Information for RBC Bank Clients How to Win on the Web The fundamentals of football are blocking and tackling. It’s silly for a team to work on other things before it has the blocking and tackling down cold. ® The fundamentals of website marketing are architecture, content and incoming links. Spending time or money on anything else is a waste unless and until you: a.know all you need to know about how to optimally design a website for maximum search engine optimization (SEO), and b.have designed your site — and are continually updating and maintaining your site — in adherence to SEO “best practices” for architecture, content and incoming links For most business owners today, this is not just about your website. It’s about the ongoing success of your business. The very survival of your business. The playbook for the game of business has changed. In the age of the Internet, teams win and lose based on, in whole or in part, their ability to execute on the Web. The first and foremost essential of Web execution is getting ranked highly for relevant keywords by the main search engines (Google, Yahoo, Bing). Search engine rankings are driven by three things: architecture, content and incoming links. So winning web strategies are build on these three. Nothing more. Nothing less. Architecture This is about how the site is programmed and built. Search engines rank pages based on their relevance for certain keywords, and page titles, meta descriptions and URLs are given higher levels of importance than the words in page text. Content In the age of the Internet, teams win and lose based on, in whole or in part, their ability to execute on the Web. Does your site offer any information or tools that are unique? Helpful? Insightful? Interesting? This is referred to as content. Search engines provide people with the information (“content”) they want to find. To begin winning the search engine game you need to develop unique, relevant and authoritative content in the area of your focus. Incoming Links Search engines give higher rankings to websites and/or Web pages that are popular. Popularity is gauged, in no small part, by how many other relevant websites contain links back to it. We include the term “relevant” because the search engines have gotten smarter. It’s no longer a “more is better” game but one of quality. Do your plans for success include beating your competitors on the Web? They should. The Web offers an amazing opportunity to expose more people to your company, strengthen your brand and add profitable revenue. But make the most of your time and energy, and do as Stephen Covey suggests: First Things First. In the game of website marketing that’s Architecture, Content and Incoming Links. Expertise for the business owner Matt Bailey of SiteLogic provided his expertise for this article. q Information for RBC Bank Clients 301 Fayetteville Street Raleigh, NC 27601 Toll-Free: 800-236-8872 • www.rbcbankusa.com RBC Bank is a trade name used by RBC Bank (USA) and its branch offices operate under this trade name. ® Registered trademark of Royal Bank of Canada. Member FDIC February/March 2010 • Volume 5, No. 4 R E A L E S TAT E Be Your Own Landlord Odds are your wealth is concentrated in a single investment — your business. Your personal investment portfolio lacks diversification. Resting your entire financial future — or a large portion of it — on a single investment is a risk you don’t want to take. At the very least, fund retirement accounts to their maximum. Investing in real estate should also be an absolute priority, and the best opportunity beyond your home is the facility your business occupies. If you don’t own the land and building your business occupies, now’s a great time to make it happen. If you don’t own the land and building your business now occupies, now’s a great time to make it happen. Real estate values are down. Way down. Ditto for interest rates. They’re not going to stay down forever. Far from it. The time to act is now. With the rent you now pay you should be able to pay the interest, principal, taxes, maintenance and upkeep on a facility you purchase and with every payment you build equity and grow your personal net worth. Scary? Of course. Charge forward with courage. The move makes so much sense. It’s not like you’re buying a second home. It’s less risky than that and the odds are — if you can be sure to not overpay — it’ll pay off handsomely. Remember, though, it will take many years to pay down the principal portion of the debt you borrow to make the purchase, so buy as early as possible. Let time work its magic. q THE BUSINESS OWNER ADVISOR David L. Perkins, Jr., Publisher and Editor DPerkins@DLPerkins.com This publication is owned and published by DL Perkins, LLC, 5727 South Lewis Avenue, Suite 400, Tulsa, Oklahoma 74105; 918.493.4900; Fax 918.493.4924. Info@TheBusinessOwner.com. Copyright © 2009 by D.L. Perkins, LLC. All rights reserved under International and Pan American Copyright Conventions. Reproduction, in any form, in whole or in part, is prohibited without written permission from an officer of D.L. Perkins, LLC. Issn. No. 1556-2026. Vol. 5, No. 4 Cover illustration credit: © ImageZoo Media Inc. If you find The Business Owner Advisor informative, you should consider subscribing to The Business Owner Journal. Each 16-page issue of The Business Owner Journal is packed with knowledge that will empower you to make the right decisions for you and your business. As an Advisor subscriber you are entitled to subscribe to the print or e-journal at the special rate of $129 for the first year. Contact us today at (800) 634-0605 or visit www.thebusinessowner.com for a sample issue or to subscribe. Mention code TBOA in the “how did you hear of us” field to receive the special rate. This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business. 2 • The Business Owner Advisor, February/March 2010 RISK MANAGEMENT Business Owner Imperative: Ensure Continuity As a business owner, your number one priority is to ensure the ongoing existence of the business. This is why you work each day to earn a profit and produce positive cash flow. A less obvious but very real threat to the survival of your business is the sudden and unforeseen event that puts you out of business or inflicts long-term damage. Fire, flood, data breach or events that damage your public image or reputation. Or the loss of a vital customer, vendor, license, employee or representative. Just as the business owner must work each day to secure profit and liquidity, he or she must protect the business from loss due to sudden, unforeseen events. Here’s how: Identify Your Most Critical Assets List the assets you use in the creation and delivery of your goods or services and in the operation of your business. Add to the list items necessary to prove ownership of valuable assets, rights or interests, such as titles and insurance policies. Rank each asset or asset class from most valuable and/or critical to least valuable and/or critical. List Things That Could Damage Each Brainstorm about all the things that could damage each critical asset and/or sever you from full access. For an asset such as your website, it could be a failure of your server by fire or flood. For a key employee or vendor agreement, for example, it could be an erosion of a personal relationship. Whatever it may be, list the things that could cause damage or separation. Develop Mitigation Plans For every possible loss event develop a mitigation strategy. For example, if a key asset is a relationship with a person or organization, your plan might include a strategy to reduce reliance on the relationship as well as a multi-point strategy for keeping the relationship. Periodic Review of the Plan Over time, your business will evolve. Your risk exposures will evolve as well. To be sure you’re doing what you can to ensure the continuity of your business, periodically pull out your continuity security worksheets. Go over them thoroughly and update them. Spot new risks and develop and implement strategies for mitigating exposure. Your most important job, as a business owner, is to ensure the survival of your business. Profitability is essential, but don’t forget about the risk in unforeseen events. q PROFIT ENHANCEMENT Free Up Cash via ABC Inventory Control The skill of a company in procuring (i.e., purchasing) and managing inventory can be the difference between success and failure. This is because: 1.The profitability of a business — or lack thereof — is established by the gross profit margin. That is, the profit left over from each sale after the direct expenses are deducted. For many businesses, the primary direct expense is procured product. 2.Inventory ties up a significant amount of cash in many businesses. Poor inventory management can drain a company’s cash, raise financial risk by requiring higher levels of borrowing, and erode profits due to outsized inventory spoilage, obsolescence or theft. ABC inventory control is a relatively simple, widely used way to wring out cost, improve gross margins and increase inventory turns. Increased “turns,” of course, lower the amount of inventory-on-hand. If inventory-on-hand can be ABC inventory from $500,000 to control is a relatively lowered $300,000, the result is $200,000 simple, widely used in positive cash flow. If the business uses the accrual system way to wring out of accounting for tax purposes, cost, improve gross the windfall doesn’t trigger tax. margins and increase inventory turns. The ABC inventory control method derives both its simplicity and effectiveness from the 80-20 rule. So, to begin to understand and apply the ABC methodology the business owner should begin here: 80% of a company’s revenue is derived from 20% of its offerings. Every business owner should know which of his/her products or services produce the lion’s share of the revenue and profit. Additionally, within this 20% you should learn what components make up 80% of the cost of these products. As Harry Figgie says in his The Cost and Profit Improvement Handbook, “These are the parts that make up the largest share of the company’s material costs.” • stockouts of these items are rare despite the low levels maintained on hand Conversely, items that cost the least are categorized as “C” items and can be purchased much less frequently, such as once per year. Doing so will reduce the time required to deal with ordering (and thus free up time to focus on A items) and render little financial consequence because the total dollar amount is insignificant. Of course, all other parts are labeled “B” items. These items can be ordered in smaller quantities than C parts, maybe monthly or quarterly, but much less frequently than “A” parts. Margin Improvement By knowing where to focus, one can gain a maximum return on one’s investment of time and energy. In addition to inventory reduction and the important positive cash flow impact that a reduction can provide, ABC is a powerful tool for helping the business owner determine where to focus his/ her energies to successfully wring out cost and improve gross profit margins. With the simple analysis provided, the number of inventory items that require cost reduction focus is cut by 80% or 90%. Time, of course, is scarce for all of us. Scarce for our employees as well. This is one of the benefits of the ABC inventory control methodology. By knowing where to focus, one can gain a maximum return on one’s investment of time and energy. The result can be the very survival of one’s business, or the difference between just getting by and making some real money. After all, 20% of the businesses make 80% of the profits. Apply ABC inventory control to your business and you’ll be well on your way to the top 20%. q Armed with this basic information, the business owner can sit down with his/her purchasing manager and begin looking for ways to lower cost and reduce the amounts kept on hand. Divide and Concur Building on the simple 80-20 rule, ABC inventory control methodology calls for each purchased item to be separated into one of three groups: A, B and C. “A” items are those relatively few that represent the highest cost and generally the greatest investment. As such, these items should be given considerable attention so: • stock levels of these expensive items are minimized so the cash tied up in inventory is kept as low as possible, and “Do me a favor and call Tom. It looks like Jerry is on to something.” © Mark Anderson, All Rights Reserved www.andertoons.com The Business Owner Advisor, February/March 2010 • 3 Today, there probably aren’t as many people encouraging you to strike out on your own as there once were. But your new business ideas are still strong. At RBC Bank, our strength and stability can help you stay focused on bringing them to life. Today, you need the confidence of a partner who can help you create the business you envision. Which may also mean today is the day to change to RBC Bank. Call 1-800-236-8872 or visit a nearby banking center | rbcbankusa.com MEMBER FDIC. ©RBC BANK (USA) 2010. ®REGISTERED TRADEMARK OF ROYAL BANK OF CANADA. USED UNDER LICENSE. RBC BANK IS A TRADE NAME USED BY RBC BANK (USA) AND ITS BRANCH OFFICES OPERATE UNDER THIS TRADE NAME.