A lot of people got into freelancing and sole proprietorships last year. Since the job market tanked, many people took their skills into the open market. That’s what America is all about right? Anyone can make money!

But now its tax time. Many of these same freelancers are finding themselves in a pile of debt with Uncle Sam. Poor record keeping has led to disaster because there are no ways to prove expenses, even if they were known. Fear, uncertainty, and doubt has filled the minds of these freelancers.

If you are one of those people, I have a 3-website solution for you:

1. Freshbooks. This site will handle your invoicing. It keeps things very simple, secure, and accurate. You can invoice based on time and materials, fixed fee, or however else you see fit. You can set up automatic invoicing, and automatic payments. Invoices can be online or the site will snail mail your customers. According to their own data, users get paid an average of 14 days faster than using their old system (whatever that was).

2. Outright. This site is to keep track of your income and your expenses. It integrates with Freshbooks, so your income side sort of takes care of itself. The expenses are conveniently divided into IRS Schedule C categories, making your life a lot easier at the end of each quarter. Speaking of taxes, they actually estimate your tax payments for you! The site has a “taxes” tab. At the end of each quarter, it will calculate both your self employment (social security and medicare) tax and your business income tax (based on 10% marginal rate on your profit). They are probably on the high side, but its better to be safe and get money back, right? Another great feature is the 1099 calculation, based on you using the “contractors and freelancers” expense category. The site will then make a list of all the contractors you paid at least $600.

3. Shoeboxed. Here is where you will store electronic copies of your receipts. You mail your receipts to shoeboxed, they scan and store them. Outright can pull your expense data right from shoeboxed, but you may have to manually edit the categories to get them to match up. To save money, you can do the scanning and upload them to shoeboxed for free.

Pricing: If you are a really small operation, you can get away with using these three sites for free. If you have 25 clients or less and less than 150 receipts/month to scan, your total cost will be $34/month. Expect Outright to run $10-$20 when they come out of Beta, bringing your total to $54. By doing this, you will have very little to actually enter into Outright. You simply sit down for 20 minutes a month to reconcile your information with your bank statement, and view your reports.

Limitations: To be honest, I’m not crazy about web-start-up-accounting-apps. What happens if they go out of business? Will your data be usable by anyone else? By using old trusty Quickbooks, you get the security of knowing you have your financial data that can be read by any accountant or bookkeeper. Also, the reporting on Outright is weak when compared to a serious piece of accounting software like QuickBooks.

Another option: Not to be a shameless promoter or anything, but for close to the same cost, my company offers full service bookkeeping using Quickbooks, electronic storage of receipts, and custom quarterly reporting.

You have to do something. In your second year, if you are not making estimated tax payments every quarter, the IRS will penalize you- severely. Use something that will allow you to keep accurate track of all your income and all your expenses.

Many of us start a business with big ideas. We know we have a great idea, that it will catch on, and we will become a household name across the country- or maybe even the world. Usually things go well for a while. We make some great sales, build a little business, and hire some employees. After a while, though, things level off and we find ourselves wrapped up in actually running the business instead of growing huge.

The GO BIG Network is a great resource for small businesses and start-up companies. Wil Schroter has a knack for bringing business owners back to square one and giving great advice. Last week Schroter wrote a post called “Identify The Growth Factors.” In his post, he explains that each business has certain factors that, with energy and focus are applied, will cause your business to grow quickly and become strong- much like gamma rays to the incredible hulk.

Here is a quick synopsis of his main points with a little bit of my two cents:

1. Identify what makes you business grow. Schroter says this will be just a couple of factors- like reducing the cost to make a sale, converting website visitors to sales, or even just reducing your cost of goods sold. If you don’t know what these factors are for your business, it’s time to sit down with your CEO hat on and brainstorm. Do some what-if scenarios, make some assumptions, and get your thoughts organized. Chances are, your growth factors are sitting just beneath the surface waiting to be discovered.
2. Shift your energy and focus to those growth factors. Although this point seems obvious, it won’t do you any good to know your growth factors if you don’t do anything with them.
3. Outsource. It may be a scary word, but it’s worth a look. What is your business spending time on that doesn’t significantly add to growth? Why not let that aspect be handled by a company that solely focuses on that? Cheaper than employees, scalable, and expertise. What’s not to like? You can outsource IT, HR, Sales, Production, and yes, bookkeeping and accounting.
4. Get the rest of your team on board. If people in your company are being petty and territorial, you are going to stay stuck. Find creative ways of getting everyone on your team to stay focused on growing the company. Give them incentives to do so. Having everyone on the same page is essential to the fast, strong growth you are looking for.

Growing your company should be a priority. In many cases, if you are not growing then you are dying. Get your mind off the day-to-day and start looking at the big picture. Your employees, your bank account, and your customers will thank you.

Spring is a time when most people think about cleaning. Clean the house, the windows, the office, the basement, etc. One thing that needs cleaning just as badly as all those is your email inbox.

Over the past few days, I have been sorting through my Gmail inbox and deleting, labeling, and responding. If you have ever read David Allen’s “Getting Things Done,” you know that nothing is supposed to stay in your “life’s” inbox. The same is true for your email inbox, since that is a major source of tasks, next actions, and plans in your life.

If you are using Gmail, this is a simple process.

1. Go to settings and chose to view 100 emails per page.
2. Go the the last page (oldest) of your inbox itmes.
3. Select all items.
4. Un-check all the emails that cannot be deleted.
5. click “delete”
6. Go through the emails that are left on the “oldest” page one by one. If you need to make a quick response, do so now. If not, tag and archive the email in one step using the “move to” button.
7. Repeat the process for every page of emails.

If you’re at all like me, you will find many emails that slipped through the cracks during this process. Something that would have only taken a couple minutes to complete has been completely forgotten. Use this time to catch up on some of your older “to-dos.”

Labeling
If you haven’t been labeling your emails, start now. Its much better than using Outlook’s folder system, it just takes getting used to. Label as specifically as you need to. If you need a new label, you can still do it from the “move to” button. Just start typing and click create new. One easy step!

Good luck!

Sixty years of electronics retail, all gone. Thousands of employees without jobs, empty retail boxes and tons of parking lots. That’s what we are left with after what used to be the best place to learn about and purchase electronics closed its doors for good. As with all closures, I want to know what we can learn so the same thing doesn’t happen to us. As small business owners, we can adapt quicker and quickly correct some of the big mistakes that circuit city made along the way.

1. Don’t get rid of your best salespeople. Granted, CC was already having troubles when they did this, and it was a move of desperation. However, they made some terrible assumtions in this move. They figured that they could get just as much sales with new hires as with experienced high-earning sales people. The move was a disaster, and we should all take a lesson. If we feel like our sales staff earns too much, take a closer look. The best salespeople cost a lot, but are worth the extra money for the kind of sales they can make. Don’t assume just anyone can step in and accomplish the same thing.

2. Don’t sit by and let competition kill you. In their case, they sat and watched best buy build bigger stores in better locations and ultimately a better brand. By the time they knew what hit them in the late 90s, it was really too late to catch up playing the same game.

3. Don’t pin your hopes on copycat moves. Firedog? Really? Best Buy had Geek Squad for four years before Firedog showed up in Circuit City. What was different about it? Many, including me, would say NOTHING. Management really thought that copying Best Buy would be their best bet.

4. Control yourself. Circuit city was unrestrained in debt. They took on as much as the investors and banks would give them, building more and more and more stores. There was no checkpoint to see if it was really working. Circuit City was certainly not alone in this mentality, but it was definately part of their downfall. Just because people will loan you money doesn’t mean you should take it. Be careful and deliberate about your plans, and take on new debt thoughtfully. You will have to pay it back with interest, after all.

5. Don’t invest in Divx. OK. This one doesn’t apply directly, but anyone who knows anything about Circuit City knows this was one of the biggest bonehead moves of the late 90s in retail. They spent 100 million on this technology and thought it would revolutionize the industry. $4.50 discs that you can only watch once? A player that calls corporate to tell them what movies you watch? Sounds like a great way to lose trust and credibility that took 50 years to build.

Look around. Many businesses are closing and blaming the struggling economy. Take lessons from these companies. It doesn’t take long to realize that the failures have more to do with decades of mistakes than a 15 months of economic recession.

“You’re either growing or your dying, there ain’t no third direction,” is often said about business.  It has been my experience, though, that there is a third direction- staying the same.  Many small businesses make roughly the same amount in revenue that they did the year before.  It may be growing a little or shrinking a little- perhaps barely outpacing inflation.  Some small businesses grow, but at a slow enough rate that they appear to be basically the same business they were five or ten years ago.  Why does it take so long to grow a business?

Wil Shroter on the Go Big Network wrote a blog post about compressing time in business.  He claims that when venture capital came along, it drastically shrunk the amount of time it took to go from a start-up to a billion dollar company.  With a large influx of cash to a great idea and plan, things happen on a much smaller time scale.  He further explains that even without venture capital, businesses have found multiple ways of compressing time and growing faster.

Two Great Examples

In the post, Schroter talks about Ebay and Google, who used a process of acquiring millions of free customers in order to get thousands of paying ones.  By giving away their services to the masses, they were able to acquire tons of customers in an extremely short period of time.

OK.  Reality check.  Most of us aren’t trying to start the next great internet business.  Many of us simply offer services or products to a local market.  How can businesses like ours shrink the timeline?  The best way to speed things up is to create an efficient sales cycle.  Work on shrinking the time it takes from meeting a potential customer to actually completing a paid job.  Volumes have been written on how to sell, or you could hire a professional salesperson or consultant to help you develop a better process.  Or, as Schroter suggests, you could work on picking up work that other companies similar to yours are trying to outsource, eliminating  a part of your selling process altogether.

Another way to compress your timeline is to get paid faster.  That means implementing a start-to-finish collections process.  You are not bugging clients for money, you are just keeping your invoices at the top of the pile and preventing any of your stuff from slipping through the cracks.

The idea is to work with whatever you have and improve your processes.  Don’t simply continue do things a certain way simply because you have always done it that way.  Improve your skills and the skills of your team.  You may be positioned for a lot faster growth than you think.

Love it or hate it, most small business owners are using QuickBooks to track their company’s finances. I’ve found that many people, while using QuickBooks to enter transactions, fail to follow through to ensure they are are getting everything entered. If you get to the end of the year with a bunch of missing transactions, it is going to be that much harder to track down the reason why your checking balance and your QuickBooks balance are worlds apart.

Before I give the basic how-to of reconciling in QuickBooks, let’s establish some ground rules:

1. A bill, such as phone, electricity, internet, car payment, etc. is entered as a bill within QuickBooks. When the bill is paid, you are using the Enter Bills/Pay Bills feature.
2. Money received is entered either using the Sales Receipt or Create Invoice/Receive Payments feature.
3. Deposits are made from undeposited funds by using the Record Deposits feature.
4. Purchases made using your debit card are entered into the check register directly or by using the Write Checks or Enter Bills/Pay Bills feature.

If you are following the above on a daily/weekly basis, then reconciling your account should only take a few minutes of your time and should be very easy.

1. Click Banking > Reconcile
2. Ensure that the beginning balance is the same as the beginning balance on your bank statement.
3. Enter the statement date.
4. Enter the ending balance.
5. Check off each of the deposits and credits that appear on your bank statement. If you missed a deposit, go back to home and record the deposit.
6. Check off each of the checks and payments that appear on your bank statement. If you missed entering a purchase, payment, or check, go back to banking and do it now. Change the amount of any item by double clicking and editing.
7. The amount in the lower right hand corner should be zero. Print (to a printer or to adobe pdf) a reconciliation report to be filed.

By doing this each and every month, you are taking a proactive approach toward your finances. You will spend less money on your accountant at tax time, you will enjoy a feeling of better control, and you will have an easier time using QuickBooks’ more advanced features.

Good Luck

Did you hear? It may be hard to wade through all the job cuts and plant closings, but Intel is actually expanding. Yes, expanding here in the US! Thestreet.com has an interesting article on how this is an example for small businesses. If you follow my blog, you know that kind of thinking is right up my alley.

First, let me clarify some things. If you have no money, I am not suggesting that you go out and expand with tons of debt with no real plan or purpose. Having to resort to downsizing your business is a reality for many owners and managers right now. I don’t want to make light of the very real recession many of us are experiencing in one way or another.

All that said, though, there are some businesses that have been doing quite well. If you ask them, they say “recession shmecession! I have the same business I’ve always had. In fact, I’ve been getting some new customers!” For these lucky few, its time to start thinking big.

There is no better time than a down market to expand your business. Think of it like this- if you buy stocks in publicly traded companies with solid financials and a plan for the future, history has shown us that you will probably do quite well. Many people invested heavily during the depression and became richer than ever after the depression was over. Stocks became undervalued during the depression.

During this recession, several things are becoming undervalued:

• Employee Costs
• Land
• Buildings/Construction
• Advertising
• Outside Services

Investing in the above items wisely could prove far more profitable than investing in the right stocks. Now is the time to take your business into the next phase, and maybe break out of “small business” forever. Gain market share, start a new product or service, add jobs, open a new office in another area- the choice is yours!

I am not writing this simply because I want you to do well. If you are sitting on some cash or some opportunity, it is your obligation to spend it! The only way our economy will recover is if we all pull together and loosen up those purse strings. Hanging on to your cash because you are afraid of what might happen to your business could very well become a self fulfilling prophecy.

Sometimes business can be counter-intuitive. Some of my other much written about subjects include spending more on advertising when money is tight and holding on to employees during lean times. For this post, I want to take a look at your most profitable product or service, and see if it is masking major failures in your business model.

I won’t link it here, but I once read a blog about a woman that owned a once-successful candle company. At the time of the post, she was about to close the doors because of the “skyrocketing” cost of wax. She felt there was no way that anyone would pay a higher price for her product, and her margins were slowly shrinking into negative territory.

The high cost of wax for this woman revealed a major failure in her business model- it was based on only one particular price of a raw material. There was no flexibility. For years, this failure was hidden because she was selling so many of her candles. There was no need to push forward, innovate, extend boundaries, etc., because of her success.

This is not limited to small businesses. Everyone knows what used to be the best-selling phone- Motorola’s RAZR! What happened? The iPhone happened. As a result, it became apparent that Motorola’s top end phones had none of the capabilities of their competitors. Their business model had major flaws that they are now rushing to correct- now that it may be too late. This story is highlighted in a Street.com article here.

If you are still not convinced, look at Blockbuster, my favorite company to pick on. They were so successful in renting movies, it hid the major failure of their business plan to address the changing ways in which people watch movies. They made it through VHS to DVD (all be it very slowly), but that was still basicly the same thing. They did not have a plan for if people no longer went to stores to rent movies. First came Netflix, then downloadable movies. In both instances, Blockbuster found itslef making after-the-fact type moves, hardly remaining the leader it once was.

What about you and your business. What is your best product or service. Is it hiding the fact that changes in your industry could doom you to failure?

For the master of successes that hide failures, view the Wile E. Coyote video below:

Yesterday Wil Shroter on the GO BIG network wrote a post about how a startup should never close. The gist of the article is that entrepreneurs need to get the 8-5 mentality out of their heads. When you are starting a business, you are always on the clock, and you need to put in tons of extra hours to pull it off. The idea of starting a business because you want to have your own schedule, work your own hours, and have more free time is probably more fantasy than reality.

However, and this is a big however, I think Mr. Shroter has overstated his point. His post reads as if you will be so absorbed in your new business venture that you won’t have any time for family, friends, or yourself. While this may be true in some circumstances, it is very possible to start your own business with out neglecting your spouse or your children.

The simple truth is that you will be working more than you would at a regular corporate job. The following are some steps to help your family feel like they are still more important than your business.

1. Use an online task management application like Remember the Milk, and share your to-do list with your spouse. Letting him or her see exactly what you are working on will ensure open communication, and foster some flexibility.
2. Have some evenings where you will do no work at all. This should be on the same night or nights each week, but you can shuffle the schedule if you have more work on a particular day. By the same token, have other nights where it will be known that you will be working until you are done, sometimes late into the night.
3. Eat dinner with your family. Make it a priority, and go back to work after dinner. While you are at dinner, turn off the crackberry and other communication devices. Don’t rush the meal, and catch up with the goings on in your house. And while running the office of the US President is not a business, it is similar in time demands.  President Obama is reported to be encouraging his staff to eat dinner with their families and then come back to work.
4. Take your family on occasional business trips. Recently I had a Friday meeting in New York. I took along my wife and kids, and spent the weekend with them touring Manhattan. This isn’t always possible, but look for opportunities.
5. Have an exit strategy. Much like the Iraq war, you need to know your end game ahead of time. Do you plan on burning the candle at both ends forever, even if you continue to earn less than what you would make in a corporate position? When will you shift your schedule to a more sustainable one if you have success? Do you know what success will look like? Sticking to your strategy will be one of the hardest things you face.

You can have a family and start your own business. But, you should be aware that this is no small undertaking, and sacrifices will have to be made on a daily basis.

The video below is a nice reminder:

I love watching NBC’s The Office. It always seems to shine a light on the quirkiest parts of daily office life. A recent episode alternated between two topics: One was gathering information from a competitor in a new market, and the other was the office debate as to whether or not Hillary Swank is hot. I would like to discuss the former, and leave the latter for your own inter-office debates. You can watch the entire episode on Hulu.

In the episode, Michael and Dwight attempt to gather information from a family paper business in a city in which they do not currently compete. Michael’s boss asks for information, but does not give any direction as to how to gather it. It is eventually determined that Michael will pose as a customer looking to buy paper and Dwight will attempt to apply for a job. This, they determine will give them information on current customers, employee salaries, and more.

Their trip to the family paper business, while filled with ignorance, stupidity, and other generally hilarious events, is successful. They are able to secure more than they ever wanted in terms of information. Along the way, though, Michael discovers that this is a very nice family with a nice little business. Giving the information to corporate could ultimately lead to the family’s financial ruin! Although he has doubts about giving the information to corporate, he eventually relents and is praised highly for his efforts.

Was it OK for Michael to do that? Is it ethical to lie to a competitor and pose as someone else to gather information? Where is the line? Can a retail store owner walk over to Walmart pretending to shop only to gather pricing information for business purposes? Most people, I think, would say of course. Is that the same thing? Does it make it OK because Walmart is a big company, so you’re sticking it to the man rather than putting a family out of business?

With ponzi schemes abounding and CEO jets flying, it seems business ethics is a thing of the past. It would be valuable, however, for you to sit down and think about what is ethical and what is not. Like I have asked before, how comfortable are you with gray?

There is no question that you should be gathering as much information as possible on your competitors. Bold face lies to someone’s face may cross the line, but a phone call just asking how much something costs probably isn’t. If someone is crazy enough to post their customer list with contact information on their website, take it!

In our family paper business example, suppose corporate used the information to contact the family’s customers and undercut prices. If the family business is worth it’s weight, they will survive anyway. The would have built trusted relationships with many of their customers, and that will mean more that lower prices. In the end, a list of customers may not be as valuable as corporate thinks it will be. The paper company already competes with the box stores, and has lasted this long.

Don’t be afraid to compete head to head with your competition. They are just as responsible to bring amazing products, services, and experiences to their customers as you are. If they are asleep at the wheel, you better take control before someone else does.