Business advice

What really happens with the Fed’s decisions?
September 23, 2007, 6:57 pm
Filed under: Uncategorized

The Fed’s lowering the discount rate (interest rate) last Thursday was blasted over all business headlines. It even was the lead story in my local paper. I don’t if you’ve realized it, but the US population tends to react with a crowd-type frenzy.

If the crowd says it’s a big story, it must be. If the crowd thinks that there will be immediate changes in the credit markets, then it will happen.

The thing is, when it comes to the actions of the stock market and the business advisors, it really doesn’t matter. The stock market reacts to a cut in the discount rate as if someone was dumping a stream of gold on their head. They go nuts for a short time. These kind of buying frenzies last only a short time. Now, if you happen to be involved with trading on the stock market, you can take advantage of this craziness. If you are holding stocks they want, while the prices are going up that day, you can sell and make a profit.

If you are aware of the Fed’s actions and how they affect the markets you can be one step ahead of the rest of the investors. You will have to act quickly, since the markets’ rashness is usually short-lived. Watch out for frequent opportunities during the upcoming presidential elections.

Let’s take a more realistic look at what the Fed does when it makes its announcements about interest rates. For one thing, there is only one interest rate the Fed controls. That is the discount rate. That’s what banks pay when they have to borrow money from the Fed. As a matter of trivia interest, banks have to keep a certain percentage of their money on deposit as all times. From time to time, they may find themselves falling below the guidelines. They only have a short deadline to bring their monies back up to par. One of the money market options to make this happen is the window at the Fed. The idea that is spread through the media is that the only place bank’s borrow money is the Fed, not true. The accepted idea is that the banks are paying less when they have to borrow and will push this on to their customers immediately.

The amount of spending in an expanding of the economy then increases. This means that there will be more money flowing for everyone. The idea behind this is a firm belief that the money supply’s ebbs and flows have a direct influence of what inflation is or isn’t going to do.

The theory is too much in the money supply will aid and albeit rising inflation. This is the biggest curse of the Fed. However, they still don’t want investors and the general public to cut down on spending.

There are two other ways they can send more money into the system. If you see announcements of either of these two functions, you can rest assured that the economy ‘should’ start improving.

The Fed can lower the reserve ratio. All banks have a requirement to keep a percent of every dollar deposited in their vaults at any given time. If the Fed decides to lower the amount, it leaves the door open for more loans which equates to more spending and more building.

There is one final option. They buy and sell Treasury bills. If they want more money out there, they issue a buy order. They then pay for the T bill with a check for which the only basis is trust. There is no money backing it up. The seller than deposits the check into their personal account. The bank then keeps the reserve requirement and lends out the rest until the total amount is then in circulation.

When the Fed makes any of these moves, they are doing so to stir up the economy and get things going again. There is a fear of a slow down now due to the mortgage credit crunch.

Keep your eyes out for the Fed’s movements and you can eventually you will make better monetary decisions based on what you have learned.

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What is the price of the doggy in the window?
September 12, 2007, 2:57 am
Filed under: Business Advice

What better way to introduce a piece on pricing decisions. Before you think it is boring, keep your hat on. How your price your product or service can make or break you. I know because I have struggled with the concept and met business owners who have gone out of business because they failed at making the right choice.

There are issues that many fail to see and the result is selling an item for which the costs can never be recovered. Every business owner’s goal, whether they realize it or not, it to reach the point where their marginal costs are equal to marginal revenues. The word marginal sounds complicated. It means for the next item you sell. Those lofty economic professors try to get in the way every chance they get

The problem lies in the fact that most don’t know what costs are involved in putting that product out the door. Unless you do, you haven’t a chance to make it. Start-up costs are part of it in the beginning. It will takes months and maybe years until the next unit on the production line is only costing you the man’s wage that put it together. (I realize this is only an example.)

Designers sometimes have to be kept in check by production managers. (Again I am using this management term as an example.) Designers have to become cost conscious; otherwise there is the possibility that you might be producing a design which costs more than your nearest competitor. Of course, one can create a more expensive package if you are planning to sell to a different market niche. If those customers can afford your ‘pretty package,’ then go ahead.

No one is going to run a profitable longstanding business if they don’t keep accurate records of costs and revenues. Do not leave out the most important part of your costs. Yes, I know this is going to sign wacky, but profit is your most important cost. Many have a misguided idea that if they are lucky, somewhere down the road they will bring in profits. The problem with that theory is that it is flawed. No one goes to work at a ‘job’ without expecting to see a paycheck at the end of the pay period. New business owners who don’t understand how to calculate profit are doing just that. Those are the ones who also think it is ok to pluck every dime they get in back into the business. The only thing this does is create a bunch of financial problems for the people who have joined in this venture. Every new business doesn’t end up like Google or Yahoo with big pay days and financial folks standing in line begging to lend them money For most, this is a pipe dream.

Plan on running a business where your costs eventually can be covered by the income coming back in the door. Profit and utility bills are about the only thing you can count on to continue under the heading of fixed costs. Variable costs cover most everything else. Production will change as you need bigger and better machines. Employees will come and go. The only way to cover these inevitabilities is to calculate a percentage for growth.

The next important concept is to zero on what your competition is doing. Do their products fall under or over what you are planning as far as cost. Keeping up with your competition is very important. If they have found a way to cut down on costs, make sure you don’t come out the door with a product that costs more than theirs. This doesn’t mean that your pricing will always run exactly neck in neck with the other guy’s. It just means that you don’t want yours to be so different that people stick with the others already in the market.

Don’t find yourself cutting things so close, that if you need to have a sale on last season’s merchandise, you are losing instead of gaining with each sale.

When it comes to service companies, there are other issues to keep in mind. In this instance, the phrase ‘whatever the market can bear,’ is more relevant. You may have to in the beginning take on a client for a small pittance in order to get some credentials. Make sure if you do you write a contract that explains that rates that will be changed at renewal.

There may be nothing as important as pricing when comes to twisty paths of running your own business. Hire the best you can afford to watch those costs from the day you open the door.

For more samples of my work:

Laura Bell


The Next step to getting out of the 9-to-5 grind
September 12, 2007, 2:41 am
Filed under: Uncategorized

I chatted recently with a woman who was desperate to start her own shop. She had a big hurdle to overcome first, her credit card debt. Starting a business is hard enough without having to worry about paying off personal debt. Take care of that problem first.

If you are frustrated with your job and just want relief, launching your own shop is not the answer. Contrary to all the promotional material about how you will be earning great gobs of money shortly if you work out of your home, nothing could be farther from the truth. Earning that kind of money takes time and a lot of hard work.

DO NOT jump into starting a business because you want a change from your current drudge; otherwise known as a 9-to-5 job. There is only one thing that will happen: disaster.

If you are thinking about launching because you can’t stand your boss, then simply change jobs. Everyone is not cut out to be an entrepreneur. I attended a seminar given years ago by SCORE. The speaker went around the room asking what was the reason people should start their own business. The answers ranged from hating bosses to wanting to be the one in charge. My answer was the only he agreed with: profit.

If you can’t get focused on that as a motivator, then continue your life as an employee. It might mean that you change careers or going job hunting again before you can feel as if this is a good fit. But, stay a worker if you don’t feel inspired by my words to launch your own baby.

Getting ready

Continue on with the plan I mentioned previously on getting more cash in hand. Find out from a tax expert the maximum amount of dependents you can declare before you will be either in hot water or on the suspicious list with the IRS.

Get that sideline going so you can have bigger tax refunds and some petty cash in hand. This sideline does not have to be something you want to grab on to permanently. It is only a means to an end.

Do whatever it takes to get your credit card debt down to a minimum. Make sure those required payments are well within your monthly budget. When money starts coming in from your business, you want logic to dictate what you do with that income, not worries from the credit card folks.

You need to find your passion You don’t want to launch a business because it is something you already know and you have a ho hum feeling a bout it. You need to be honest with yourself and write down a list of things which interest you so much you get a smile on your face as your picture yourself running a business based on this idea. It could very well be that you don’t know enough about a particular field to feel you could plan a business based on it. There are books, self-study courses and there are always business people who wouldn’t mind a volunteer coming in to help and learn at the same time. Don’t expect to find the answer immediately. And, it doesn’t matter if you change your mind.

Examine your interests, start putting money aside and keep cool while you still have to go to work. Make a plan on how long it might be before you can start writing your business plan. Making a plan is the first step to being an independent business owner.

For more examples of my work:

Laura Bell


Every business needs a hook
September 12, 2007, 2:35 am
Filed under: Business Advice

I was recently talking to a business owner who was trying to re-brand herself just like some car companies who have been in the news. She has been running a PR business for a quite awhile and now is in the process of redoing the content on her home page. She asked for my advice on the wording and in the process told me that she was trying to decide on what made her different. She didn’t know it that she had hit the nail on the head of one of the most important questions for a business owner.

In journalism terms, it is called a hook. What is so different about your story that the readers are going to want to spend time going through the content. Readers these days are bombarded with more content than probably in the history of newspapers. They want something extremely interesting to catch their attention.

The same is true for someone running a business. If you are going to do public relations, for instance, who are you going to service? This woman’s answer to that was the usual: anyone who came in the front door.

There will come a time when they stop coming to the door. This can be compared to someone deciding to sell Tupperware. The first thing everyone does is call up friends and family. Eventually, your rolodex is used up. You start asking friends for use of theirs. Sooner or later you are going to have to go and collect new business cards. The question is who are you going to target. Now, it becomes who do you want coming in the front door. More important, what type of plan are you going to have to get them there?

Let’s give an example just to start you to thinking. No one is going to have the same answer. When I ran my own public relations firm, I went after a lot of attorneys. I used to advertise myself as some catering to business owners and all those professionals, along with Indian Chiefs. You have to try and be humorous if possible. The thing is that I took quite a few classes in business law. I had also been a legal secretary. I got along with attorneys. I knew how they think. I know how they tend to express themselves. I was also very good at helping them target their own new clients

I met a PR guy once on a chat board on CompuServe who had it down to a science. He only dealt with lawyers and only took senior partners on. Whatever their hourly rate was, he got half for his time. It worked so well that he only had to take on three or four clients a year.

In our constantly morphing market, I am not sure such a simple tactic would work. But, you get the idea. You have to zero in on a group that you know something about so you can relate to what their needs are and design services that suits them. This will also keep them coming back with their monthly retainer check.

At a loss to decide on a hook? Take the time to do so. If you are running a service shop, you have to focus on who you want as your clients. Do not pick up a niche for which their will be a steep learning curve. It can end in disaster. I have interviewed many top CEOs of companies who were once on the California Top 500. One told me his tale of his attempts to expand what had been a chain of convalescent homes. Their ended up depending on hiring expertise to deal with new acquisitions and the result was the company’s downfall.

I never said that finding a hook would be easy.

If you are not running a grocery store or selling medical supplies to diabetics, one day there will be a downturn in customers. If you have a hook in mind, you will be able to deal with it and be one step ahead. In this changing world, it is highly suggested you have more than one hook.

For more examples of my work:

Laura Bell


Economics 101, yet again
September 5, 2007, 6:07 am
Filed under: Business Advice

Most people cringe when their hear economics mentioned. The problem is that a basic understanding is necessary if you want a shot in this race we call the world of business. I thought I was going to die from stress from the first class I took.

I will help you get over that potential barrier. It took me five classes to realize that textbooks are written only to be understood by other professors. And, most of them couldn’t explain the basic principles to their students if their life depended on i

I found outside reading and then I started tutoring business majors who were having a harder time than I did. With my writing, I have been offering that insight for 26 years.

Now, here is the deal, the principles of economics effects every business decision and action you ever take. Miss out on it and you learn the hard way when you get to bankruptcy court.

We are going to start with the very basics and then go on to delve into pricing for the next slice of this pie.

People have a hard time grasping the concept of scarcity. William F. Buckley, Jr in his heyday gave nonstop lectures on how things will be better if the world would go along with his idea of redistribution of wealth. The problem is that wouldn’t change a thing, other than who was suffering from poverty

I had a friend who thought that there were enough goods for everyone, including gas supplies, but ‘it’ was just in the wrong hands.

Scarcity simply put is: there is not enough of any given commodity for which there is a demand. I am sure old fashioned dirt on the side of the road and weeds have little demand in the aggregate market. Someone, on the side of the academics would probably argue there is, but most of us aren’t going out of our way for a sale on dirt.

Economics is the study of the distribution of scare resources. This boils down to who is going to buy what. What price is going to fly for the time being, how to get others to come and buy and how to predict what all of the market stats might mean down the road. It is not an exact science, despite what you may have heard. There are always variables that may interfere in predictions and analysis. So we go by the principles and then we wait.

The beginning of everything past scarcity is opportunity cost. Without this knowledge, you will make miscalculations time and again. I have heard it defined as the loss of the usage of funds for one opportunity.

In English, it means when you buy something, you miss out on the chance to use those funds for something else. Money also falls under the definition of a scarce resource. So, if you put the money in the wrong market, and another investment you had been thinking about skyrockets, you have lost.

Another commodity most don’t think about is time. So, let’s go to an example that was in my first text. It is good anywhere. If you are going to use your time to spend a semester at any university, what is the full cost? It is not just usual: tuition, etc. If you weren’t going to school, you would be out working somewhere. You would be earning an income. So, the true cost is loss of income and college needs.

Many corporations try to find ways to get around paying benefits. They hire temp workers in an alleged cost-cutting endeavor. Temp workers, in most cases, are not the most loyal folks around. So, the company is then forced to spend more money training someone new. They failed to understand the opportunity cost. There was a chance to recruit a loyal employee, but they made the wrong choice, erroneously thinking they were saving money. They put their money on the wrong investment.

Next time, we will break down the components of what to consider before putting a price tag on your product or service.


For more:

>Laura Bell

Working a 9 to 5 may be a financial trap
September 5, 2007, 12:16 am
Filed under: businness advice

I have an ex-husband who thought the answer to his financial worries was his current job and working his own business on the side. The side businesses started and stopped ten times during the course of his working life. He even took up one I was successful with when I fell ill. He never followed through because it was just too much for him. ( I admit that getting out of the 9-to-5 rut requires multi-tasking skills)

He read a book which convinced him that you could still end up rich while keeping your 9-to-5. This gave him just another excuse to stay stuck in the job rut, which, gee, ended up phasing him out of the company after he was injured.

I realize that there are some jobs which have added perks. What comes to mind are partners in a law firm and real estate agents. Both bring in extra cash flow based on their annual performances. Realtors also have the side benefit of knowing where the good real estate deals are.

Most jobs are just what my eldest daughter described to me years ago when she was starting her own business and just quit her legal secretary job. She said, “Mom, remember this. The only thing any job is: JUST OVER BROKE.”

Most ordinary employees, those not receiving extra perks, simply feel like there will be nothing they can ever do to get out of living paycheck to paycheck. Making this change is hard work, but yes, possible.

The first step to changing this cycle is admitting that punching someone else’s time clock does nothing but give you cash flow to barely cover your needs. There is the benefit of an employer’s savings plan. Long range, you will get that money and a kick out the door when the time comes. The pushing out the door comes much quicker these days. One hasn’t got a clue as to when a takeover or a switch in management might put them in a position of being without a job and looking at that 401k account as the only thing to pay your rent with. I am presuming here that most folks can’t cover their bills with their unemployment checks.

The only way not to end up in that position is to plan to maneuver yourself out of depending on your 9-to 5 employer. The first step requires you having more cash in your hands. I know for most it sounds impossible.

I am not going to get complicated here. We are just going to go into two techniques. Oh yes, you also will need a goal for what direction you want to pursue once you free up some cash and start to see a light at the end of the tunnel. If you haven’t got a clue as to what else you might want to be doing, then I suggest an old book, with great principles, “What Color is my Parachute?” There is also the chance you want to start your own shop doing the same thing you are doing now. I ended up with my own public relations business quite by accident once upon another lifetime.

First: if you are stuck at this pay-check-to-pay-check routine, you have to find a way to make things ease up. In many cases, one might be wondering how since you are leaving some bills unpaid, because there just simply isn’t enough. I understand because I was there for years when I was married.

The first thing you have to do is know where your money is going. Many haven’t a clue. If you don’t create a budget, even including daily spending money, you are lost before you even get out of the gate. You will find ways to cut down after you see it on paper. Write down your daily expenses.

Then you need to start something on the side. This isn’t necessarily going to be your last goal for running your own business, or maybe even investing. If you can’t think of anything else, become the area’s Avon lady. I tried it just recently and it worked for my immediate needs. This will enable you to file a profit and loss statement every year. This means that you are going to increase your tax refunds. You can also change the tax form which dictates how much the IRS can take every check. For specifics on this, be sure and check with the IRS website or a tax person. This one action alone will increase your tax return to amounts you only dreamed of. Now, this takes keeping great records, but it is necessary. It’s also possible to file more than one profit and loss statement. If you are married, have your spouse find something to fit the same bill.

None of this is going to happen overnight. If you start with these simple steps, you are on your way out of the 9-to-5 trap. You will be able to put these returns together to help finance a business.

There will be a part two to this.

More of my work:
Laura Bel