Developing Your Business StrategyDeveloping your mission statement should be easy—right? After all, a mission statement is nothing more than just a few sentences describing your business. You already know the kind of business you want to run—a restaurant, a compact disc store, a print/copy shop, etc. What more is there to developing a mission statement than just writing down a few words or sentences stating what you plan to do? A lot more. If a mission statement is to be of any help to you, it must go beyond a mere descriptive statement. A good mission statement clearly defines your business in terms of both the products/service you intend to offer and the markets/customers you intend to serve. You must carve out a specific niche—a specific business segment in which you intend to compete in order for your business to be a success in the long term. Another secret for long-term success is to ensure that as your business grows, you don't get too far afield from your basic "core" expertise. In short, today in business you have to be very good to survive. You can't be good in everything so you must focus. A well-thought-out mission statement will give you that focus by answering two fundamental questions about your business: What type of products/services will you provide? What type of markets/customers will you serve? Before you can write your mission statement, you have to answer these two questions. How do you answer I them? By identifying what is called your driving force.
The concept of a "driving force" for a business was first suggested by Benjamin B. Tregoe and John W. Zimmerman in their book, Top Management Strategy. The idea of a driving force is expanded upon in Maximum Performance Management, by Joseph
H. Boyett and Henry P. Conn. Here, because of space limitations we can only discuss the driving force concept briefly, so we suggest you check either of these two books for more information.
Tregoe and Zimmerman define the driving force for a business as "the primary determiner of the scope of future products and markets." Once you select a driving force for your business—and there can be only one driving force—you have established the focus for your business. You select all of the future products/services you offer and markets/customers to be consistent with the driving force you have selected.
Tregoe and Zimmerman define the driving force for a business as "the primary determiner of the scope of future products and markets." Once you select a driving force for your business—and there can be only one driving force—you have established the focus for your business. You select all of the future products/services you offer and markets/customers to be consistent with the driving force you have selected.
In their book, Tregoe and Zimmerman discussed nine possible driving forces. In Maximum Performance Management, seven of these arc described in detail. Here, to give you an idea of how the driving force concept works, we will discuss the three that are most common. If none of these three are appropriate for your business, you can refer to the books we have mentioned for other suggestions.
The three driving forces we have found to be most common for American businesses are:
1. Body of knowledge
2. Product/service offered
3. Markets/customers served
2. Product/service offered
3. Markets/customers served
If you select "body of knowledge" as the driving force for your business, you are saying that what your business offers to the public is knowledge in a specific subject area. You might offer your customers a wide variety of products or services, but they would all have one thing in common. They are all derived from the body of knowledge you possess. Likewise, you might direct your marketing and sales efforts toward a wide variety of customers. Yet they would all have one thing in common. Each would have a need for the body of knowledge you possess and can provide to meet those needs. In short, your body of knowledge dictates both the products/services you offer and the markets/customers you serve. If a product or type of service doesn't require or isn't derived from your particular body of knowledge, then it isn't right for your company.
If a market or customer doesn't have a need that can be satisfied through the application of your body of knowledge, then that customer isn't right for your business and you wouldn't waste your marketing and sales effort on him or her.
If you select "product/service offered" as your driving force, then you are taking a slightly different approach to defining your business. In this case, what you are bringing to the public is the ability (knowledge/skill, production capability, servicing capability, etc.) to produce a specific type of product or provide a specific type of service. Once you select your initial product or service offering, then all future products or services you offer will be very similar to those you already offer. In respect to the type of customers you serve, they may be quite different (in terms of age, sex. income, etc.), but they will all have one thing in common—a need for the particular type of product/service you offer.
If you select "product/service offered" as your driving force, then you are taking a slightly different approach to defining your business. In this case, what you are bringing to the public is the ability (knowledge/skill, production capability, servicing capability, etc.) to produce a specific type of product or provide a specific type of service. Once you select your initial product or service offering, then all future products or services you offer will be very similar to those you already offer. In respect to the type of customers you serve, they may be quite different (in terms of age, sex. income, etc.), but they will all have one thing in common—a need for the particular type of product/service you offer.
The third, and final, possible driving force we will discuss here is "markets/customers served." Here, the focus of your business is meeting the needs of a particular type of customer (old people, young people, women, men, the rich, the poor, etc.). The kinds of products/services you will offer can vary greatly. The only thing they have in common is that they are something needed by your target customer.
As you read the preceding material, you may have said to yourself, "All of these apply to me." In fact, you may be right. There are usually a number of different ways you could define your business, just as there are thousands of possible businesses. The beauty of the driving force is that it forces you to define your business in just one way. It makes you focus on doing one thing well, which is exactly what you want to do.
As you read the preceding material, you may have said to yourself, "All of these apply to me." In fact, you may be right. There are usually a number of different ways you could define your business, just as there are thousands of possible businesses. The beauty of the driving force is that it forces you to define your business in just one way. It makes you focus on doing one thing well, which is exactly what you want to do.
To illustrate just how important the selection of your driving force or primary focus is, we will use the example of our own consulting business. At Tarkenton Conn & Company, we decided long ago that we had a body-of-knowledge driving force. In this
case, our body of knowledge was our expertise in implementing innovative management and compensation practices, Everything we do stems from that body of knowledge. We train, consult, lecture, write, and engage in a variety of activities. What they all have in common is that they involve the use of the knowledge we possess. Also, we don't restrict ourselves to a particular type of customer. We work with large businesses and small businesses, in manufacturing and service, with public and private organizations. The only thing our various customers have in common is that they have a need for the knowledge we possess. Since we are in the "knowledge business," we expend a lot of effort to stay current in our particular area of expertise.
While we define ourselves as being in the knowledge business, we didn't have to do so. For example, we could have adopted a product/service focus. In this case, we might have decided that we wanted to be a training company. In fact, some of our competitors do define themselves as trainers, If we had adopted a training focus, our efforts would have been directed toward developing and offering training programs on a wide variety of subjects to meet the needs of those who purchase training.
A different focus for our firm might have been on a specific market or customer base. For example, we could have positioned ourselves as consultants to a particular type of industry or business (manufacturing or service, or even more specifically defined such as textiles, utilities, banking). Again, some of our competitors do this.
As you can see, in defining our business we had a number of choices. So do you. And you can never know for certain whether you are making the right choice. That can only be determined after the fact. If your business succeeds, then you either were lucky or, in fact, you did make the right choice. If it fails, then …well, we won't talk about failing. Nevertheless, how do you select among various possible driving forces? You certainly don’t want to just flip a coin. Here are some suggestions.
Your first task in selecting a driving force is to narrow down your options. If you were examining all of the nine that Tregoe and Zimmerman presented in their book or the seven presented in Maximum Performance Management, it is likely that you would immediately discard some as not applying to your business. Even with the three we have mentioned, you may have already discarded one. Regardless, as a first cut, try to get down to no more than two or three possibilities. Then weigh the pros and cons of each.
Take one possible driving force at a time and ask yourself:
1. If we define our business this way, how many competitors will we have? (You want as few as possible.)
2. With this focus, how broad would our potential customer base be? (You want as large a base of potential customers as possible.)
3. How vulnerable would we be to sudden changes in economic, social, or political conditions? (You want to minimize the impact of forces out of your control.)
4. To what extent does this focus build upon knowledge, skill, production capability, research and development, and/or marketing/sales capability that we already have or can easily acquire? (All of these represent potential costs of doing business, and you want to minimize such costs.)
5. Will this focus require substantial new funding or significantly increase our debt structure?
Once you have assessed the pros and cons of several possible driving forces, one should stand out as the clear choice. With the knowledge of your driving force, the actual wording of your mission statement should be a fairly simple task. You just rewrite your driving force in the form of a mission statement. For example, if you choose body of knowledge as your driving force, you might write: "The mission of XYZ Company is to acquire and utilize knowledge in the area of…to meet the needs of customers who want to. . ." The exact wording of your mission statement doesn't matter. What does matter is that, in the future, anyone reading your mission statement would have little doubt concerning the types of products/services your business intends to offer and the markets/customers you intend to serve. The real test for the adequacy of your statement is whether when presented with an idea for a new product or service or a new market to enter you could go to your mission statement and, reading it, know whether that new product or market fits with your business. After all, the real test of your mission statement is not how it is worded, but whether it will serve as a useful guide in helping you make these future decisions.
excerpt from The Competitive Edge
by Fran Tarkenton & Joseph Boyett
Effective Performance Reviews
Performance reviews can be an effective management tool if both parties' interests are upheld. It provides an opportunity to evaluate job performance while clarifying objectives and identifying goals. And, it offers a forum to discuss performance issues and plan steps for improvement.
The most successful appraisals are structured so that both the appraiser and the employee see the process as problem solving rather than fault finding. To conduct an effective performance review that's both informative and fair, it's necessary to establish a set format that covers all applicable job performance areas and includes "next steps" for developmental planning and promotional opportunities.
An effective review system should meet several criteria.
It should directly relate to the responsibilities of doing the job. The criteria should be specific, quantifiable and measurable.
Host Devices (Alliances)
The average business spends hundreds of thousands of dollars in marketing and advertising to build goodwill and develop loyal customers.
The cost of acquiring a customer or prospect is enormous. (Most businesspeople don’t realize it, but they are in the customer- and prospect-generating business. That’s the goal of all marketing. Don’t every forget it!) A business spends its marketing dollars to reach a vast audience, and they only do business with a fraction of this audience. In conventional marketing, this is taken for granted.
But what if you could eliminate a lot of the expense of “prospecting” and only spend your time and money on people who are ready to buy? Conversely, what if you could recoup the investment you’ve made on past prospects that you couldn’t convert into customers --- money you have written off as a “cost of advertising?” Furthermore, what if you could do all of this with very little effort?
When you advertise and market you pay to get people to whom you don’t sell. For instance, let’s say you do a direct-mail, lead-generation campaign. The mailing costs you $1,000 per thousand names. If you do well, you’ll get 10% response. That’s great. You’ve got 100 people as a result. Now, each one of those prospects has cost you $10 to bring in. If you’re good, you’ll convert 10%. But that means you didn’t convert 90% of your prospects! So you’ve got $900 “wasted” on those prospects, and that cost takes away from your profits.
Arrange to “parasitically” benefit from the customers you’ve acquired…or the prospects you couldn’t sell…or the customers you sold something to long ago. Step back and identify what these prospects and customers are interested in, based upon what you know about them.
You have already established tremendous goodwill and trust with your customers and prospects. Another business that comes in cold would have to spend a fortune in advertising and marketing to create that trust. Your clients already have that established, and that’s worth a lot.
Ask yourself, “What kind of business do I have? Why do people come to me? What do they really want?” Once you identify what your customers and prospects want from you, then ask, “What related products or services do they want, need, or could they be interested in? What are they predisposed towards?”
That’s when the wheels start turning.
Estimated Income Tax for Corporations
Federal income tax is a pay-as-you-go tax. This means the tax must be paid as income is earned or received. A corporation is required to make quarterly estimated income tax payments for any tax year in which it will owe $500 or more in income tax.
Methods for Estimating Income Tax
Method 1: Guesstimate. The Corporation forecasts its earnings for the year as of the end of each quarter. It then determines its expected tax rate for the year and applies that tax rate to the earnings for the quarter.
Method 2: Safe Harbor. The Corporation makes estimated tax payments for the current year based equal to 100% of the tax shown on the prior year’s return. This method is not available to Corporations which had a prior year’s return of less than 12 months, a prior year’s return that showed “zero” tax or a “large” corporation. A large corporation is one which had taxable income of $1,000,000 or more for any of the preceding three years.
Method 3: Annualized income. If a Corporation’s income for the year to date is less than its expected income based on the prior year, then it can calculate its income for a down period based on projection of the actual year to date earnings rate to the rest of the year.
Method 4: Seasonal. If a Corporation’s income is earned 70% or more in one season, then it is eligible to use a more complicated version of the annualized income calculation.
Corporations that use method 3 or 4 to reduce a quarterly installment must later make up the difference in a quarter when the exception no longer applies.
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Directors and Officers Liability Insurance
Directors and officers (D&O) insurance is purchased to cover the CEO, COO, CFO, other corporate officers and outside directors. The coverage is specific to actions of the individuals, rather than to actions of the company. It applies whenever a claim is brought against one of the covered individuals for an action arising out of performance of their duties. The officers and directors will generally be covered so long as their actions are intended to be in furtherance of the interests of the company.
D&O has become a necessity for companies on a path to go public. The reason is that knowledgeable, high-profile directors are a huge plus when presenting a company to the investment community. Potential directors almost always insist on ample D&O coverage. This is particularly true in the high-tech field, where securities tend to have high volatility. The landscape is littered with class action suits against high-tech firms who have stumbled. The strike lawyers will almost always name the individual officers and directors as defendants in their suits.
Public companies pay hefty fees for D&O coverage because of the threat of shareholder claims. Smaller companies have historically stayed away from D&O coverage because of its cost.
While smaller companies don't have the same exposure to shareholder actions, they have a very real exposure to employee actions. These small and mid-size firms often combine D&O coverage with EPLI (Employee Practices Liability Insurance) coverage.
Coach's Corner
Question for the Barristers
Record Retention
We are accepting credit cards and needed to know what the requirements are to keep the data. Specifically, how long is a company REQUIRED to keep the information form credit cards like the card number. There is a certain amount of time that it is needed for taxes and also if someone is going to return an item or dispute the charge. Under security regulations, what are the MAXIMUM required time periods to keep them or is the IRS 7 year requirement the longest period?
Generally, you keep sales invoices seven years; however, there can be pending lawsuits, open tax years, and other potential considerations in a particular situation that impacts retention - which records and for how long. There is no benefit to retaining supporting documents beyond the statute of limitations from a tax standpoint, but depending on the volume of documentation, many businesses choose to retain all supporting documentation for longer periods of time or indefinitely. In addition to retention considerations, you should be aware of proper shredding or other record disposal requirements for credit card numbers and other confidential information (customers, suppliers, and employees) under consumer privacy laws. There is a retention chart on our website: choose "Tax and Accounting" then "General Accounting" under Tax and Accounting Articles and finally "Record Retention". You can also review record retention and disposal discussions at websites like the following:
Retention:
Records disposal:
http://www.spottsfain.com/CM/RecentDevelopments/New_
Regulation_Destruction_Records_Background_Checks.asp
http://www.itcinstitute.com/display.aspx?id=368
Regulation_Destruction_Records_Background_Checks.asp
http://www.itcinstitute.com/display.aspx?id=368
http://www.braunconsulting.com/bcg/reports/facta_data_
destruction_policies.html
destruction_policies.html
http://www.confidata.com/shredding/documentshreddingNAID.asp
Question for the Tax Experts
Taking Money Out of Business for Retirement
I am an employee of my business which is an S corp., and I do not have a retirement plan for myself or my employees. My wife is a school teacher and has PER's as well as its new replacement. She also is putting away some additional money each month through a program available only to educators. What is the most pre-tax money I can take out of my business and put away for retirement and the best way to do it?
Certain retirement plans allow annual contributions up to $44,000 ($49,000 if age 50 or older). Due to the variations in retirement plans and the complexities of S corp owner compensation and tax rules, we recommend that you review your business income and other financial details with your local tax advisor to evaluate and structure your retirement program. If you do not have a CPA, we have had good feedback on Padgett Business Services, which has franchisees around the country. For a referral to a local office, call (800)723-4388. You can review self-employed retirement plan options at the following websites:
http://www.smartmoney.com/retirement/ira/index.cfm?story=taxfree
http://www.irs.gov/publications/p560/index.html
http://www.toolkit.cch.com/text/P08_4800.asp
http://www.irs.gov/publications/p560/index.html
http://www.toolkit.cch.com/text/P08_4800.asp
Question for the Insurance Experts
Health Insurance for Small Business
I have a new company and would like health insurance. It is an investment company with just partners. We do not have employee pay records because we take quarterly commissions, I have a diabetic condition and find it hard to get coverage. Please find a health insurance company to cover the two partners.
Pre-existing conditions can be a factor in locating insurance today; therefore, you typically have to shop the market and options to determine what is available for a particular health situation. Self-employed individuals and small companies have several health insurance alternatives though reputable companies. Health insurance costs vary widely based the insured parties, type of plan, coverage limits and other factors. Generally, the best method to research and evaluate health insurance alternatives is to work with a local, qualified health insurance agent or broker who can help you evaluate alternatives, design a plan and then obtain quotes from the insurance companies. It is often important to work with an independent broker who can shop your insurance with several companies and not just one insurance company. Also, small business and other trade associations or organizations often offer insurance programs or broker referrals for their members.
In addition to local directories and resources, you can use our website in the Insurance section or use an Internet search engine to research group and individual health insurance and locate an agent. The following are example websites:
Diabetic insurance information:
Trade associations:
Small business health insurance programs and considerations:
Insurance websites:
One possible option may be a Health Savings Account or HSA. You have to analyze the costs; but, the new Health Savings Account approach, which replaced the Medical Savings Account (MSA) pilot program, provides an opportunity for cash savings by combining a high deductible policy with an IRA type savings account that funds the out-of-pocket amounts. Like an IRA, contributions to an HSA are tax deductible, subject to IRS guidelines, and the earnings on the account are tax deferred. Typical high deductible policies include a $2,500 deductible at half the premium of a standard plan. When covered under a high deductible policy, individuals can make pre-tax contributions to an HSA in an amount equal to the policy's deductible. The individual can then reimburse their out-of-pocket medical costs from the HSA account. The right program has to include a good PPO, however, so that costs have been pre-negotiated with the health care providers. Also, the HSA approach is better suited to healthy individuals that do not require frequent medical care rather than individuals with chronic health problems. For more information, you can search for HSA providers in the Yellow Pages or on the Internet. The following are example discussions:
If cost is a major constraint, you could look at a catastrophic coverage plan with a very high deductible and relatively low cost and supplement that coverage with a health discount card that would provide PPO discounts. For as little as $15 to $20 per month, you can get significant discounts on healthcare costs through participation in a PPO. While this is not insurance, it is an excellent way to contain costs for those without adequate coverage. For examples, go to:
Related discussion:
