Website Optimisation Techniques

As well as link building and on-page optimisation, there are some other very important SEO factors which can help your website index and rank in search engine listings. The following techniques are grouped into the category named 'website optimisation' and should not be overlooked when preparing an SEO campaign.

Domain Age and Expiration Date

Google and other search engines include many factors within their ranking system. One of these factors is trust rank. Owning a domain that has history improves the trust rank as does registering the domain for a long period of time.

Website History

Again trust rank comes into play here. If your website has been archived in the search engine results for a long period then it will help improve rankings and indexing of webpages created in comparison with a fairly new website with no history.

Structured Navigation

When creating a website, it is important to provide a well structured navigation, not just for users but also to allow search engine bots to follow links and index webpages within your website. Structuring your navigation correctly can help all you webpages be indexed and should help the flow of Google's PageRank spread through out the website.

Valid HTML

As with structured navigation, the importance of valid HTML to search engine bots is to allow all webpages within your website to be indexed within the search engine listings. Validating your HTML will ensure that the bots do not hit any 'brick walls' within the code that prevent them from reading the rest of the webpage.

Contextual Linking

To further help the indexing of your webpages and to even out the flow of Google's PageRank, it is useful to include links within the content text of your webpages. Wikipedia is a perfect example of how this should be done.

URL Structure Including keywords in your website's URLs will help you rank for those terms. If your website uses dynamic URLs created through variables then think about rewriting them. Separate keywords using a minus character (eg. search-phrase.html) and try and keep the important keywords as close to the beginning of the URL as possible.

Regional Targeting

If you wish to target a certain region then there are a few steps you can take to help this process. Firstly you can choose a relevant domain such as a .co.uk (UK) or .de (Germany) rather than a generic .com domain. Then look at your hosting IP location, search engines can access this information and will use it to decide your target audience. Finally, Google Webmaster Tools allows you to set a geographic target which is useful if you have a .com domain.

Site Maps

Search engine bots look for site maps when they visit your website. Providing a standard HTML site map will help improve the indexing of your webpages and allow bots to find webpages that they might otherwise have missed. You can now also provide and submit an XML site map which all the major search engines have took on as a standard. Use your robots.txt to tell bots where to find your XML site map and also submit it to Google Webmaster Tools and Yahoo Site Explorer.

Domain Name

If you are purchasing a domain name for a new website then think about including your main targeted keywords within that domain name. For example if you are building an online store that sells low price golf clubs in the UK and you buy the domain cheapgolfclubs.co.uk then you are definitely going to have a lot more of a chance for quickly ranking well for the search term 'cheap golf clubs' in UK search engines than you would with a more generic domain name. You would also do well for long tail search terms such as 'cheap golf clubs in the UK' and have more chance of ranking for 'golf clubs' in the long term.

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15 Tips to Drive Traffic to Your Blog

There are many factors that make blogs much better than normal WebPages including the speed at which blogs are indexed, ability to submit to blog directories & normal directories, pings and track backs. All these little things can help drive more traffic to blogs. Here are 15 popular techniques you can use:

1.) Create at least four keyword posts per day. Most of the top blogs such as Boing Boing, Daily Kos, and Instapundit (with literally tens of thousands of visitors per day) publish an average of 30 small 100-150 word posts per day according to "Secrets of the A-list Bloggers: Lots of Short Posts" by TNL.net

2.) Submit to My Yahoo! When you submit your own RSS to My Yahoo it is indexed by Yahoo.

3.) Submit to Google's Reader. When you submit your own blog RSS to Google's Reader the Google Blog Search will index your site.

4.) Add a relevant link directory to your blog and trade links like a demon
possessed! Although it may take more time than simply submitting to a search engine one time, this method is perhaps the best way to drive traffic to your site. Use software such as Zeus to speed up the link trading process.

5.) Use ping sites like ping-o-matic. Ping your site every time you add a new post.

6.) Submit your blog to traditional search engines such as AltaVista, and MSN.

7.) Submit your blog to traditional directories such as DMOZ. Directories
(particularly DMOZ) increase relevance with Google. DMOZ is very picky, but what do you have to lose by trying?

8.) Submit to as many RSS Directories and Search Engines as possible. This is a simple but repetitive process that can be done with software such as Only Submitter.

9.) Comment on other blogs. Do not just leave short, lazy comments like "I agree." Leave well thought out replies that will force readers to wonder "who wrote this?"

10.) Use track backs. If there is a blog that you refer to or quote and it is highly relevant to your subject, leave a track back. It increases your link popularity and may even score a few interested readers from the linked site.

11.) Go offline. Use newspaper ads, public bulletin boards, business cards, even stickers to let as many people as possible know your blog exists.

12.) Ad a link to your blog in your e-mail signature block.

13.) Use Groups (Usenet). Find a relevant group on Google groups, Yahoo groups, MSN groups or any of the thousands of other FREE group services and find like minded people and talk with them. Make sure your use your blog URL like it is your name.

14.) Use Forums. Forums are one of the best places to go for advice. Go to forums and find problems to solve. Make sure you leave your blog name, but be tactful about it; some forums get annoyed with those who selfishly drop a few links to their own site and leave. Check out my forum: http://BIGMarketingForum.com

15.) Tag your website. Tagging is a new idea that has erupted across the web. Sites like Del.icio.us, Technorati and many others have a social feature that allows you to place your article under keywords or "tags" that everyone interested in that tag can see.

Although these are some of the most popular ways to drive traffic to your blog, do not limit your self to tips and lists. Use your imagination and you will come up with thousands of ways to drive traffic to your blog!

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20 Business-Building Practices:

You have nurtured your idea, created a business plan, and secured financing. Now for the make-it or break-it question: How do you continue to grow your business year-after-year?

Building a better "mousetrap" doesn’t guarantee that the world will beat a path to your door. And, contrary to the inspiring message in the movie, “Field of Dreams,” there are no assurances that, “If you build it, they will come." Increasing demand for your products/services and growing your business is realized by the creation and implementation of well-defined strategies.

Two major factors of marketing are the recruitment of new customers (acquisition) and the retention and expansion of relationships with existing customers (customer relationship management). Once you have converted the prospective buyer, customer relationship management (CRM) takes over. The process for CRM shifts from that of being the marketer, to that of being a builder of relationships. Building customer relationships involves nurturing the links between you and your customer, enhancing the benefits that sold your customer in the first place, and continuously improving the product/service in order to protect your business from competitive advancements.

The marketplace is ever changing; therefore, a marketing strategy that works today does not necessarily mean that the same strategy will work in the future. These changing environments necessitate the need to continually analyze and measure the results of each and every one of your promotional efforts. A system that tracks and monitors incoming sales inquiries, by the lead source, is imperative.

The basis of your business development strategy is the recognition of the concept that marketing is a process and not an event. Building a business is, in fact, building a brand. Building your brand is a process that consistently broadcasts your message through a number of different channels to a targeted audience. The trap in event marketing is that it creates the effect of start and stop marketing and produces gaps in the frequency of your promotional efforts.

The need for a written marketing plan is critical. The American Marketing Association (AMA) states, “Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives". Your marketing plan is your road map that guides you through the marketing process.

There is a variety of ways to generate greater demand for your business. Whether you are starting a new business or jump starting an existing one, you need to identify at what stage of the business life-cycle your company is currently in. This information will impact your choice of strategies.

Here are twenty (20) effective business-building practices:

1. Review your unique selling proposition: The Unique Selling Proposition (USP) is your biggest marketing weapon and the key to differentiating your business. What is a USP? In essence, it is a simple statement that sums up the unique features, benefits and value that you provide, that no one else can. You arrive at your USP after you identify the features, benefits, and advantages of your company's products/services. After you apply the same process to each of your competitors' products/services, then compare and isolate the elements that distinguish you from your competition.
   
   
2. Establish a marketing communication budget: Determining and allocating a specific amount of money to fund your marketing strategy cannot be overstated. Whether you use the affordability method, percentage-of-sales method, competitive-parity method, or objective-and-task method to determine the amount of your marketing budget, you must pre-establish an amount of money that you will spend on marketing activities to achieve your sales/revenue projections.
   
   
3. Incorporate integrated marketing communications: A management concept that is designed to make all aspects of marketing communication such as advertising, sales promotion, public relations, and direct marketing must work together as a unified force. In practice, the goal of IMC is to create and sustain a single look and message in all elements of your marketing campaign.
   
   
4. Utilize indirect marketing: Needless to say, putting more "boots-on-the-ground" in your sales and marketing activities can pay huge dividends. Some of the more popular indirect marketing methods are networking, strategic alliances, independent sales representatives, affiliate marketers, and dealers/distributors.
   
   
5. Ask for referrals: You know the importance of referrals. But, if you do not continually ask for referrals, you will not generate them. It makes good business sense to always ask for referrals. Just ask your customer if they may know of other companies that could utilize your products/ services. You may be pleasantly surprised by their reply.
   
   
6. Explore different markets: If your products/services are presently being sold to one or two different markets, then it is time to explore the opportunities that may be available to you in other markets. A little brainstorming with your staff about this often produces a good "hit list". As they say, "think outside the box".
   
   
7. Consider additional channels of distribution: There are a number channels of distribution that may work for you. For example, selling direct, such as via mail order, Internet and telephone sales. Companies also use sales agents who sell on their behalf and/or distributors (also called wholesalers) who sell their products to retailers. And finally, there may be possibilities of selling direct to retailers and end users.
   
   
8. Expand your geographic reach: Additional channels of distribution are often needed for you to expand geographically. You may want to consider the possibility of franchising or licensing others to promote and sell your products?
   
   
9. Increase product/service offerings: This is a very common method to increase sales/revenues. Important considerations when evaluating a new product/service offering are: Can the new product/service be sold to your existing customer base? Does the new product/service complement your existing products/services?
   
   
10. Differentiate your business: Differentiating your business means that you define your company in relationship to the competition and that you communicate to your customers the value added benefits of doing business with you, versus doing business with your competition. Differentiating your business also means that you continuously make improvements to sustain a leadership position.
    
    
11. Identify your customers' competitors: A great source for new prospective customers is your customers' competition. In most cases, these competing companies have the same or similar needs as that of your existing customers.
    
    
12. Survey your customers: In order to effectively differentiate your business, you need to look at your business from your customers/prospects’ perspectives. A customer survey is a great avenue for your customers to express their opinions, to air their complaints, and to voice their satisfaction with your business. The information collected from a customer survey provides the foundation for your marketing strategy.
    
    
13. Profile your competitors: A competitive analysis lists your leading competitors. It summarizes their products and services, promotional strategies, distribution methods, strengths and weaknesses, locations, offerings, prices, and branding. A competitive analysis also outlines strategies for gaining an edge and defines a course of action to take in order to keep competitors out of your market. The analysis helps you expose the competitor's weaknesses and areas of vulnerability. With this information, you are better equipped to craft competitive and marketing strategies that you may choose to fine tune your brand and your messaging.
    
    
14. Acquire new customers: This is a given…your business cannot sustain itself without the addition of new customers. New customer acquisition is a process that combines market data with direct marketing tools to identify and reach high-potential prospects and convert those prospects into customers.
    
    
15. Mining your existing customers: It is far less expensive to generate additional business from your existing customer base than it is to generate new business from new customers. A regular review of your customers' buying history and frequency of purchases can reveal some interesting facts about your customers' buying habits.
    
    
16. Create customer loyalty programs: As the marketplace continues to be more competitive, more and more businesses are offering loyalty programs. These programs help to transform first-time customers into repeat customers by rewarding them with incentives, coupons, certificates or discounts.
    
    
17. Up-sell: Capitalize on the untapped value of your existing customers by promoting related or more expensive products/services. As an example, your customer who regularly buys golf balls is a strong candidate to purchase golf clubs, apparel and other golf accessories. Make a routine practice of recommending additional items that can be added to your customer's order.
    
18. Merge or acquire a competitor: The benefit of combining your company with another company creates an immediate sales growth opportunity simply from the acquisition of their existing customer base. And everything else being equal, the new "combination business" should have the potential to become even more profitable than the two businesses operating independently. This potential for increased profitability comes as a direct result of both sales increases and operational efficiencies (opportunities to reduce total costs) that accrue from combining the two businesses.
    
    
19. Use SWOT analysis: SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. It is an assessment technique that paints an accurate picture of how your business stacks up based on those four factors. SWOT can identify your venture's pros and cons, so that you can align internal strengths and weaknesses with external opportunities and threats. This exercise is essential to sound strategic planning. With SWOT, you can identify and prioritize the issues that will accelerate success.
    
    
20. Revisit lost customers: According to the research in the book, Customer Winback How to Recapture Lost Customers and Keep Them Loyal, written by Jill Griffin and Michael Lowenstein, a firm has a 60% to 70% chance of successfully repeat-selling to an active customer. A 20% to 40% chance of successfully repeat-selling to a lost customer and only a 5% to 20% chance of successfully closing the sale on a brand new customer. These statistics suggest that a key opportunity exists for businesses to increase or maintain a customer base by mining and evaluating their database of defected customers. Bernd Stauss and Christian Friege make this argument even more convincing in a case study entitled, Regaining Service Customers. Their findings show that the net return on investment from a new customer obtained from an external list is 23% compared with a 214% return on investment from the reinstatement of a customer who has defected.
    
    
21. Bonus Item. Dead prospect files: Dig out your old prospect files and make a "hit list" comprised of all of the old prospects that you think may still have life. Contact each one of them. Express your wish to discuss their present-day wants and needs, as well as, the opportunity to explore the possibility of you servicing their needs.
    

Which of the above business-building practices have you, can you, or will you implement in your business development strategy?

Copyright 2007-2008 Terry H. Hill

Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at http://www.legacyai.com

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The Importance of Supplementing

It is highly unlikely or unrealistic for one business owner to have all of the necessary skill sets to effectively manage and control a business. While an owner might understand or be proficient in several required disciplines—sales, marketing, management, organizational control, financials, logistics and operations—a proactive business leader realizes that he must surround himself with individuals who have greater expertise in the areas where he lacks experience.

Michael Dell, the founder of Dell Computer, has said, on more than one occasion, that he realized early on that he needed to surround himself with a strong management team that had the skills and experience that he lacked. The success of Dell Computer speaks for itself.

Unfortunately, for most entrepreneurs, the costs associated with hiring and employing a staff of individuals that possess the skills and experience that the entrepreneur lacks, can be high. However, there are a number of cost efficient means that you can use to supplement your lack of experience, to solidify your organization, and to obtain the support that you may need to manage and strengthen your company both tactically and strategically.

The following methods can lower costs and improve your firm's talent shortage.

• Interim Management: Interim management is the temporary provision of additional management skills and resources. Interim management is viewed as a short-term assignment with a proven heavyweight executive manager. A variety of business situations that could merit the need for an interim manager are: crisis management, sudden personnel departures, changes or transitions, IPOs, mergers and acquisitions, and project management.

• Temporary Employees: Temporary employees are often referred to as "contractual" or "seasonal" or "temps." Depending on the case, this classification of employees may work full-time or part-time. Many temporary employees work for agencies that specialize in a particular profession or a field of business, such as accounting, health care services, general industrial labor, technical or secretarial skills. Businesses that require frequent adjustments of staffing levels are best serviced by the use of temporary employees.

• Outsourcing or Sub-Contracting: Outsourcing is a familiar practice of using outside firms and/or individuals to handle work normally performed within a company. More and more businesses routinely outsource their payroll processing, accounting, distribution and many other important functions -- often because they have no other choice. The decision to outsource is often made in the interest of lowering your firm's costs or to make more efficient use of labor, capital, technology and resources.

• Outside Consultants and/or Advisors: These are resources that smaller companies - without experienced management teams - can access. Larger companies can use outside consultants and advisors to supplement their internal management. Securing an outsider's perspective - one that is experienced and impartial - can be an invaluable advantage and may avoid costly mistakes. If you select the right advisor, then the cost of working with the experienced advisor can provide a significant return on your investment.

• Board of Advisors: This is yet another strategy employed by both small and large companies alike. Depending on the size of the company, an advisory board usually includes the business owner and a limited number of employees. In addition, there are usually two to four external members of the board—typically the owner’s banker, attorney, accountant, and consultant. Advisory board meetings generally take place monthly or quarterly, last no more than two hours, and incur minimal board fees.

Business owners who realize the importance of supplementing their skill sets and surrounding themselves with individuals who can “see the forest through the trees” are taking the first steps to successful business management and development.

Copyright 2007-2008 Terry H. Hill

Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at http://www.legacyai.com

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12 Business Skills You Need to Master

Developing a small business into a successful enterprise demands more than passion. Unfortunately, facts speak for themselves. Over half of new businesses fail mainly because the entrepreneur is unable to translate their passion into practical business skills. Success demands more than hard work, resilience, and expertise in your field. In order to succeed, you need to understand and to become proficient in a set of fundamental business skills.

Running a small business requires that you become a jack-of-all-trades. It is important to know early on which skills that you have and those that you will have to learn or delegate to others. When it comes to the skills that you lack, you can learn these skills over a period of time by yourself, you can hire employees who are strong in specific areas, or you can engage the help of a professional business advisor.

Here are the essential soft skills (people skills or anything that is not a technical skill) that you will need to learn or import to help you to succeed in your business:

• Delegation Skills -- Delegation involves assigning responsibility to other people for the completion of work. The ideal position that you want to obtain is one where your staff carries out all the routine activities of your business. Effective delegation involves achieving the correct balance between effective controls and allowing people to complete their job effectively. The key element is knowing how to make your business work, rather than your business working you!

• Communication Skills -- Communication is an important part of life and is one that is often taken for granted. When you think about it, almost everything you do requires improved communications. To be effective in business, you have to communicate well. When you hire a new employee, good communication skills help you select the right person. When you communicate with your various stakeholders, you need to be clear about your expectations and to be sensitive when dealing with problems. The key is to know how to effectively communicate your vision with passion and conviction.

• Negotiation Skills -- Almost everyone negotiates informally on a daily basis without even being aware of it. Formal negotiation is a skill that can be learned through experience and practice. People who negotiate frequently tend to be more skilled at it than people who have not participated in many formal/informal negotiations. Experienced people are more likely to know what to say, when or when not to say it, or when or when not to make concessions. The key is to know how to develop a win-win approach in negotiations with all parties, but at the same time keeping in mind that you also want to obtain the most favorable outcome possible for yourself.

• Strategic Planning -- Strategic planning is a very important business activity. Strategic planning is a process of defining your company's strategy or direction and making decisions on allocations of resources of capital and people. The key is to know how to project your company's future performance, within a three-to-five year framework or more, supported by your well-defined business plan.

• Leadership Skills -- Leadership is a process of getting things done via people. Leadership, a critical management skill, is the ability to motivate a group of people toward a common goal. Leadership is also the ability to take charge, assemble, mobilize, and motivate teams. The key is to know how to forge long-term relationships with prospects, customers, suppliers, employees, and investors.

• Team Building Skills -- Team-building and teamwork skills are essential for an entrepreneur in today's workplace. People working at their potential in teams generate better solutions and more productivity than individual members working independently. The key is to know how to build teams of employees, partners, advisors, and investors that will help you take your business to the next level.

• Analytical Skills -- Today’s workplace is becoming more technologically advanced and complex. With this rapid increase of technology, the need for analytical thinking also increases. Analytical thinking is the ability to objectively assess the present state of your business, to determine where you want to be in the future, and what to do in order to close the gap between the present and the future growth of your business. The key is to know how to gather, review, and evaluate data that is necessary to formulate and express compelling arguments.

• Sales and Marketing Skills -- Establishing successful sales and marketing methods and policies - from pricing and advertising to sales techniques - are essential in growing your business. The ability to analyze your competition, the marketplace, and industry trends are critical to the development of your marketing strategy. The key is to know how to craft and communicate a compelling message to the right target audience that generates new business, and in turn, builds profitable revenue streams.

• General Management Skills -- Management involves directing and controlling a group of one or more people for the purpose of coordinating activities that will accomplish a goal. Management encompasses the deployment and direction of human resources, financial resources, and technological resources. The key is to know how to develop and implement a workable management system that will manage daily operations, nurture stakeholders, and support business growth.

• Cash Flow Management Skills -- Cash flow is generally acknowledged as the single most pressing concern of the small and medium-sized businesses. In its simplest form, cash flow is the movement of money in and out of your business. Cash flow is the life-blood of all growing businesses and is the primary indicator of business health. The effect of cash flow is real, immediate and, if mismanaged, totally unforgiving. The key is to know how to monitor, protect, control, and put cash to work.

• Financial Management Skills --The activity of finance is the application of a set of techniques that individuals and businesses use to manage their money, particularly the differences between income and expenditure and the risks of their investments. The need for timely budgeting and reporting of financial performance is of the upmost importance. The key is to know how to interpret and analyze your financial statements, in such a way, as to identify the items that are adversely affecting your profitability.

• Time Management Skills -- Time Management is a set of related common-sense skills that help you use your time in the most effective and productive way. Time Management is a very important skill to master. Learning this skill will empower you to achieve more and to use your time wisely. The key is to know how to manage your time efficiently and to focus on the activities most likely to deliver value to your business.

Copyright 2007-2008 Terry H. Hill

Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at http://www.legacyai.com

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Keeping Your Bottom Line Strong:

Henry Ford once said, “Money is like an arm or leg—use it or lose it.” There is a lot of truth in Mr. Ford's statement. One of the biggest challenges that entrepreneurs face when building a business is getting, keeping and managing money.

In fact, of all the aspects of creating, establishing and growing a small business, financial management is the most problematic for small business owners. When it comes to launching and growing a business, sound financial management practices are also the most critical predictor of success.

Without a positive cash flow or a steady source of working capital to pay the rent, utilities, employees, repay debt, or expand your infrastructure, your company won’t be in business for long—much less positioned for growth. In fact, poor financial management is usually a fast track to insolvency.

While managing finances may not be one of your strengths, it is critical that you keep your eye on the bottom line. Even if you have hired experts to account for and manage your money, you still need to understand how to analyze your company's performance and assess your business’s financial health.

Maintaining good financial records is critical to the success of your business. Accounting and finance are fundamental tools for setting goals, measuring results, and making decisions that depend on sound record-keeping. According to a report by the Small Business Administration, an appropriate record-keeping system can make or break a new business. And, if you’re in business already, an appropriate record-keeping system can increase your chances of staying in business.

Good record-keeping provides the foundation for financial reports that are required by banks and government agencies. While these financial reports provide you with a means to better onitorm your company's performance, your basic record-keeping system should be easy to use, reliable, and accurate.

There are three financial reports that give you an accurate read on the health of your business, tells you - at a glance – exactly how your business is performing, tells you how well you are managing cash flow, and tells you whether or not you are operating at a profit or at a loss. These reports depict your company's net worth.

The three financial reports are:

• Cash flow statement: Cash flow statements report a company’s inflows and outflows of cash. This is important because a company needs to have enough cash on hand to pay its expenses and to purchase assets. While an income statement can tell you whether or not your company made a profit, a cash flow statement can tell you whether or not your company generated cash. A cash flow statement shows changes over time, rather than absolute dollar amounts at a point in time. The cash flow statement uses information from a company’s balance sheet and income statement. The bottom line of the cash flow statement shows the net increase or decrease in cash for a specific period.

• Balance sheet: A balance sheet provides detailed information about a company’s assets, liabilities and shareholders’ equity. Assets are "things" that a company owns that have value. Liabilities are amounts of money that a company owes to others. Shareholders’ equity, sometimes called capital or net worth, is the money that would be left if a company sold all of its assets and paid off all of its liabilities. This leftover money belongs to the shareholders, or the owners of the company. A balance sheet gives you a snapshot of your company’s assets, liabilities, and shareholders’ equity at the end of the reporting period. It does not show the flows into and out of the accounts during the period.

• Income statement: Also known as a profit and loss statement, an income statement is a report that shows how much revenue a company earned over a specific time period (monthly, quarterly, semi-annually, and annually). An income statement also shows the costs and expenses associated with earning that revenue. The literal “bottom line” of the income statement shows your company’s net earnings or losses and tells you how much your company earned or lost over the period.

It is a good idea to examine your business operating ratios and compare them with similar ratios within your industry on a regular basis. The Almanac of Business and Industrial Financial Ratios, published annually by Prentice-Hall, is a good source of financial ratio data that is representative of most businesses in the U.S.

Financial ratios are analytical tools that enable you, your investors, creditors, and shareholders to quickly appraise the financial health of your company, pinpoint strengths and weaknesses, identify trends, and create forecasts. A ratio represents simple arithmetic—the relationship of one number to another. In the world of financial analysis, ratios make it easy to compare performance from year to year, or against other companies or the industry as a whole.

Many different types of financial ratios can be derived from balance sheets and income statements. Examples of balance sheet ratios include current, quick, cash and debt-to-worth ratios. Income statement ratios include gross and net margin ratios. Business efficiency ratios include sale-to-assets ratios, return on assets, return on investment, inventory turnover, inventory turn days, accounts receivable turnover, average collection period, accounts payable turnover and average payment period.

Not all types of financial ratios are as significant, or as relevant, to all businesses. The following financial ratios are some of the most important financial ratios for all types of businesses. Using these financial ratios helps you to answer a few critical questions about your business.

Is your business solvent?

Current Ratio = Current assets : Current liabilities

The Current Ratio is a test for solvency. It provides a clue to the magnitude of the financial margin of safety for the business. The standard guideline for this ratio is 2:1 or higher.

Is your business liquid?

Quick Ratio = Cash & accts receivable : Current liabilities

The Quick Ratio is also known as the Acid Test Ratio. It’s used to determine the company’s general liquidity (its ability to pay its current debts). A general standard for this ratio is 1:1 or higher.

Has your business borrowed wisely?

Total debt : Net worth

This operating ratio reveals the extent to which the business has borrowed money. Too much debt may indicate insufficient capital and could weaken the business’s competitive position.

How is your business performing?

Working capital : Sales

This ratio shows the relationship of working capital to business transactions. Compare this ratio with averages in your industry and related businesses to determine business performance.

Are your products selling?

Cost of sales : Inventory

This ratio shows the number of times the inventory turns over. A comparison with industry and related business averages can be revealing. Slow inventory, relative to similar businesses within the industry, could indicate problems that will show up in future profitability.

How is your management doing?

Net profit : Net worth

This ratio shows the return on invested capital. Compare it with industry and related business averages. Also compare this ratio with the rate of return you could expect to receive in the equity or financial markets. The risk of running a small business is not worth mediocre returns on investment capital.

Is your business earning a profit?

Net profit : Sales

This ratio measures the profit margin of the business. Compare it with industry and related business averages to see how well your business is doing.

Are your profits adequate?

Cost of sales : Sales

If this margin appears thin compared to the industry average, it could mean future trouble. This indicates how much money is available to pay expenses. Even a small decline in sales for a company with a weak ratio may have serious consequences.

Gains and losses in assets and liabilities that appear on the balance sheet are also reflected in the revenues and expenses that you see on the income statement. Cash flows provide more information about cash assets listed on a balance sheet and are related, but not equivalent, to net income shown on the income statement. No one financial statement tells the complete story. But combined, the cash flow statement, income statement, and balance sheet provide very powerful information for you and your investors to assess the financial health of your business.

Copyright 2007-2008 Terry H. Hill
Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at http://www.legacyai.com

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The Nuts and Bolts of Running Your Business

There are three key processes in operating a small business—management, strategy and operations—all of which are tightly integrated. The management process provides a framework for hiring, training, and managing people to produce results. The strategic process defines your short-term, as well as, your long-term goals---where you want to take your business (earnings, sales, and revenues) and how you will get there. The operational process provides the roadmap, tools, and resources for getting there.

Effective business processes depend on standardization--- setting standards of how things should be done and formalizing processes for getting things done to meet those standards. With basic systems in place, jobs, tasks and decisions are easily performed rather than becoming confusing challenges.

One of the most common causes of business failure is the lack of standardized systems. Fly-by-the-seat-of-your-pants management generates chaos and inconsistency. However, if you create basic systems and processes for performing day-to-day tasks that can be easily replicated, then you are well on your way to building a business that produces consistent results.

One of the greatest entrepreneurial success stories is that of McDonald’s, a complex, well-run business system that is operated by ordinary employees who serve over 45 million people every day. Its founder, Ray Kroc, didn’t invent the McDonald's concept, but he did revolutionize the food service industry through automation, attention to detail, exceptional efficiency, and the highest standards of safety and cleanliness.

Standardization of processes is a necessary part of the transition from a fledgling company to a professionally managed enterprise. As your business grows, standardization of processes and procedures is essential to future growth and success.

Early stage entrepreneurships are characterized by informal management, ad hoc procedures, and, at times, a total lack of systems, processes, and procedures. At some point in the business lifecycle, standardization becomes critical. Very few businesses can manage by exception or flourish because they do not have a system for getting things done.

Standardization means creating a prototype of how your business should run, charting an organizational path, identifying key functional areas, and establishing positions to support them. It means hiring, training, and acculturating people. It means creating a system of standard processes, procedures, and guidelines that inform employees how to deliver goods or services and formalize the steps in an operations manual.

One of the goals in producing a policy and procedure manual (operations manual) is to document the core business processes that produce an optimal business model. An optimal business model should be easy to understand, should be repeated on a continued basis by other employees, in other offices, over time. Optimal models generally produce consistent results, increase profits, and improve employee morale. Consistency reduces risk and uncertainty while producing a more stable company.

Business growth does not have to equal complexity. Success sometimes hinges on elegant simplicity. Many times, when companies expand as a result of rapid, unplanned growth rather than a carefully orchestrated plan, complex inefficient operations result. Organizations find themselves with staff, resource, and equipment redundancies, lack of formal systems, duplicated efforts, and no clear line of sight to the strategy driving the business.

In order to safeguard your business from becoming too complex and inefficient, streamline your business processes. Here are some tips to help you streamline your company's workflow processes:

• Analyze each existing business process.

• Identify gaps in efficiency and productivity.

• Develop a solid plan to redesign and formalize processes.

• Nurture cooperation from partners, investors, managers, and employees.

• Prepare your company for inevitable changes.

• Establish performance benchmarks.

• Roll out the plan using a phased approach.

• Monitor and evaluate progress.

• Consider outsourcing processes that you cannot handle in-house.

In today’s competitive market, the processes that you employ to deliver your products and services are often what differentiate your company from your competition. Therefore, make sure your company is as efficient, responsive, and as productive as it can be.

Copyright 2007-2008 Terry H. Hill

Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at http://www.legacyai.com

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Making the Transition from an Entrepreneurship to a Professionally Run Business

Starting a new business is an exciting venture, full of challenge, opportunity, and excitement. Especially, if your entrepreneurial concept gains traction and generates growth. When it does, the next step is transitioning from an entrepreneurship to a professionally run business.

However, here is the irony. At this transition point—precisely the one you want to reach—is where many small businesses run into trouble. Because while the entrepreneurial skill set is great for creating and building new businesses, it is not as well suited to transforming fledgling businesses into long-term companies.

As a business grows beyond the startup stage, the ingredients that made for a winning start become a recipe for disaster. This is where entrepreneurs often make big mistakes. As Bill Gates observed, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose. “

Smart people can lose. And many entrepreneurs do every day. The key is to understand the business lifecycle and how to move from one stage of the lifecycle to the next. Transition is a natural part of the process. A rapidly expanding company can quickly outgrow its infrastructure. Suddenly the informal management style that worked so well in the beginning no longer gets the job done. The organization’s existing infrastructure cannot support the next stage of growth, and the fallout is upheaval.

In truth, rapid growth and expansion place an incredible strain on resources. The gap between the infrastructure you will need and the infrastructure that has evolved becomes painfully evident. If your business is to succeed, you need systems and processes that will stabilize your company and support future growth. This is why a well-planned transition strategy is so important.

In most cases, with an entrepreneurially run business, management is more growth-and innovation-driven and less profit-driven. The emphasis is on creativity and innovation rather than structure or operations. Planning is haphazard rather than systematic. The organizational structure is loosely defined. Budgeting is implied. In essence, an entrepreneurially run business is an adolescent in the business lifecycle, pursuing growth, change, and opportunity but is desperately in need of stabilization.

On the other hand, a professionally managed organization is one with formal, thoughtfully-developed systems and processes and a disciplined, profit-oriented approach to doing business. In professionally managed organizations, management techniques have evolved beyond the spontaneous, reactive mentality typical of startups. Management styles are established. Professionally managed organizations are more democratic (typically consultative or participative). Professionally managed enterprises are based on clearly communicated objectives, expectations, and accountability.

To advance beyond an entrepreneurship business, the entrepreneur must take stock and implement systems, develop processes, and hire people who can steward the company into the future. This transition requires formal planning, meetings, systems, and clearly defined roles, responsibilities, and processes.

The first step in advancing from an entrepreneurship to that of a professionally run business is to recognize that the business has reached a new stage in its business lifecycle. The second step is to acknowledge that it is now time for change. The third step is to enlist the help of outside professional business advisors to assist you with the transition.

With a professional general business advisor, you obtain an accurate and an unbiased diagnosis of your entire business. Only then can you develop and implement an effective strategy to transition from entrepreneurship to a professionally run business. The professional general business advisor assists you with the development and implementation of the following:

• Assess your organizational infrastructure to determine how well existing systems, processes, and structure support future needs.

• Know where you are headed so you can communicate to your employees the direction that your company will take in future developments.

• Draft a development plan that maps out how you will build the competencies you need for the next stage of development.

• Create or revisit your business plan and use it to guide and monitor your progress.

• Develop training and mentoring programs to cultivate the management team’s capabilities.

• Implement realistic systems for planning, organizing, managing, and increasing accountability.

• Standardize the various processes for the best efficiency.

• Define the roles and responsibilities of each employee.

• Establish and communicate objectives, goals, measures, and rewards to your stakeholders.

• Let go, and let the experts do their jobs.

When companies transition from startups to professionally managed enterprises, founder/entrepreneurs often arrive at a crossroads. As the business owner, you need to consider if you should step back and hand the reins over to an experienced, professional management team? Or, should you stay and attempt to adopt a more structured management style?

The decision is yours. However, keep in mind, that the skills it takes to hatch a business concept … identify a market … develop a product or service …and assemble the resources and operations to bring it to market are not the same skills you need to shepherd a company into the future.

Copyright 2007-2008 Terry H. Hill

Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at http://www.legacyai.com

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Strategic Planning is not only

Strategic planning is by far the most important task of any management team. Unfortunately, far too many entrepreneurs believe that strategic planning is an exercise that is meant only for big businesses; when in fact, strategic planning is equally applicable and critical to small businesses.

Strategic planning is a way to identify and move your organization toward its desired future state. Strategic planning aligns the strengths of your business with the available opportunities. It is the process in which you develop a vision, set objectives, craft a strategy, implement and execute the strategy, and finally monitor and evaluate the desired outcome.

The benefits of planning are quite evident. An organization simply cannot know what it is currently doing, where it is going, or what it intends to do to get there, unless the organization periodically establishes and monitors its goals. Strategic planning enables people to influence the future by focusing on the important resources of time, talent, and money, while properly allocating these resources to provide the most benefits.

The very act of strategic planning implies a proactive style of management that anticipates future events before the events actually take place. Proactive management eliminates the possibility of being over-run by the event, and sets plans and procedures in place to cope with this type of event should it present itself. Your strategic planning process develops a frame of reference for your sales forecasts, operational expense budgets, and capital requirements.

A strategic business plan is the end result of the strategic planning process and it becomes your "road map" to success. It is your strategic business plan that allows you to better articulate your vision while providing the necessary documentation to support your claims. Your stakeholders (lenders, customers, suppliers, and employees) gain a greater sense of security that evolves from a better understanding of the opportunities, the obstacles, and the ability that you and your company's have in order to adapt more effectively to an ever-changing business environment.

Copyright 2007-2008 Terry H. Hill

Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at http://www.legacyai.com

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