I recently got a call from a man in Fort Worth, Texas who wanted to know what I thought would be a good business idea for him. He’s a good salesman, and he wants to be an entrepreneur, but his last couple of business ideas went south.

I started describing what he should do to make a good decision on a business idea, and I realized that what I was describing also applies to business owners who want to add new products or services to their existing business. I thought it would be a good idea to share my thoughts, so here goes…

Acid Test Your Business Idea

Test # 1 – Believe in what you are selling

The first test for a business idea overall is to do or sell something that you are passionate about, and that you can have fun with. Being in business for yourself demands an investment of time, money, the risks and rewards of responsibility, and 100% liability for the business.

Whatever you sell, you have to believe in it. That means really believing in the benefits that the product or service can deliver to your customers or patients. It isn’t enough to get excited about the prospect of making high profits. A high potential profit on zero sales is zero dollars in profit.

If you don’t believe there is lots of benefit for the consumer in whatever you are selling, you won’t be able to sell much and they won’t be willing to buy. Consumers are smart. They can tell if you are sincerely interested in them and what they want, or if you just see them as a wallet you want to get into.

Test # 2 – Check on whether the product or service is in demand

One of the easiest ways to check on the demand of a product or service is to do some keyword research on the internet to see how many people are searching on the topic. High search numbers on relevant keywords and keyword phrases means high interest by consumers. One of the premier search tools is Google’s Keyword Tool and there are many others on the internet to double check your idea.

As of11/16/2011 there are 264,000 local people in the U.S. who search on the term anti-aging each month.

Ask lots of people; friends, family, neighbors, business associates, and people you are standing next to in line at the movies or the grocery store. You’re not asking for their permission to start a business, you’re asking them about their interest in and willingness to purchase specific products or services. For example, “anti-aging” is a hot keyword. So if you are thinking about selling or adding on a line of anti-aging products, that’s what you ask about: have they ever purchased them, have they considered purchasing them, where do they purchase them (in a store or online).

You need to know that it is a product people will buy.

Test # 3 – Run the numbers to see if there is enough profit in it

If you are adding the product to an existing business then the profit margin is easier to calculate because you already know what your overhead is costing you. If this is a new venture then it takes a lot more figuring to see, after expenses, if there is going to be adequate profit to pay yourself a decent wage. All this would be based on the number of the product you think you can sell.

Another good thing to do is to figure out how many of the product(s) you would have to sell to do better than break even. It’s no fun to make just enough to pay your suppliers and make them wealthy and not make enough yourself to reach your financial goals.

I highly recommend that any business owner give themselves a much better than average chance to really prosper financially in their business by purchasing the e-book The Business Checklist To Increase Profits.

Test # 4 – If you can’t answer this one you are in trouble

Okay, so you make a decision and start a business or add to your existing business. The next question you should answer for yourself is, “How am I going to market this?”

There are many ways to market and promote a product or service, word-of-mouth referrals, off-line through print, radio, TV, on-line through video ads, articles, blogs, mobile phone texts, websites, podcasts, and more. The big question is do you have the money to promote like you should because if not then your potential customers will never know that can buy from you.

Yes, I teach business owners to manage their money correctly so they can reach all their financial goals. But, I know that promotion plays a HUGE part in driving enough sales traffic to make it in business. So for my clients it is mandatory to budget money every week to spend on promotion. I never let them make the fatal mistake of failing to promote adequately, because they would lose momentum and their competitors will be promoting and getting the customers if they stop promoting.

For the first half of my career I had the privilege of working with some of the advertising gurus and one-for-one they lived by the motto, “When times are good, promote! When times are bad, promote even more!” Trust me when I tell you that you better live by this motto yourself if you hope to make it. However, the other key thing you have to know how to do is figure out what your ROI is (Return on Investment) on every form of promotion and promotional message.

Wasting your hard-earned dollars on promotional stuff that doesn’t work is NOT fun and can send you into despair. So test what you are doing, keep doing what works, and whatever isn’t working – ditch it fast! Now the one exception is that internet marketing takes a while to gain traction, so give it a fair test. You’ll know in a matter of days or weeks if a postcard promotion is going to bring in lots of business. Internet marketing is slower. It often takes a few months to know if what you are doing is going to work, or if you need to add to it, change it, etc. The internet changes constantly so you have to change with it.

In Summary: So there you have it – acid test every idea. Have a passion for what you are doing and be able to have fun doing it. Believe in what you are selling. Check the demand to see if enough customers will want it before you dive in and make a big commitment. Run the numbers to see if there is enough profit in it. And answer the question on how you will be able to market it adequately to get the sales you need to have enough profit to pay yourself a LOT of money.

I wish you the best success in whatever business idea you decide to pursue. Leave me a comment and let me know about what you decided from reading this article.

The tax planning clock is clicking away toward the end of the year.  Is your business ready to take advantage of the tax saving measures available to you? Tax planning is essential for business owners, and should be done on a quarterly basis. However, it’s not too late if you do it before mid-December. Here are some words of wisdom from financial planner, P. Christopher Music.

Well, the year is coming to an end and many business owners are meeting with their accountants and tax advisors to figure out how to reduce that inevitable income tax burden coming in April.  Here are a few strategic ways to keep some more of that money at home.

Business owners are often successful in earning some money beyond the expenses of acquiring it—in short, profit.  The only problem is, the profit is taxed.  So, we work with our tax advisors to lower this burden by strategically spending money in various ways by the end of the year in an attempt to cut off the bleeding.

One of the most popular techniques is to “spend the money since it’s going to be taxed anyway”.  I always get a charge out of this technique since it does not evaluate on what the money is spent.  One of the laws of economics is that money derived from production must be reinvested into production to expand the organization.  In other words, the expense must buy something of value that can further grow in value.

This technique can be summed up in “accelerating expenses”.  Next year the company will have expenses like rent, promotion and marketing, utilities, etc.  Accelerating these expenses only defer the tax owed since you will have to do the same thing next year to avoid the tax.  This has some limited workability, especially if you have volatility in your annual income and can pay the taxes at lower rates in a year with lower income.

There are, however, other options.  One of these options is to use some form of retirement plan.  These can range from a traditional Individual Retirement Account (IRA) where a person can invest up to $5000 ($6000 over age 50), to something called a “Super 401k” that combines various types of retirement plans to allow someone to contribute upwards of $200,000 or more per year.  That’s right.  Now, the benefit of this kind of expense is that it can not only save income taxes in the current year, but it will create an additional asset of value that can be used in the future to create retirement income.

If you have a C corporation, there is a plan called a Section 79 plan (so named after the IRS Code section) that will allow a business owner to purchase cash value life insurance with potentially tax-deductible dollars.  Of course, you have to purchase life insurance on your employees (inexpensive term) and you will only be able to deduct a portion of the annual life premiums, but this may make sense if you qualify for such a plan.  This type of benefit plan would allow the business owner to accumulate assets inside a life insurance policy that can later be used to provide supplemental retirement income.

These are just a couple of options available to business owners besides just spending money “because it will be taxed anyway”.  Use the tools available to lower your taxes and build wealth for the future.

For more information, contact Christopher Music. Wealth Advisory Associates www.wealthadvisoryassociates.com a Registered Investment Advisor, is a comprehensive financial planning firm serving professionals and small business owners nationally. We focus on assisting our clients in achieving a truly affluent lifestyle by using the natural laws of personal economics.

What do you do when you get your Profit & Loss Statement (P&L) from your accountant, or when you print one from your accounting software? Do you ignore it, or look at the total income and the bottom line net income and then toss it in a drawer or file folder without analyzing it? If that’s the case, then you are missing out on some potential opportunities to increase your sales and your profits.

Smart money management practices include staying in control of how your company’s income is being used and to make adjustments that are in the company’s best financial interest. There are many ways to analyze your P&L to identify some lost income opportunities; here are just a few.

1 – Pull last month’s P&L statement so you can compare it with the current month’s statement.

2 – Compare the Total Income figures and the bottom line Net Income figures. Whether you are up or down compared to the previous month, you can use the rest of the report to figure out why that may be the case. Financial management is easier when you do some analysis.

Cost of Goods Sold: Look at your cost of goods sold to see if your inventory was replenished fully or you were out of stock on some items that you could have sold.

Investigate whether the costs have gone up and you need to pass on the cost increases. You can lose sales by being out of stock as well as not passing on price increases from your suppliers. This would eliminate the strange sensation that you may have experienced when you are ‘selling more’ but ‘making less’.   And you think, “What the heck is going on here?”  So be sure to look this over with a critical eye.

If your suppliers have raised prices, you should increase your pricing structure on the products you are selling. This ensures the sales you make have an adequate profit margin built into them. Sometimes suppliers raise their costs and forget to inform you, or the announcement gets lost before it reaches your in-box, and you don’t notice the increase right away.  For example, some express parcel shippers tacked on a $20 fuel surcharge increase when gasoline prices surged to over $4 a gallon.  They did this because their prices increased, so they had to pass them on to you – their customer.

Tip: Get all of your suppliers to fax you their latest price sheets and compare these figures to the costs you have for the items in your accounting system. Then decide if you should raise your prices to pass any increased costs on to your customers.

Tip: It’s better to increase your prices a bit by bit over time, rather than increase them by a large amount all at once.  Notice how a well -known coffee shop raises its prices for coffee a nickel or a dime every 3 – 4 months and customers keep right on buying.

Advertising & Promotion: The first expense item(s) to look at are your marketing expenses. Did you cut back or increase promotion? Did you change your promotion and is working better or perhaps not working as well? Too many businesses cut back on promotion funding in tough times. That’s a big mistake. Deciding to cut back on talking to your current and potential customers can cause them to forget your company and to shop at your competitor who is still promoting.  Consumers have not stopped buying, they are just being more selective about what they buy and where they shop.

Other Expenses Lines: Compare each expense line to the matching expense from the previous month. Are expenses creeping up without you realizing it? If so you can decide where to cut back. Did previous cost cutting measures help the bottom line profit? If so, congratulate yourself.

Balance Sheet Items: If the bottom line Net Income is up, but you don’t have that cash sitting in a bank account where you can see it, it usually means that you paid out the profits to principal owed on debt. Your balance sheet shows you the credit debt (liabilities) you owe and paying those is not deductible except for the finance charges or interest.

For more of these business profit tips, check out our downloadable e-book Business Checklist to Increase Profits.  This checklist is the shortcut to an MBA on money management to generate more profits.  It costs a lot less that an MBA degree, and it’s easier to understand!

What have you learned from your P&L statement? Share it with our readers by submitting a comment.

The following is an interview with Sandra Simmons, Founder and President of Money Management Solutions Inc. on the state of  business money management in the United States.

The current economic crisis should serve as a harsh money management lesson to all of us. Every economy, whether large or small, be it a large corporation or the household income, will always be at risk to the degree that it relies upon credit for its survival. It is not that credit is inherently evil or bad; rather, credit and living beyond one’s means is a tempting financial seductress which will always threaten to wreck our financial ships upon hidden fiscal shoals.

The problem with credit is risk. Whenever you take out a loan, use a line of credit, or even use a credit card, you are taking a financial risk to some degree. That risk is that you will have enough money at a future date and time to pay back that financial obligation in full and in a timely manner. There is nothing particularly wrong with using credit as long as there is virtually no risk involved in paying the money back.

There is a lot wrong with living way beyond one’s means and spending virtually every dime one makes to pay off creditors. This can be risky in the extreme, because with just one slip, the whole house of cards can tumble down very quickly.

“I am not against the use of credit,” says money management expert Sandra Simmons. “What I am against, however, is the overuse of credit to create a lifestyle or a business situation which is basically false. Living in a condition based on credit and debt is very, very risky. Done on a national scale, you can see what has now happened.”

Simmons, who is President of Money Management Solutions, Inc. (www.MoneyMgmtSolutions.com), a business-to-business consulting and money management products and services company, located in the Tampa, Florida area, has been warning for years now that the economy was dangerously overextended. Even at the virtual height of Wall Street, Simmons could see the writing on the wall and the danger that was lurking just beneath the surface of the credit markets.

“An economy on a national scale is really just the sum of its parts,” says Simmons. “I could see that individuals and businesses were over extended and relying too much on credit. Because credit was easy to get, people took advantage of it and were living beyond their ability to pay. When an entire national (or world) economy is built upon such a shaky and risky foundation, it makes it vulnerable.”

Simmons’ approach to wealth and financial success is rather old fashioned: You work for it. She says that the best and safest way to be financially successful is to practice good money management: pay your bills, set aside savings and reserves, and avoid using credit.

“Now I know none of you reading this article fall into this category, BUT I call people who are overly tempted to live beyond their means and use credit “Gratification Groupies”. I say this because they fall victim to the credit trap of having to have it now, and worrying about how to pay for it later,” Simmons says in reference to our instant gratification oriented society. “Instant gratification, however, is not the road to wealth and financial freedom. Oftentimes, it is a path that leads to heartbreak and financial failure.”
What is interesting is that it is not so much how much money is made; it is what you do with it that determines wealth and economic condition.

“I have clients who have made millions who were in dire financial straits, and who, despite all of the money they were making were always behind and never had enough to meet their financial obligations,” says Simmons. “And I’ve also had to fix businesses that had millions in sales, but weren’t profitable. In either case, the real problems had to do with the handling of their cash flow and money management. Solving those problems put them on a firm financial footing.”

Simmons’ money management strategies are fairly straightforward. The difficulty is not in understanding them so much as having the fiscal discipline to implement them.

Some of her principles are as follows:

Money Management Principle 1 – Use CASH Not Credit

“Each time you buy something using lines of credit or credit cards because you don’t have the money to pay for it, you are promising your future income to the credit card company,” says Simmons with emphasis. “Those future earnings will undoubtedly be needed to pay your regular household or business operating expenses. That’s when you end up in the pay-for-life program known as the credit trap.”

The only exception is buying property that increases in value, such as usable business assets, or investing in commercial buildings that put more income in your pocket and more profit on your bottom line. Using your money to make more money is smart money management.

Money Management Principle 2 - Don’t Spend More Than You Earn

The most direct route to financial disaster is spending more than you make. You can keep a good quality of life for your business while reducing optional spending. This can be accomplished by acts such as buying used equipment rather than new, or negotiating better buying margins for your raw resources and supplies. Don’t buy something because you only want it, but don’t really need it. It’s just a plain good money management practice.

Money Management Principle 3 - Money Must Be MADE Before It Gets Spent

“If there is some future large purchase you need to make, begin by setting aside small amounts of cash into cash reserves for that purchase and keep that up until you can pay for it with cash,” Simmons says in reference to the safest way to make larger purchases without using credit or going into debt.

On a company level, if you will need to purchase or upgrade equipment for your office, then figure out what the costs will be and work out how much money you have to set aside every week to have the full amount in the month you will need to make that purchase. Plus look for and negotiate to get the best deal possible.

“I know this takes a lot of discipline,” says Simmons, “but it keeps you out of the credit trap. And I would argue that in the end it is more satisfying because once owned, you don’t have to worry about how you are going to pay for it because it is already paid for. It may not be instant gratification, but it is definitely a sense of accomplishment.”

Money Management Principle 4 - Put Away Some Cash for Emergencies and Future Operating Expenses

“You will sleep much better at night with the financial security of knowing you have money stashed away in reserves for emergencies like unexpected repairs to a vehicle or an office machine, increases in employee benefits expenses, or experiencing a big drop in income,” Simmons says. “When you have a cash cushion you can get your hands on immediately, then magically, you don’t even worry about money, and your focus returns to living life and enjoying it, and earning money suddenly gets easier.”

In reality, the primary thing you have to be afraid of should there be another Great Depression or an economic downturn is not having enough (or any) cash reserves tucked away that you could immediately get your hands on.

Out of every bit of income that comes in the door, immediately set aside 10% and stash it in an interest bearing savings account that you have designated for your cash cushion.

The above steps, done on a national scale, would create an enormously stable foundation on which to build a true economy that is rock solid.

“I want business owners to know that there is something that they can do about their economic circumstances and that they do not have to wait and see what further actions the government is going to take in order to try and fix the economy,” says Simmons in conclusion.

“Whether you’re a large company, small business, or an individual, stop relying on credit, pay off your debts, and start setting aside money and get on the road to economic prosperity. I guarantee that it can be done, and my own clients are not worried about the economy because they have applied sound money management principles in preparation for the kind of economic circumstances we now find ourselves in.”
“Their weekly use of our Money Management Solutions software program to plan how to allocate their cash flow in their own best interests, and their implementation of the points in our Business Profits Checklist, among other strategies has put them on a firm economic footing.”