Running Blind

July 8th, 2008 Chris

Every week a buddy and I go to a track work out where we run intervals and get reminded just how old we are. Unfortunately, we rapidly offset all caloric benefits with the ingestion of several beers but at least we figure we’re breaking even…

One of the challenges of our work out is when the coach tells us to go run 800m at a certain pace. Half-way through I’m always completely confused – am I going fast enough? Too fast? Eek! I find myself having to tuck behind someone with sufficient disposible income to have one of those GPS-enabled Gramin training watches – they always know what exactly the pace is.

One of the lessons I got from a big company was the need to likewise always know where you are as a business. Instead of figuring out how fast you’re running, tracking revenue, expenses, lead-generation, share of voice, etc… is the key to knowing if you’re on track with your business.

That prinicple is 100% applicable to the micro business. You may not need to track as many things but if you don’t know what’s driving your revenue and where it’s going – you will be in trouble. Today’s let’s focus on revenue.

When we go out setting our plan for the year for our business, we take the major product types (for us it’s coaching, training, speaking and events) and set goals for each. Goal-setting itself is a topic worth focus, but for now let’s just say you should always have targets.

How do you know you are reaching them? Each month, we sit down and figure out how much revenue we received in each of those for categories. We compare those for our targets for that month (derived from annual targets) and we know if we are ahead or behind target.

But what happens if you’re not on target. Every micro business will be different and it’s your job to figure out why there is a variation but regardless, you need to be figuring out what to do about it. When we’re doing our track workout, if the first 400m is slow compared to our target pace, then we need to speed up to get back on track. If the first 400m is fast, well then theoretically you can slow down a bit – though, in reality someone always tries to show off and run faster regardless…

So, the questions I always ask in the case of variation:

• If we’re below target, what caused it and will it happen again? What can be done to prevent that from happening again?
• If it’s going to happen again, should we reduce our targets for future months? If this impacts overall revenue, should costs be reduced to maintain profit?
• If we’re above target, was it a one-time fluke or a trend?
• If revenue is going to be hire going forward, should we increase investment in any activity to sell even more (ex. markeitng, development, etc…)?

In short, if you are not setting targets and tracking your sales by product group against those targets at least every month, then you are running blind and can’t react to fixing a problem (that you won’t know exists).

And remember – knowing you’re off course is useless unless you take specific action as a result.

C.

P. S. Sorry I missed last Thursday. And for the record – it’s still Tuesday in my time zone.

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Canada Day Tax Special

July 1st, 2008 Chris

It’s Canada Day today here so in celebration, I’m giving a tip we learned on the tax front specifically for Canada (it may be applicable for the U.S. and other places, but I have no idea).

For many years, our business rented office space in a near by, traditional office building. Colleen had discovered that she really was going to be more productive away from home and with the addition of one-employee, it was a must. So for a few years, each month a rent cheque got cut for a non-trivial amount.

Then one day, we were walking down the street near our house and saw a new condo-development going up. And then an idea hit Colleen – what if we bought a condo and used it as our office! The long and short of it, we now walk two blocks from our home to the office – and saving lots of money in the process.

Here is what we did:

• Purchase the condo personally.
• Rent the condo to the business for fair market value (keeps the tax man happy).

So, we end up paying rent from the company to ourselves, which we then declare as rental income. And, as a consequence of the fact we didn’t put a lot of money down for the condo, our interest expense is high and we don’t actually net much rental income (and thus, don’t pay alot of tax on it). But in the meantime, our condo is being paid off by the rent from the business. Gory rental income details are available from Revenue Canada. You’ll also want to check local bylaws on home-based businesses as well as condo regulations to ensure you’re not doing something with your business that will get you into trouble later…

And remember – if you don’t have a lot to put down or are worried about what the bank will say, you’ll have a signed lease to show them. With some history in your business’s ability to pay rent, they’ll likely have no problem in giving you that mortgage.

And it sure beats paying rent.

C.

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