this enduring group grow with their companies.
Woo partners first
Entrepreneurs' preference for doing the doable and taking it from there is manifest in their approach to partnerships. While corporate executives know exactly where they are going and follow a prescribed path to get there, entrepreneurs allow whomever they encounter on the journey—suppliers, advisers, customers—to shape their businesses.
"I would literally target...key companies who I would call flagship: do a frontal lobotomy on them. There are probably a dozen of those I would pick. Some entrepreneurial operations that would probably be smaller but have a global presence where I'm dealing with the challenges of international sales...Building rapport with partners, with joint-venture colleagues as well as with ultimate users....The challenge then is really to pick your partners and package yourself early on before you have to put a lot of capital out."
Chief among those influential partners are first customers. The entrepreneurs anticipated customer help on product design, sales, and identifying suppliers. Some even saw their first customer as their best investor.
"People chase investors, but your best investor is your first real customer. And your customers are also your best salesmen."
Sarasvathy says expert entrepreneurs have learned the hard way that "having even one real customer on board with you is better than knowing in a hands-off way 10 things about a thousand customers." Merely gathering information from a large number of potential customers, she says, "increases all the different things you could do but doesn't tell you what you should do." Toward that end, many of her subjects described their preference for an almost anthropological approach to customer interaction: observing a few customers as they work or actually working alongside them.
"You can't go out and survey customers and say, 'OK, what kinda car do you really want?' I believe very much in living it. If you're gonna write a book about stevedores, go work as a stevedore for a period of time. My company was going to design and sell products for physical therapy, so I worked in rehab medicine for two years."
Corporate executives, by contrast, generally envisioned more traditional vendor-customer interactions, such as focus groups.
"I would like to get from them...by meeting with them or getting their input on what they think of the limitation of existing programs....just kind of sit and listen to them telling me...what new features they'd like. And I'd just listen to them talk, talk, talk and then be thinking and develop something between what they want and what's possible technically."
Sarasvathy says executives rely less on firsthand insights, because they can afford to place bets on multiple segments and product versions. "Entrepreneurs don't have that luxury," she says.
Sweat competitors later
The study's corporate subjects focused intently on potential competitors, as eager for information about other vendors as about customers. "The corporate guys are like hunter-gatherers," says Sarasvathy. "They are hired to win market share, so they concentrate fiercely on who is in the marketplace. The first thing they do is map out the lay of the land."
"What information do I want about my competition? I want to see what kinds of resources they have. Do they have computer programmers? Do they have educational experts? Do they have teachers and trainers who can roll out this product? Do they have a support structure in place? Geographically, where are they situated? Have they got one center or lots of centers? Are they doing this just in English, or do they have different languages? I'd be wanting to look at the finances of these companies....I'd probably be looking at their track record to see what kind of approach they take to marketing and advertising so I know what to expect. I might look and see what people they hire, see if I can hire away someone who might have experience."
By the time entrepreneurs start seeking investment, of course, they should be as far inside competitors' heads as they can get. But the study subjects generally expressed little concern about the competition at launch.
"Your competition is a secondary factor. I think you are putting the cart before the horse...Analyze whether you think you can be successful or not before you worry about the competitors."
And:
"At one time in our company, I ordered our people not to think about competitors. Just do your job. Think only of your work. Now that isn't entirely possible. Now, in fact, competitive information is very valuable. But I wanted to be sure that we didn't worry about competitors. And to that end, I gave the annual plan to every employee. And they said, 'Well, aren't you afraid your competitors are gonna get this information and get an advantage?' I said, 'It's much riskier to not have your employees know what you need to do than it is to run the risk of competitors finding out. Cause they'll find out somehow anyway. But if one of your employees doesn't know why they're doing their job, then you're really losing out.'"
Entrepreneurs fret less about competitors, Sarasvathy explains, because they see themselves not in the thick of a market but on the fringe of one, or as creating a new market entirely. "They are like farmers, planting a seed and nurturing it," she says. "What they care about is their own little patch of ground."
Don't limit yourself
Corporate managers believe that to the extent they can predict the future, they can control it. Entrepreneurs believe that to the extent they can control the future, they don't need to predict it. That may sound like monumental hubris, but Sarasvathy sees it differently, as an expression of entrepreneurs' confidence in their ability to recognize, respond to, and reshape opportunities as they develop. Entrepreneurs thrive on contingency. The best ones improvise their way to an outcome that in retrospect feels ordained.
So although many corporate managers in Sarasvathy's study wanted more information about the product and market landscape, some entrepreneurs pushed back on the small amount of information provided as being too limiting. For example, the description of the product as a computer game for entrepreneurship:
"I would cast it not as a product but as a family of products, which might perform a broader function like helping people make career decisions. I always look for broad market opportunities."
And:
"I wanna use this product as a platform to attract other products literally to build a market-share play. I see this as a missionary product, an entrée into some of the best users and buyers."
The most fascinating part of the study relates to the product's potential. Asked about growth opportunities, the corporate managers mostly restricted their comments to the game as described:
"It depends on how it's marketed. I'm a little bit skeptical....I'm not certain entrepreneurs would go for that. Maybe they think they already know everything. But in terms of simulations for business schools or in further education, they seem to be very popular. And entrepreneurship degrees seem to be very popular as well. So, yeah, it could well be a lot of growth."
Here is where the entrepreneurs really let loose. Starting with the same information as one another and as the executives, they collectively spun out opportunities in 18 markets—not just academic institutions but also venture capital firms, consultancies, government agencies, and the military. As much as the ability to concoct new products, it is this tendency to riff off whatever ideas or materials are handy that defines entrepreneurs as a creative breed. Reading the transcripts, you can almost hear the enthusiasm mounting in their voices as the possibilities unfold:
"This company could make a few people rich, but I don't think it could ever be huge...You might have a successful second product about how to succeed and get promoted within a large company....That would give you a market of everybody with aspirations at IBM, AT&T, Exxon, etc....You could make another product for students. How do I graduate in the top 10 percent of my class at Stanford or Harvard or Yale?...A lot about how to be a good student is teachable. Now you've got a product you can sell to every student in the country. Next there is negotiation. You could practice being a good negotiator. There's not a salesman in the United States who wouldn't buy one of those. Then you could genericize the thing to any situation which requires some sort of technical knowledge. Or learning situations within companies where you are trying to get people to understand that company's methods or objectives. So maybe I'm gonna change my opinion about the growth potential. It's easy to see how within an hour you could name 10 products that would each address huge markets, like all employees in Fortune 500 companies, who are rich enough to pay $100 for it. It could be a hit on the scale of the Lotus spreadsheet. You can see a several-hundred-million-dollar company coming from it."
You might also glean from the preceding that entrepreneurs are eternal optimists. But you don't need an academic study to tell you that.
5 Things You Should Never Say While Negotiating
If you're new to negotiating or find it difficult, here are some missteps to avoid.
Every entrepreneur spends some time haggling, whether it is with customers, suppliers, investors, or would-be employees. Most business owners are street smart, and seem to naturally perform well in negotiations. You probably have a trick or two—some magic phrases to say, perhaps—that can help you gain the upperhand. But, often, the moment you get into trouble in a negotiation is when something careless just slips out. If you are new to negotiation, or feel it is an area where you can improve, check out these tips on precisely what not to say.
1. The word "between." It often feels reasonable—and therefore like progress—to throw out a range. With a customer, that may mean saying "I can do this for between $10,000 and $15,000." With a potential hire, you could be tempted to say, "You can start between April 1 and April 15." But that word between tends to be tantamount to a concession, and any shrewd negotiator with whom you deal will swiftly zero-in on the cheaper price or the later deadline. In other words, you will find that by saying the word between you will automatically have conceded ground without extracting anything in return.
2. "I think we're close." We've all experienced deal fatigue: The moment when you want so badly to complete a deal that you signal to the other side that you are ready to settle on the details and move forward. The problem with arriving at this crossroads, and announcing you're there, is that you have just indicated that you value simply reaching an agreement over getting what you actually want. And a skilled negotiator on the other side may well use this moment as an opportunity to stall, and thus to negotiate further concessions. Unless you actually face extreme time pressure, you shouldn't be the party to point out that the clock is loudly ticking in the background. Create a situation in which your counterpart is as eager to finalize the negotiation (or, better yet: more eager!) than you are.
3. "Why don't you throw out a number?" There are differing schools of thought on this, and many people believe you should never be the first person in a negotiation to quote a price. Let the other side start the bidding, the thinking goes, and they will be forced to show their hands, which will provide you with an advantage. But some research has indicated that the result of a negotiation is often closer to what the first mover proposed than to the number the other party had in mind; the first number uttered in a negotiation (so long as it is not ridiculous) has the effect of "anchoring the conversation." And one's role in the negotiation can matter, too. In the book Negotiation, Adam D. Galinsky of Northwestern's Kellogg School of Management and Roderick I. Swaab of INSEAD in France write: "In our studies, we found that the final outcome of a negotiation is affected by whether the buyer or the seller makes the first offer. Specifically, when a seller makes the first offer, the final settlement price tends to be higher than when the buyer makes the first offer."
4. "I'm the final decision maker." At the beginning of many negotiations, someone will typically ask, "Who are the key stakeholders on your side, and is everyone needed to make the decision in the room?" For most entrepreneurs, the answer, of course, is yes. Who besides you is ever needed to make a decision? Isn't one of the joys of being an entrepreneur that you get to call the shots? Yet in negotiations, particularly with larger organizations, this can be a trap. You almost always want to establish at the beginning of a negotiation that there is some higher authority with whom you must speak prior to saying yes. In a business owner's case, that mysterious overlord could be a key investor, a partner, or the members of your advisory board. The point is, while you will almost certainly be making the decision yourself, you do not want the opposing negotiators to know that you are the final decision maker, just in case you get cornered as the conversation develops. Particularly in a high-stakes deal, you will almost certainly benefit from taking an extra 24 hours to think through the terms. For once, be (falsely) humble: pretend like you aren't the person who makes all of the decisions.
5. "Fuck you." The savviest negotiators take nothing personally; they are impervious to criticism and impossible to fluster. And because they seem unmoved by the whole situation and unimpressed with the stakes involved, they have a way of unnerving less-experienced counterparts. This can be an effective weapon when used against entrepreneurs, because entrepreneurs tend to take every aspect of their businesses very personally. Entrepreneurs often style themselves as frank, no-nonsense individuals, and they can at times have thin skin. But whenever you negotiate, remember that it pays to stay calm, to never show that a absurdly low counter-offer or an annoying stalling tactic has upset you. Use your equanimity to unnerve the person who is negotiating with you. And if he or she becomes angry or peeved, don't take the bait to strike back. Just take heart: You've grabbed the emotional advantage in the situation. Now go close that deal.
http://www.inc.com/guides/2011/01/five-things-to-never-say-while-negotiating.html
Every entrepreneur spends some time haggling, whether it is with customers, suppliers, investors, or would-be employees. Most business owners are street smart, and seem to naturally perform well in negotiations. You probably have a trick or two—some magic phrases to say, perhaps—that can help you gain the upperhand. But, often, the moment you get into trouble in a negotiation is when something careless just slips out. If you are new to negotiation, or feel it is an area where you can improve, check out these tips on precisely what not to say.
1. The word "between." It often feels reasonable—and therefore like progress—to throw out a range. With a customer, that may mean saying "I can do this for between $10,000 and $15,000." With a potential hire, you could be tempted to say, "You can start between April 1 and April 15." But that word between tends to be tantamount to a concession, and any shrewd negotiator with whom you deal will swiftly zero-in on the cheaper price or the later deadline. In other words, you will find that by saying the word between you will automatically have conceded ground without extracting anything in return.
2. "I think we're close." We've all experienced deal fatigue: The moment when you want so badly to complete a deal that you signal to the other side that you are ready to settle on the details and move forward. The problem with arriving at this crossroads, and announcing you're there, is that you have just indicated that you value simply reaching an agreement over getting what you actually want. And a skilled negotiator on the other side may well use this moment as an opportunity to stall, and thus to negotiate further concessions. Unless you actually face extreme time pressure, you shouldn't be the party to point out that the clock is loudly ticking in the background. Create a situation in which your counterpart is as eager to finalize the negotiation (or, better yet: more eager!) than you are.
3. "Why don't you throw out a number?" There are differing schools of thought on this, and many people believe you should never be the first person in a negotiation to quote a price. Let the other side start the bidding, the thinking goes, and they will be forced to show their hands, which will provide you with an advantage. But some research has indicated that the result of a negotiation is often closer to what the first mover proposed than to the number the other party had in mind; the first number uttered in a negotiation (so long as it is not ridiculous) has the effect of "anchoring the conversation." And one's role in the negotiation can matter, too. In the book Negotiation, Adam D. Galinsky of Northwestern's Kellogg School of Management and Roderick I. Swaab of INSEAD in France write: "In our studies, we found that the final outcome of a negotiation is affected by whether the buyer or the seller makes the first offer. Specifically, when a seller makes the first offer, the final settlement price tends to be higher than when the buyer makes the first offer."
4. "I'm the final decision maker." At the beginning of many negotiations, someone will typically ask, "Who are the key stakeholders on your side, and is everyone needed to make the decision in the room?" For most entrepreneurs, the answer, of course, is yes. Who besides you is ever needed to make a decision? Isn't one of the joys of being an entrepreneur that you get to call the shots? Yet in negotiations, particularly with larger organizations, this can be a trap. You almost always want to establish at the beginning of a negotiation that there is some higher authority with whom you must speak prior to saying yes. In a business owner's case, that mysterious overlord could be a key investor, a partner, or the members of your advisory board. The point is, while you will almost certainly be making the decision yourself, you do not want the opposing negotiators to know that you are the final decision maker, just in case you get cornered as the conversation develops. Particularly in a high-stakes deal, you will almost certainly benefit from taking an extra 24 hours to think through the terms. For once, be (falsely) humble: pretend like you aren't the person who makes all of the decisions.
5. "Fuck you." The savviest negotiators take nothing personally; they are impervious to criticism and impossible to fluster. And because they seem unmoved by the whole situation and unimpressed with the stakes involved, they have a way of unnerving less-experienced counterparts. This can be an effective weapon when used against entrepreneurs, because entrepreneurs tend to take every aspect of their businesses very personally. Entrepreneurs often style themselves as frank, no-nonsense individuals, and they can at times have thin skin. But whenever you negotiate, remember that it pays to stay calm, to never show that a absurdly low counter-offer or an annoying stalling tactic has upset you. Use your equanimity to unnerve the person who is negotiating with you. And if he or she becomes angry or peeved, don't take the bait to strike back. Just take heart: You've grabbed the emotional advantage in the situation. Now go close that deal.
http://www.inc.com/guides/2011/01/five-things-to-never-say-while-negotiating.html
3/4/11
Making a Trigger Fire On Column Change
I was working with some SQL Server triggers today at work, the triggers were used to track changes to a Price column on a table. Whenever the Price column changed, we wanted to track that in a separate table so we could have a price history. So I setup the trigger on the Price column and set it to fire on INSERTs and UPDATEs. Here was the trigger at this point:
CREATE TRIGGER trg_SavePriceHistory ON myTable
FOR INSERT, UPDATE
AS
IF UPDATE(Price)
BEGIN
DECLARE @newPrice decimal(18,2)
DECLARE @itemId int
SET @newPrice = (SELECT Price FROM Inserted)
SET @itemId = (SELECT ItemID FROM Inserted)
INSERT INTO PriceHistory (NewPrice, ItemID) VALUES (@newPrice, @itemId)
END
Its pretty straightforward, check to see if the Price column was updated and if it was then make a new entry in the PriceHistory table with the new price and the item�s id. After a little while, I realized that every update statement that included the Price column was setting off the trigger. It made sense, I guess I assumed that it would only fire when the value of the Price column actually changed, not if it simply got written with the same value. For instance, if I ran the following INSERT statement:
INSERT INTO myTable (Price) VALUES (10);
Then the trigger would fire and the price would get logged. Now suppose I update the record that I just inserted with the same value for price (assume the id = 1):
UPDATE myTable SET Price = 10 WHERE ItemID = 1;
Now the trigger will fire again, which is what I don�t want. I only wanted the trigger to fire if the value had changed. I was kind of scratching my head, being new to triggers and all, about how I could get that to work. I started writing an email to an internal mailing list, when it hit me in one of those �Aha!� moments. Inside each trigger are 2 special tables called �Inserted� and �Deleted�. The Deleted table holds the values of the record before its state was changed by my UPDATE statement and the Inserted table holds the values of record after my UPDATE statement. All I had to do was compare the Price columns from each table and see if they were different; if they were the same, then I could just exit my trigger. So heres what the trigger looked like after I modified it (modifications in red):
CREATE TRIGGER trg_SavePriceHistory ON myTable
FOR INSERT, UPDATE
AS
IF UPDATE(Price)
BEGIN
DECLARE @newPrice decimal(18,2)
DECLARE @oldPrice decimal(18,2)
DEClARE @itemId int
SET @newPrice = (SELECT Price FROM Inserted)
SET @oldPrice = (SELECT Price FROM Deleted)
IF @newPrice != @oldPrice
BEGIN
SET @itemId = (SELECT ItemID FROM Inserted)
INSERT INTO PriceHistory (NewPrice, ItemID) VALUES (@newPrice, @itemId)
END
END
This is all probably very obvious to someone familiar with triggers, just thought I would help someone else out if they were looking for this.
-----------------------------------------------------------------------
COMMENT:
Hi Ben,
I may be wrong but I don’t think your code will work correctly when updating sets: the inserted and deleted tables are what thet are: tables and not rows.
You are logging the changes to one row, not a set.
The following code works for an update trigger.
You can add similar code for delete and insert statements (or you can change this one to cover the three possibilities)
INSERT INTO PriceHistory(ItemId, OldPrice, NewPrice)
SELECT I.ItemId, D.Price, I.Price
FROM INSERTED I INNER JOIN DELETED D ON I.ItemId = D.ItemId
WHERE I.Price != D.Price
Kind regards,
Karel Vandenhove
http://benreichelt.net/blog/2005/12/13/making-a-trigger-fire-on-column-change
CREATE TRIGGER trg_SavePriceHistory ON myTable
FOR INSERT, UPDATE
AS
IF UPDATE(Price)
BEGIN
DECLARE @newPrice decimal(18,2)
DECLARE @itemId int
SET @newPrice = (SELECT Price FROM Inserted)
SET @itemId = (SELECT ItemID FROM Inserted)
INSERT INTO PriceHistory (NewPrice, ItemID) VALUES (@newPrice, @itemId)
END
Its pretty straightforward, check to see if the Price column was updated and if it was then make a new entry in the PriceHistory table with the new price and the item�s id. After a little while, I realized that every update statement that included the Price column was setting off the trigger. It made sense, I guess I assumed that it would only fire when the value of the Price column actually changed, not if it simply got written with the same value. For instance, if I ran the following INSERT statement:
INSERT INTO myTable (Price) VALUES (10);
Then the trigger would fire and the price would get logged. Now suppose I update the record that I just inserted with the same value for price (assume the id = 1):
UPDATE myTable SET Price = 10 WHERE ItemID = 1;
Now the trigger will fire again, which is what I don�t want. I only wanted the trigger to fire if the value had changed. I was kind of scratching my head, being new to triggers and all, about how I could get that to work. I started writing an email to an internal mailing list, when it hit me in one of those �Aha!� moments. Inside each trigger are 2 special tables called �Inserted� and �Deleted�. The Deleted table holds the values of the record before its state was changed by my UPDATE statement and the Inserted table holds the values of record after my UPDATE statement. All I had to do was compare the Price columns from each table and see if they were different; if they were the same, then I could just exit my trigger. So heres what the trigger looked like after I modified it (modifications in red):
CREATE TRIGGER trg_SavePriceHistory ON myTable
FOR INSERT, UPDATE
AS
IF UPDATE(Price)
BEGIN
DECLARE @newPrice decimal(18,2)
DECLARE @oldPrice decimal(18,2)
DEClARE @itemId int
SET @newPrice = (SELECT Price FROM Inserted)
SET @oldPrice = (SELECT Price FROM Deleted)
IF @newPrice != @oldPrice
BEGIN
SET @itemId = (SELECT ItemID FROM Inserted)
INSERT INTO PriceHistory (NewPrice, ItemID) VALUES (@newPrice, @itemId)
END
END
This is all probably very obvious to someone familiar with triggers, just thought I would help someone else out if they were looking for this.
-----------------------------------------------------------------------
COMMENT:
Hi Ben,
I may be wrong but I don’t think your code will work correctly when updating sets: the inserted and deleted tables are what thet are: tables and not rows.
You are logging the changes to one row, not a set.
The following code works for an update trigger.
You can add similar code for delete and insert statements (or you can change this one to cover the three possibilities)
INSERT INTO PriceHistory(ItemId, OldPrice, NewPrice)
SELECT I.ItemId, D.Price, I.Price
FROM INSERTED I INNER JOIN DELETED D ON I.ItemId = D.ItemId
WHERE I.Price != D.Price
Kind regards,
Karel Vandenhove
http://benreichelt.net/blog/2005/12/13/making-a-trigger-fire-on-column-change
3/2/11
25 Ways to Waste Your Money
Has your budget sprung a leak?
Nearly everyone has spending holes. And as with other kinds of leaks, you may have hardly noticed them. But those small drips can quickly add up to big bucks. The trick is to find the holes and plug them so you can keep more money in your pocket. That extra cash could be the ticket to finally being able to save, invest, or break your cycle of living from paycheck to paycheck.
Here are 25 common ways people waste money. See if any of these sound familiar, then look for ways to plug your own leaks:
1. Carrying a balance. Debt is a shackle that holds you back. For instance, if you have a $1,000 balance on a credit card that charges an 18% rate, you blow $180 every year on interest. Get in the habit of paying off your balance in full each month.
2. Overspending on gas and oil for your car. There's no need to spring for premium fuel if the manufacturer says regular is just fine. You should also check to make sure your tires are optimally inflated to get the best gas mileage. And are you still paying for an oil change every 3,000 miles? Many models nowadays can last 5,000 to 7,000 miles between changes, and some even have built-in sensors to tell you when it's time to change the oil. Check your manual to find the best time for your car's routine maintenance.
3. Keeping unhealthy habits. Smoking costs a lot more than just what you pay for a pack of cigarettes. It significantly increases the cost of life and health insurance. And you'll pay more for homeowners and auto insurance. Add in various other expenses, and the true cost of smoking adds up dramatically over a lifetime -- $86,000 for a 24-year-old woman over a lifetime and $183,000 for a 24-year-old man over a lifetime, according to "The Price of Smoking" (The MIT Press).
Another habit to quit: indoor tanning. There is now a 10% tax on indoor tanning services. As with cigarettes, the true cost of tanning -- which the World Health Organization lists among the worst-known carcinogens -- is higher than just the price you pay each time you go to the salon.
4. Using a cell phone that doesn't fit. How many people do you know who have spent hundreds of dollars on fancy phones, and then pay hundreds of dollars every month for the privilege of using them? Your phone is not a status symbol. It is a way to communicate. Many people pay too much for cell phone contracts and don't use all their minutes. Go to BillShrink.com or Validas.com to evaluate your usage and see if you can find a plan that fits you better. Or consider a prepaid cell phone. Compare rates at MyRatePlan.com.
5. Buying brand-name instead of generic. From groceries to clothing to prescription drugs, you could save money by choosing the off-brand over the fancy label. And in many cases, you won't sacrifice much in quality. Clever advertising and fancy packaging don't make brand-name products better than lesser-known brands.
6. Keeping your mouth shut. No one wants to be a nuisance. But by simply asking, you may be able to snag a lower rate on your credit card.
When shopping, watch for price discrepancies at the cash register, and make a habit of asking, "Do you have a coupon for this?" You might even be able to haggle for a lower price, especially on seasonal or perishable items, floor models or big-ticket purchases. Many stores will also match or beat their competitors' prices if you speak up. And try asking for a discount if you pay cash or debit -- this saves the store the cut it has to pay the credit-card company, so it may be willing to give you a deal. It doesn't hurt to ask.
7. Buying beverages one at a time. If you're in the habit of buying bottled water, coffee-by-the-cup or vending-machine soda, your budget has sprung a leak. Instead, drink tap water or use a water filter. Brew a homemade cuppa joe. Buy your soda in bulk and bring it to work. (Better yet, skip the soda in favor of something healthier.)
8. Paying for something you can get for free. There's a boatload of freebies for the taking, if you know where to look. Some of our favorites include restaurant meals for kids, credit reports, software programs, prescription drugs and tech support. You can also help yourself to all the books, music and movies your heart desires at your local library for free (or dirt cheap).
9. Stashing your money with Uncle Sam rather than in an interest-earning account. If you get a tax refund each April, you let the government take too much money in taxes from your paycheck all year long. Get that money back in your pocket this year -- and put it to work for you -- by adjusting your tax withholding. You can file a new Form W-4 with your employer at any time.
10. Being disorganized. It pays to get your financial house in order. Lost bills and receipts, forgotten tax deductions, and clueless spending can cost you hundreds of dollars each year. Start by setting up automatic bill payment online for your monthly bills to eliminate late fees and postage costs. Then get a handful of files to organize important receipts, insurance policies, tax documents and other statements.
Finally, consider using free budgeting software such as Mint.com to see exactly where your money goes, making it much harder for you to lose track of it.
11. Letting your money wallow in a low-interest account. You work hard for your money. Shouldn't it work hard for you too? If you're stashing your cash in a traditional savings account earning next-to-nothing, you're wasting it. Make sure you're getting the best return on your money. Search for the highest yields on CDs and money-market savings accounts. And consider using a free online checking account that pays interest, such as ones offered by Everbank and ING Direct.
Your stocks and mutual funds should be working hard for you, too. If they've been lagging behind their peers for too long, it could be time to say goodbye. Learn how to spot a wallowing fund or stock.
12. Paying late fees and missing deadlines. Return those library books and movie rentals on time. Mail in those rebates. Submit expense reports on time for reimbursement. And if you make a bad purchase, don't just stuff it in the back of the closet and hope it goes away. Get off your duff, return it and get your money back before you lose the receipt.
13. Paying ATM fees. Expect to throw away nearly $4 every time you use an ATM that isn't in your bank's network. That's because you'll pay an ATM surcharge, and your own bank will hit you with a non-network fee. Consider switching to a bank, such as Ally Bank, that doesn't charge ATM fees and reimburses you for fees other banks charge. Another way to avoid fees if there's not an ATM in your bank's network nearby is to get cash back when you make a purchase at the grocery store or drugstore.
14. Shopping at the grocery store without a calculator. Check how much an item costs per ounce, pound or other unit of measurement. When you comparison-shop by unit price, you save. For example, if a pack of 40 diapers costs $13, that's 33 cents per diaper. But if you buy a box of 144 diapers for $35, that's 24 cents per diaper. You save 27%! (Of course, buying more of something only saves money if you use it all. If you end up throwing much out, you wasted money.)
15. Paying for things you don't use. Do you watch all those cable channels? Do you need those extra features on your phone? Are you getting your money's worth out of your gym membership? Are you taking full advantage of your Netflix, TiVo and magazine subscriptions? Take a look at what your family actually uses, then trim accordingly.
16. Not reading the fine print. Thought you were being smart by transferring the balance on a high-rate credit card to a low-rate one? Did you read the fine print, though? Some credit-card companies now charge up to 5% for balance transfers. Also watch out for free checking accounts that aren't so free. Some banks are starting to charge fees unless you meet certain criteria.
17. Mismanaging your flexible spending account. For some people, that means failing to take advantage of their workplace FSA, which lets employees set aside pre-tax dollars for out-of-pocket medical costs. Other people fail to submit receipts on time. And the average worker leaves $86 behind in his or her use-it-or-lose-it FSA account each year, according to WageWorks, an employee benefits provider.
18. Being an inflexible traveler. You'll save a lot of money on travel if you're willing to be flexible. Consider traveling before or after peak season when prices are lower. Or search for flights over a range of dates to find the lowest fare. Booking at the last minute also can save you money because hotels and airlines slash prices to fill rooms and planes. And flexibility pays off at blind-booking sites, such as Priceline or Hotwire, which offer deep discounts if you're willing to book a room or flight without knowing which hotel or airline (or other details about the flight) you're getting until you pay.
19. Sticking with the same service plans and the same service providers year after year. Hey, we're all for loyalty to trusted service providers, such as your bank, insurer, credit-card company, mutual fund, phone plan or cable plan. But over time, as prices and your circumstances change, the status-quo may not be the best deal any more. Smart consumers are always on the lookout for bargains.
20. Making impulse purchases. When you buy before you think, you don't give yourself time to shop around for the best price. Take the time to compare prices online, read product reviews and look for coupons when appropriate.
Make it a policy to give yourself a cooling-off period in case you're ever tempted to make an impulse purchase. Go home and sleep on the decision. More often than not, you'll decide you don't need the item after all.
21. Dining out frequently. Spending $10, $20, $30 per person for dinner can be a huge drain on your wallet. Throw in a $6 sandwich for lunch every day and you've got quite a leak. Learning to cook and bringing your lunch from home can save a couple hundred bucks each month. When you do go out, consider getting carry-out instead of dining in (you'll save on the tip and drink), skip the overpriced appetizer and dessert, and search the Web for coupons ahead of time.
22. Trying to time the stock market. In trying to buy low and sell high, many people actually do the opposite. Instead, employ the simple strategy of "dollar-cost-averaging." By investing a fixed dollar amount at regular intervals, you smooth out the ups and downs of the market over time. If you take out the emotion and guesswork, investing can become less stressful, less wasteful and more successful.
23. Buying insurance you don't need. You only need life insurance if someone is financially dependent upon you, such as a child. That means most singles, seniors or kids don't need a policy. Other policies you can probably do without include credit-card insurance (better to use the premium to pay down your debt in the first place), rental-car insurance (most auto policies and credit cards carry some coverage), mortgage life insurance and accidental-death insurance (a regular term-life insurance policy will do the trick).
24. Buying new instead of used. Talk about a spending leak -- or, rather, a gush. Cars lose 20% of their value the moment they're driven off the lot and 65% in the first five years. Used models can be a real value because you can get a car that's still in fine working order for a fraction of the new-car price. And you'll pay less in collision insurance and taxes, too.
Cars aren't the only things worth buying used. Consider the savings on pre-owned books, toys, exercise equipment, children's clothing and furniture. (Of course, there are some things you're better off buying new, including mattresses, laptops, linens, shoes and safety equipment, such as car seats and bike helmets.)
25. Procrastinating. Time is an asset money can't buy. Start investing for retirement as soon as possible. For instance, if a 40-year-old saves $300 a month with an 8% return per year, he'll have $287,000 by age 65. If he had started saving 15 years earlier at age 25, he'd have more than $1 million.
http://finance.yahoo.com/banking-budgeting/article/112202/25-ways-to-waste-your-money
Nearly everyone has spending holes. And as with other kinds of leaks, you may have hardly noticed them. But those small drips can quickly add up to big bucks. The trick is to find the holes and plug them so you can keep more money in your pocket. That extra cash could be the ticket to finally being able to save, invest, or break your cycle of living from paycheck to paycheck.
Here are 25 common ways people waste money. See if any of these sound familiar, then look for ways to plug your own leaks:
1. Carrying a balance. Debt is a shackle that holds you back. For instance, if you have a $1,000 balance on a credit card that charges an 18% rate, you blow $180 every year on interest. Get in the habit of paying off your balance in full each month.
2. Overspending on gas and oil for your car. There's no need to spring for premium fuel if the manufacturer says regular is just fine. You should also check to make sure your tires are optimally inflated to get the best gas mileage. And are you still paying for an oil change every 3,000 miles? Many models nowadays can last 5,000 to 7,000 miles between changes, and some even have built-in sensors to tell you when it's time to change the oil. Check your manual to find the best time for your car's routine maintenance.
3. Keeping unhealthy habits. Smoking costs a lot more than just what you pay for a pack of cigarettes. It significantly increases the cost of life and health insurance. And you'll pay more for homeowners and auto insurance. Add in various other expenses, and the true cost of smoking adds up dramatically over a lifetime -- $86,000 for a 24-year-old woman over a lifetime and $183,000 for a 24-year-old man over a lifetime, according to "The Price of Smoking" (The MIT Press).
Another habit to quit: indoor tanning. There is now a 10% tax on indoor tanning services. As with cigarettes, the true cost of tanning -- which the World Health Organization lists among the worst-known carcinogens -- is higher than just the price you pay each time you go to the salon.
4. Using a cell phone that doesn't fit. How many people do you know who have spent hundreds of dollars on fancy phones, and then pay hundreds of dollars every month for the privilege of using them? Your phone is not a status symbol. It is a way to communicate. Many people pay too much for cell phone contracts and don't use all their minutes. Go to BillShrink.com or Validas.com to evaluate your usage and see if you can find a plan that fits you better. Or consider a prepaid cell phone. Compare rates at MyRatePlan.com.
5. Buying brand-name instead of generic. From groceries to clothing to prescription drugs, you could save money by choosing the off-brand over the fancy label. And in many cases, you won't sacrifice much in quality. Clever advertising and fancy packaging don't make brand-name products better than lesser-known brands.
6. Keeping your mouth shut. No one wants to be a nuisance. But by simply asking, you may be able to snag a lower rate on your credit card.
When shopping, watch for price discrepancies at the cash register, and make a habit of asking, "Do you have a coupon for this?" You might even be able to haggle for a lower price, especially on seasonal or perishable items, floor models or big-ticket purchases. Many stores will also match or beat their competitors' prices if you speak up. And try asking for a discount if you pay cash or debit -- this saves the store the cut it has to pay the credit-card company, so it may be willing to give you a deal. It doesn't hurt to ask.
7. Buying beverages one at a time. If you're in the habit of buying bottled water, coffee-by-the-cup or vending-machine soda, your budget has sprung a leak. Instead, drink tap water or use a water filter. Brew a homemade cuppa joe. Buy your soda in bulk and bring it to work. (Better yet, skip the soda in favor of something healthier.)
8. Paying for something you can get for free. There's a boatload of freebies for the taking, if you know where to look. Some of our favorites include restaurant meals for kids, credit reports, software programs, prescription drugs and tech support. You can also help yourself to all the books, music and movies your heart desires at your local library for free (or dirt cheap).
9. Stashing your money with Uncle Sam rather than in an interest-earning account. If you get a tax refund each April, you let the government take too much money in taxes from your paycheck all year long. Get that money back in your pocket this year -- and put it to work for you -- by adjusting your tax withholding. You can file a new Form W-4 with your employer at any time.
10. Being disorganized. It pays to get your financial house in order. Lost bills and receipts, forgotten tax deductions, and clueless spending can cost you hundreds of dollars each year. Start by setting up automatic bill payment online for your monthly bills to eliminate late fees and postage costs. Then get a handful of files to organize important receipts, insurance policies, tax documents and other statements.
Finally, consider using free budgeting software such as Mint.com to see exactly where your money goes, making it much harder for you to lose track of it.
11. Letting your money wallow in a low-interest account. You work hard for your money. Shouldn't it work hard for you too? If you're stashing your cash in a traditional savings account earning next-to-nothing, you're wasting it. Make sure you're getting the best return on your money. Search for the highest yields on CDs and money-market savings accounts. And consider using a free online checking account that pays interest, such as ones offered by Everbank and ING Direct.
Your stocks and mutual funds should be working hard for you, too. If they've been lagging behind their peers for too long, it could be time to say goodbye. Learn how to spot a wallowing fund or stock.
12. Paying late fees and missing deadlines. Return those library books and movie rentals on time. Mail in those rebates. Submit expense reports on time for reimbursement. And if you make a bad purchase, don't just stuff it in the back of the closet and hope it goes away. Get off your duff, return it and get your money back before you lose the receipt.
13. Paying ATM fees. Expect to throw away nearly $4 every time you use an ATM that isn't in your bank's network. That's because you'll pay an ATM surcharge, and your own bank will hit you with a non-network fee. Consider switching to a bank, such as Ally Bank, that doesn't charge ATM fees and reimburses you for fees other banks charge. Another way to avoid fees if there's not an ATM in your bank's network nearby is to get cash back when you make a purchase at the grocery store or drugstore.
14. Shopping at the grocery store without a calculator. Check how much an item costs per ounce, pound or other unit of measurement. When you comparison-shop by unit price, you save. For example, if a pack of 40 diapers costs $13, that's 33 cents per diaper. But if you buy a box of 144 diapers for $35, that's 24 cents per diaper. You save 27%! (Of course, buying more of something only saves money if you use it all. If you end up throwing much out, you wasted money.)
15. Paying for things you don't use. Do you watch all those cable channels? Do you need those extra features on your phone? Are you getting your money's worth out of your gym membership? Are you taking full advantage of your Netflix, TiVo and magazine subscriptions? Take a look at what your family actually uses, then trim accordingly.
16. Not reading the fine print. Thought you were being smart by transferring the balance on a high-rate credit card to a low-rate one? Did you read the fine print, though? Some credit-card companies now charge up to 5% for balance transfers. Also watch out for free checking accounts that aren't so free. Some banks are starting to charge fees unless you meet certain criteria.
17. Mismanaging your flexible spending account. For some people, that means failing to take advantage of their workplace FSA, which lets employees set aside pre-tax dollars for out-of-pocket medical costs. Other people fail to submit receipts on time. And the average worker leaves $86 behind in his or her use-it-or-lose-it FSA account each year, according to WageWorks, an employee benefits provider.
18. Being an inflexible traveler. You'll save a lot of money on travel if you're willing to be flexible. Consider traveling before or after peak season when prices are lower. Or search for flights over a range of dates to find the lowest fare. Booking at the last minute also can save you money because hotels and airlines slash prices to fill rooms and planes. And flexibility pays off at blind-booking sites, such as Priceline or Hotwire, which offer deep discounts if you're willing to book a room or flight without knowing which hotel or airline (or other details about the flight) you're getting until you pay.
19. Sticking with the same service plans and the same service providers year after year. Hey, we're all for loyalty to trusted service providers, such as your bank, insurer, credit-card company, mutual fund, phone plan or cable plan. But over time, as prices and your circumstances change, the status-quo may not be the best deal any more. Smart consumers are always on the lookout for bargains.
20. Making impulse purchases. When you buy before you think, you don't give yourself time to shop around for the best price. Take the time to compare prices online, read product reviews and look for coupons when appropriate.
Make it a policy to give yourself a cooling-off period in case you're ever tempted to make an impulse purchase. Go home and sleep on the decision. More often than not, you'll decide you don't need the item after all.
21. Dining out frequently. Spending $10, $20, $30 per person for dinner can be a huge drain on your wallet. Throw in a $6 sandwich for lunch every day and you've got quite a leak. Learning to cook and bringing your lunch from home can save a couple hundred bucks each month. When you do go out, consider getting carry-out instead of dining in (you'll save on the tip and drink), skip the overpriced appetizer and dessert, and search the Web for coupons ahead of time.
22. Trying to time the stock market. In trying to buy low and sell high, many people actually do the opposite. Instead, employ the simple strategy of "dollar-cost-averaging." By investing a fixed dollar amount at regular intervals, you smooth out the ups and downs of the market over time. If you take out the emotion and guesswork, investing can become less stressful, less wasteful and more successful.
23. Buying insurance you don't need. You only need life insurance if someone is financially dependent upon you, such as a child. That means most singles, seniors or kids don't need a policy. Other policies you can probably do without include credit-card insurance (better to use the premium to pay down your debt in the first place), rental-car insurance (most auto policies and credit cards carry some coverage), mortgage life insurance and accidental-death insurance (a regular term-life insurance policy will do the trick).
24. Buying new instead of used. Talk about a spending leak -- or, rather, a gush. Cars lose 20% of their value the moment they're driven off the lot and 65% in the first five years. Used models can be a real value because you can get a car that's still in fine working order for a fraction of the new-car price. And you'll pay less in collision insurance and taxes, too.
Cars aren't the only things worth buying used. Consider the savings on pre-owned books, toys, exercise equipment, children's clothing and furniture. (Of course, there are some things you're better off buying new, including mattresses, laptops, linens, shoes and safety equipment, such as car seats and bike helmets.)
25. Procrastinating. Time is an asset money can't buy. Start investing for retirement as soon as possible. For instance, if a 40-year-old saves $300 a month with an 8% return per year, he'll have $287,000 by age 65. If he had started saving 15 years earlier at age 25, he'd have more than $1 million.
http://finance.yahoo.com/banking-budgeting/article/112202/25-ways-to-waste-your-money
3/1/11
How to Assemble a Team to Buy a Business
Sure, there are the obvious experts you need by your side when buying a business. But did you consider a technology analyst, who could help evaluate the state of the company's technology? It could create leverage in negotiations.
You've decided it's time to finally buy your own business. Now what? Obviously buying a business can be a risky proposition, not unlike buying a house. And just like when you go about a home for the first time, you'll want to make sure you're not going in blind. That means that you need to assemble a team of skilled advisers to help guide your decisions that might range from evaluating business plans to nailing down the financing needed to make the deal. "Anyone buying a business will always be at a disadvantage even when they're asking the right questions because there are things sellers would rather not tell you, like that 75 percent of their business comes from a single client," says Carol Roth, a Chicago-based business strategist with Intercap Merchant Partners and author of The Entrepreneur Equation. "That's why you need to build a sharp team that can help uncover as many skeletons as possible."
And what kinds of experienced professionals should you include on the team you assemble to buy a business? There are three key experts that you must have at the table with you and six others that are strongly recommended.
Assembling a Team to Buy a Business: The 3 Key Experts
1. The Accountant
One expert you can't afford not to have on your team is an accountant who has experience in performing due diligence and buying businesses. The rub is that many accountants or CPAs think they know what they're doing when it comes to crunching the numbers of a business involved in a sale. Not so, says Bill Watson, whose company, Advanced Business Group, in Nashville, Tennessee, helps buy, sell, and value businesses. "I'm a CPA, and I can tell you that the average CPA is not out buying and selling businesses every day so they don't understand deal structure," he says. "It's not like buying a car." There are nuances to buying a business that the accountant you hire needs to be aware of. For instance, if you were to look at the books of a small business, you need to understand where and how the owner used "chargebacks," those ambiguous tax deductions like insurance charges or vacation expenses that business owners have the habit of burying in their books. In other words, a skilled accountant can help you uncover many of those skeletons hiding in the business's closets in an effort to evaluate what you should or shouldn't pay for.
2. The Lawyer
Just as when you go about choosing a CPA to join your team, you should target an attorney who specializes in mergers and acquisitions to give you the best advice when it comes to buying a business, says Roth. "This is not a case where you want to save a few dollars by hiring your cousin who happens to be a lawyer, but specializes in divorce law," she says. The reason is that you want an expert who knows how to review documents, such as environmental variables, and the kinds of contracts that might be in place with the current business owner. One of the most common sticky situations that many business buyers get into involves change-of-control issues related to leases or vendors, says Roth, where, based on a sale of the business, those relationships are no longer transferable—something that could dramatically change your appetite in terms of buying the business. "A good transactional lawyer can help you understand what contracts are null and void when you buy a business," says Roth.
3. The Intermediary
While entrepreneurs tend to pride themselves on their ability to go it alone, there are many reasons why it makes sense to bring on an experienced intermediary such as a business broker or investment banker to help shepherd your way through the business-buying process. Not only can an experienced banker or broker show you the ropes when it comes to what to expect throughout the entire process, they can also play a key role when it comes to playing hard ball with the seller, says Roth. "It can be really beneficial to have someone to play the 'bad cop' during negotiations," she says. "That way the buyer can ask the tough questions but blame it on their intermediary while preserving the relationships with employees and key partners they will need to run the business moving forward." In many cases, intermediaries can also pay for themselves, Roth says, by negotiating special deal terms or by finding hidden skeletons in the business they sniff out.
Assembling a Team to Buy a Business: 6 Additional Experts That Are Highly Recommended
4. Business Valuation Specialist
While settling on a price for the business you want to buy is something that your investment banker or broker will help with, it can also be valuable to reach out to someone who specializes in valuing companies, not unlike what an appraiser does with homes. A good valuation will take the business's financial strengths and weaknesses into account relative to its assets and cash flow, among other metrics.
5. Financing Expert
Unless you're planning on buying your new business with cash, you'll also need to have someone on your team that will help you secure the financing you'll need to get the deal done. Ideally, you'll be able to rely on someone who can walk you through the options available—bank loans, credit, etc.—as well as which ones make the best sense for you.
6. Real Estate Adviser
On a general level, most every business will have some real estate or property component linked to it, such as a lease, a deed, or even an option to buy additional land to expand upon in the future. That means it's wise to bring on someone who can help you weigh the pros and cons when it comes to the real estate details of the business you're considering buying. One organization to consider contacting for advice is The Counselors of Real Estate, www.cre.org, a professional association of commercial real estate advisers.
7. Insurance Agent
As an owner of a business, you'll also need to understand what you need to insure it. Therefore, it would be wise to get good counsel from an insurance agent or expert who can help map out what kind of coverage you might need regarding fire, error and omission, etc., before pulling the trigger on the deal.
8. Industry Expert
If you are interested in buying a business you already know something about, perhaps because you've worked for or owned a similar one in the past, you might not need to rely on someone to explain how the business works. If you are making a leap into a new industry, however, it makes sense to find someone you trust who has deep experience in that industry and can help you evaluate where the business stands relative to its competition and its customers.
9. Technology Analyst
Few companies these days operate without computers, whether it's to market themselves or to take orders from customers. That means that when you buy a business, you're also buying the equipment and data that the company has accumulated in its history—all of which can be extremely valuable to you. But, if the business has not kept on top of its information technology, perhaps by not backing up key data or by not investing in the best technology, you might want to bring in an expert who can help evaluate the state of the company's information technology infrastructure. Plus, if the company's technology is subpar, it could create some leverage in negotiations.
You've decided it's time to finally buy your own business. Now what? Obviously buying a business can be a risky proposition, not unlike buying a house. And just like when you go about a home for the first time, you'll want to make sure you're not going in blind. That means that you need to assemble a team of skilled advisers to help guide your decisions that might range from evaluating business plans to nailing down the financing needed to make the deal. "Anyone buying a business will always be at a disadvantage even when they're asking the right questions because there are things sellers would rather not tell you, like that 75 percent of their business comes from a single client," says Carol Roth, a Chicago-based business strategist with Intercap Merchant Partners and author of The Entrepreneur Equation. "That's why you need to build a sharp team that can help uncover as many skeletons as possible."
And what kinds of experienced professionals should you include on the team you assemble to buy a business? There are three key experts that you must have at the table with you and six others that are strongly recommended.
Assembling a Team to Buy a Business: The 3 Key Experts
1. The Accountant
One expert you can't afford not to have on your team is an accountant who has experience in performing due diligence and buying businesses. The rub is that many accountants or CPAs think they know what they're doing when it comes to crunching the numbers of a business involved in a sale. Not so, says Bill Watson, whose company, Advanced Business Group, in Nashville, Tennessee, helps buy, sell, and value businesses. "I'm a CPA, and I can tell you that the average CPA is not out buying and selling businesses every day so they don't understand deal structure," he says. "It's not like buying a car." There are nuances to buying a business that the accountant you hire needs to be aware of. For instance, if you were to look at the books of a small business, you need to understand where and how the owner used "chargebacks," those ambiguous tax deductions like insurance charges or vacation expenses that business owners have the habit of burying in their books. In other words, a skilled accountant can help you uncover many of those skeletons hiding in the business's closets in an effort to evaluate what you should or shouldn't pay for.
2. The Lawyer
Just as when you go about choosing a CPA to join your team, you should target an attorney who specializes in mergers and acquisitions to give you the best advice when it comes to buying a business, says Roth. "This is not a case where you want to save a few dollars by hiring your cousin who happens to be a lawyer, but specializes in divorce law," she says. The reason is that you want an expert who knows how to review documents, such as environmental variables, and the kinds of contracts that might be in place with the current business owner. One of the most common sticky situations that many business buyers get into involves change-of-control issues related to leases or vendors, says Roth, where, based on a sale of the business, those relationships are no longer transferable—something that could dramatically change your appetite in terms of buying the business. "A good transactional lawyer can help you understand what contracts are null and void when you buy a business," says Roth.
3. The Intermediary
While entrepreneurs tend to pride themselves on their ability to go it alone, there are many reasons why it makes sense to bring on an experienced intermediary such as a business broker or investment banker to help shepherd your way through the business-buying process. Not only can an experienced banker or broker show you the ropes when it comes to what to expect throughout the entire process, they can also play a key role when it comes to playing hard ball with the seller, says Roth. "It can be really beneficial to have someone to play the 'bad cop' during negotiations," she says. "That way the buyer can ask the tough questions but blame it on their intermediary while preserving the relationships with employees and key partners they will need to run the business moving forward." In many cases, intermediaries can also pay for themselves, Roth says, by negotiating special deal terms or by finding hidden skeletons in the business they sniff out.
Assembling a Team to Buy a Business: 6 Additional Experts That Are Highly Recommended
4. Business Valuation Specialist
While settling on a price for the business you want to buy is something that your investment banker or broker will help with, it can also be valuable to reach out to someone who specializes in valuing companies, not unlike what an appraiser does with homes. A good valuation will take the business's financial strengths and weaknesses into account relative to its assets and cash flow, among other metrics.
5. Financing Expert
Unless you're planning on buying your new business with cash, you'll also need to have someone on your team that will help you secure the financing you'll need to get the deal done. Ideally, you'll be able to rely on someone who can walk you through the options available—bank loans, credit, etc.—as well as which ones make the best sense for you.
6. Real Estate Adviser
On a general level, most every business will have some real estate or property component linked to it, such as a lease, a deed, or even an option to buy additional land to expand upon in the future. That means it's wise to bring on someone who can help you weigh the pros and cons when it comes to the real estate details of the business you're considering buying. One organization to consider contacting for advice is The Counselors of Real Estate, www.cre.org, a professional association of commercial real estate advisers.
7. Insurance Agent
As an owner of a business, you'll also need to understand what you need to insure it. Therefore, it would be wise to get good counsel from an insurance agent or expert who can help map out what kind of coverage you might need regarding fire, error and omission, etc., before pulling the trigger on the deal.
8. Industry Expert
If you are interested in buying a business you already know something about, perhaps because you've worked for or owned a similar one in the past, you might not need to rely on someone to explain how the business works. If you are making a leap into a new industry, however, it makes sense to find someone you trust who has deep experience in that industry and can help you evaluate where the business stands relative to its competition and its customers.
9. Technology Analyst
Few companies these days operate without computers, whether it's to market themselves or to take orders from customers. That means that when you buy a business, you're also buying the equipment and data that the company has accumulated in its history—all of which can be extremely valuable to you. But, if the business has not kept on top of its information technology, perhaps by not backing up key data or by not investing in the best technology, you might want to bring in an expert who can help evaluate the state of the company's information technology infrastructure. Plus, if the company's technology is subpar, it could create some leverage in negotiations.
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