Getting vendors to see themselves as part of your team can be a challenge and payment can be a motivating factor.
“Be upfront about what you’re willing to spend, maybe do a hybrid of cash and equity as you pay out these vendors.”
Editorial director Ray Hennessey explains some of your options in this short video on how to engage your vendor.
10 Ways You Should Invest Your Company’s First Profits
When the company finally starts making money, invest it so that it keeps making money.
You may have heard of the tradition of saving your first dollar from your first sale. Mom and pop stores have them framed near cash registers or tucked lovingly into office drawers. It serves as a symbol for the toil and joy of building a business.
So you’ve earned your first rand(s), and now you’re wondering what to do with them. Here are some of the best ways to invest and reinvest your company’s first profits.
Most startups spend their initial profits in reinvesting, and your company should be no exception. The key to reinvesting is to have a sound strategy, not to necessarily devote a certain percentage of your profits. Your reinvestment efforts should be in line with your current strategic plan.
Most business owners choose to reinvest their profits in business improvements – for example, infrastructure, equipment, streamlining business processes, or finding ways to improve the customer experience. These are all valuable strategies because they can increase your profits in the long run, allowing you to expand business operations.
Digital marketing is always a smart investment of profit, when it’s done well. Many of the startups I’ve seen over the years wait several months before they do any real investment into marketing. Sometimes it’s because they just don’t know where to start.
You can’t lose by investing in performance metrics. Always keep track of your campaigns and adjust them accordingly. If you have little experience with marketing, consider outsourcing to an agency.
3Invest in your team
Building a better workforce will streamline your business, improve productivity, and create the kind of company culture that will attract hard workers. Reinvest profits in human resources initiatives such as training and continuing education.
As your company grows, you can expand to include benefits packages and other discounts. Investing in your employees early on will help you reduce turnover.
Keep in mind, hiring a new employee costs a lot of money – about six to nine months of a lost employee’s salary, on average.
Related: How Smart Managers Drive Profits
4Invest in yourself
Find ways that you can improve yourself in subject matter expertise. For example, many startups are spearheaded by people with a good eye for innovation but who don’t necessarily know how to manage people.
This is actually one of the most common criticisms founders face. Classes on management or basic business operations can be invaluable for people who don’t come from a formal business background.
To that end, entrepreneurs are also guilty of trying to wear all of the company hats. Recognise when you need help, and ask for it. New hires can provide the technical skills and know-how to keep your operations running smoothly. This is one of the best investments you can make in the long run.
If you’re unsure of how you should create your strategic plan, consider using some of your profits to hire a career coach. These professionals can provide guidance on executive leadership, creating a business strategy, talking to investors, and handling conflict between employees, among other things.
7Outsource your least favourite tasks
We all have a dreaded task that sucks some of the joy out of running a business. For some, it’s balancing the books or running payroll. For others, it’s assessing and tracking the efficacy of marketing campaigns or content creation for the company blog. Fortunately, you can outsource most of these to third parties. Find someone qualified and hand over the task.
8Improve your SEO
First, if you launched a company without a website, create one. Second, spend some time, money, and energy getting that website to the top of Google’s Search Engine Result Pages (SERPs). For the uninitiated, Search Engine Optimisation is a tricky beast, but you’ll get the hang of it (or find someone qualified and outsource it).
The small business administration offers a useful primer on the topic, as well as other resources. If you’re looking for a way to see a significant return on investment in a relatively short time, this is one way to do it.
9Create a cash buffer
While reinvesting in your business is great (and necessary), make sure you’re sitting on enough cash to handle problems that may arise. While your business insurance policies will cover the disasters and catastrophes, it’s always advisable to have liquidity available for when you really need it.
10Don’t diversify too early
Many budding entrepreneurs make the mistake of diversifying their investments too early in the process. Stocks and bonds are important, but so is building your empire. To invest your first profits, start with what you know. No one knows your business like you do, so it seems like the natural place to start.
For now, enjoy your first profits by putting them back into the fruits of your labor. Take care of your employees and customers, and your profits have a better chance of growing organically. With time and proper investment, you’ll soon be poised to open another location or expand to a new market. Reinvestment will always be a smart business move.
This article was originally posted here on Entrepreneur.com.
Do You Know What You’re Worth?
How to determine your hourly rate.
We’ve all been there. Maybe you’re there right now. You charge out your work at a certain hourly rate, but you’re suspicious that you’re either a) being ripped off or b) hitting above your weight.
It’s more than likely that the only way you judge if your pricing model is accurate is against what you think your competitors are charging.
When a prospective client walks in with a quote from across the street to see if you can do the same – for less – you carefully examine that quote for clues as to what you should be charging.
More than that, there is often a real fear near the end of the month that you might not cover your running costs.
You hope and pray for a big job to come in soon so that you can charge a big deposit and at least pay salaries.
I’m here to bring you good news today; there is a better way.
Determining Your Hourly Rate
Knowing what your true hourly rate should be in order to cover your overheads and expenses will give you a clear path to business control, growth and potential profit.
So how do we do it? Initially it takes a bit of work, but after it is calculated it is relatively low maintenance and will ensure you run your business smarter.
Start With Your Cost Centres
Aside from making up the basic framework and substance of a business, and being the basis for creating a profit, cost centres are what we use to determine hourly rate.
A cost centre is used to break the business into measurable portions in order to determine if that portion is profitable. A cost centre could be your design team, your delivery fleet, or your expensive machine that fills one third of your factory floor.
The reason we break up a business into cost centres is to better identify and isolate variables to determine how efficient they are. This is less overwhelming than trying to improve efficiency as a blanket rule across the entire business.
If you have an ERP or BOS system in your business that handles your business admin and quoting, then make sure you understand how to set up your overhead and production cost centres in that system.
We like QuickEasy BOS for this as it has a handy cost centre Wizard that allows business owners to have full control and clarity into this step. Alternatively, if you do not yet have ERP software, this will be a more manual process for you.
Every business has two types of cost centres:
A business has direct and indirect costs, and these require two different types of cost centres.
Production cost centres
These are the direct costs. These contain expenses such as equipment or computer costs, monthly maintenance and production salaries – costs directly associated with the production of a product or service that you sell.
- Machine costs: The total replacement value of a machine or computer or equipment, broken down to a per-month value.
- Maintenance costs: Does your equipment need monthly maintenance? This must be included in your calculation – perhaps this is your IT maintenance contract or your vehicle’s service fees. Provision must also be made for breakdowns and repair.
- Labour costs: Only salaries directly associated with production are to be added here. The machine operator and his assistant, the driver, the designer using his Mac book – their weekly or monthly salaries will be included in this cost centre’s cost.
Related: What Is The Real Cost Of Your Time?
Overhead cost centres
These are the indirect costs. These contain expenses that are not necessarily directly recovered from the sale of your product or service, but are necessary to support the business.
These are expenses such as electricity, rent and admin salaries. Essentially the ‘expenses’ from the Income Statement, less the production salaries.
There are typically many production cost centres in a business, and only one overhead cost centre.
Overhead costing models
When considering how to cover overhead costs, there are two models that can be implemented.
The first approach splits the overhead costs across the business’s cost centres, and includes them in the hourly rate. This ensures that every estimate and quote covers a portion of your Overhead expenses. Each production cost centre accounts for a percentage of the overhead expenses – the larger the production cost centre, the greater portion of the monthly overheads is allocated to it.
Alternatively, overheads can be excluded in the hourly rate and added as an adjustment or markup in your quote.
Determining the hourly rate depends on the productivity within a cost centre.
Knowing how many productive hours are available for work to go through that cost centre will help you determine what each hour should cost.
- Weeks per year: With 52 weeks in a year, not every week is productive for your staff members. There are two weeks of public holidays every year, and three weeks of annual leave. That leaves 47 productive weeks in a year.
- Hours per week: With 40 hours typically available per week, in reality most people are only productive 80% of the time. That leaves 32 productive hours per week.
To calculate the productive hours per month (which you will use to calculate hourly rate) take weeks per year, multiplied by hours per week, divided by 12. Or:
Hours per month = (weeks per year x hours per week) / 12
Note: Be attentive when it comes to your productivity calculation; not all cost centres are as productive as the next. If after a while you notice a cost centre only sees 20 hours of work a week for example, then the calculation will reflect a higher hourly rate.
Initially you may have to do some thumbsucking to start the ball rolling; feel free to use these values (above) for your baseline productive hours as a start. Alternatively, your ERP or BOS system should show you monthly cost centre recovery so that you can adjust productivity accordingly. Once again, we like QuickEasy BOS for that.
Calculating Hourly Rate
We’re almost there – you’re about to find out what you should charge per hour for each of your cost centres.
To determine your hourly rate, total your monthly costs (equipment, maintenance, labour) and divide this by the productive hours of the cost centre, or:
Hourly rate = monthly cost / hours per month
Apply this to each of your cost centres. There you have it! Rinse and repeat. Now that you know what hourly rate is required, you can recover the costs of operating each cost centre.
Once you have implemented this don’t just leave it there – salaries increase, equipment is replaced, electricity goes up – so be sure to review your cost centres from time to time to make sure your expenses are up to date and reflecting accurate costs.
After that, it is up to the business owner to determine if the cost centre should charge a flat hourly rate, or what markup or adjustments should be made to the calculated hourly rate in order to make a reasonable profit.
The guesswork is removed, anxiety is replaced with clarity and the business owner can make price-decisions based on fact.
Doing Your Finance On The Fly
Do your finance on the fly and give wings to your business!
Finance. Every entrepreneur’s nightmare. All those numbers, reports, calculations, spreadsheets waiting for you. That’s bearable when you have your desktop computer and time to deal with it, but what happens when you need to handle your finance immediately and you are out of the office?
Luckily, modern technology is here to make entrepreneur’s life easier. Nowadays, tablets and mobiles phones with many useful apps offer a great help with managing everyday tasks. An app that will definitely give you a hand with your finance on the go and without any hustle is PDF to Excel.
Benefits of using PDF to Excel app
There are many reasons why PDF to Excel is a must-have business app and here are some of them.
Edit bank statements, invoices and receipts easily
Usually all important data, such as bank statements, invoices and other finance documents are preserved in PDF file format, given its unchangeable nature. But now your figures aren’t trapped any more and you don’t have to rewrite them in order to edit them. With PDF to Excel it’s possible to turn your tables from PDFs into editable MS Excel spreadsheets on a tablet or a smartphone.
There won’t be unpleasant surprises anymore when you need to present charts on important meetings. You’re always ready to go!
Write finance reports smoothly
Finance reports represent indispensable part of entrepreneur’s business, but their editing and writing doesn’t have to be a tedious work. PDF to Excel app allows you to extract data from PDF files into Excel spreadsheets. This means you can reuse an old report and incorporate it in a new one. When you have a right tool, you can get your work smoothly.
Analyse data without a headache
Analysing data is crucial step in the process of improving your business. When all statistics are clear and transparent, then thoughts are also clear and ideas come up without a hitch. By using PDF to Excel it’s possible to gather all finance tables from PDFs at one place and analyse them more carefully. Analysing brings progress.
How does it work?
PDF to Excel is very simple to use. Just follow these instructions to convert your document.
- Select a file you need to convert
- Click on the Share button in the top right corner and after finding PDF to Excel app in the OPEN IN menu, tap on it.
- Just wait a little bit and you will find your converted file within the app.
After you get the converted file, you will need MS Office or any other Office related app that opens Excel files.
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