I once had an office that had communal  toilets shared by six other  businesses. As public  toilets,  it was up to the landlord to clean and maintain them. We received a letter  one day saying that  as a group  we were using  too much toilet paper and from now on we would  have to supply our own. This, of course, was ridiculous and led me to ask the landlord  if we were supposed to hand our clients  a roll of toilet paper on their way to the toilet.

If you have  a good  relationship  with your landlord,  your business life will be made much  easier. Our business is located in a high-rise building  owned by a prominent  Japanese company. I had heard all sorts of rumours about how difficult the company  could  be, so it was with a degree  of trepidation that I started negotiations for renting an office. From day one, the company  and their representatives were fantastic 100 per cent supportive, friendly,  pleasant to deal with and understanding. They even sent me flowers during  a recent stay in hospital, and now our company works on a lot of their property marketing projects. It’s a two way  street. We pay our rent on time (well, most of the time)  and we spent a lot of money fitting out our offices. We attract customers to the building and have added an air of professionalism to a part of the building that was rundown and starting to look empty.

In another case I have been evicted at short notice because I didn’t have a legal lease, only  a simple  letter  of intent, and the landlord wanted the space for themselves. This very traumatic and expensive experience highlighted the importance of having a lawyer read over any lease documents.
It’s essential that you know and understand your rights as a tenant. My latest  lease document  is over 100 pages in length, with so many  clauses and techno-legal  talk that most people would have no chance of understanding it. While there  was nothing intentionally wrong with the lease, my lawyer identified a number  of points that could have been of concern down the line. By spending $500 to have the lease reviewed,  I was reassured and my landlords made several amendments that kept us both happy.
There are many organisations that can offer excellent advice on your  legal rights  as a tenant,  and if you need help a quick surf on the Internet will find the names and contact details for these organisations. As always, prevention  is better than a cure, so ensure that all of your homework  and legal advice is completed before you even think about  signing  a lease document.

Your landlord has a vested interest in your business succeeding. It means that they  get a rent cheque each month.  If you go broke, no one wins. I strongly  suggest that you do your  best to work  together  as a team. It also pays to shop around when it comes to leasing a premises. Everything  is negotiable  to a degree, and even if your landlord won’t negotiate on the rental price,  perhaps there  are other  areas where they  can be more accommodating.

I  often hear people  complaining   about how slack  their suppliers are about this or that; about how they are unreliable and always letting them down.  Sometimes I find this quite amusing,  as I have seen the same companies doing  the same things to their own customers.

Like any relationship it needs  to be  built on solid foundations.  If  you become  known for always  phoning up to complain, your suppliers will soon become sick and tired  of hearing from you. Be professional and courteous, and try to develop  a rapport with individuals within the company. It’s much  easier if you  can give Steve, the  sales manager,  a call  and ask him to courier you an urgently  needed part as a personal favour, rather than have to go through a sea of anonymous faces who will probably  say ‘no’ as a reflex action.

Likewise, if you  are having  a lean month and  cash is short, your suppliers need to be on side. If you are a bad payer, they may not want to deal with you anymore. If it’s just a temporary situation  and you have a good relationship  with your suppliers, business will likely proceed as usual. You need your suppliers, and they need you. Why not work together and make everyone’s life a little easier?

I  had a  client who always required  their printing done urgently. Every job was desperately urgent,  and I had to pass this  message on to the printers. However, when every order was urgent, the printers stopped treating them as such. Then when I really did need another job done urgently, it was a struggle  to get the printers to take me seriously. I had to sit down and explain to the client that they needed either  to review their ordering timing, or to order larger quantities to help alleviate the problem they were inadvertently  causing.

Now I ask my clients for realistic deadlines for their printing requirements. I mark the job accordingly, and I have a contract with my printer that states that they will do everything in their power to complete the jobs according to my deadline. Where possible I allow  as much  time as I can, and the really urgent jobs now get done very quickly. Everyone wins.

A lot of people  use the word ‘urgent’ on orders, telephone messages and  emails.  Only do this if it really is urgent,  other wise people will stop taking  you seriously and the last people you want in this category are your suppliers.

The biggest problem  with partnerships  is that the partners spend  a lot of time planning the honeymoon and no time planning the divorce. What I mean by this is that one day, you may find that your business partner is driving  you crazy and you no longer want to be involved with them. If you have a written plan and agreement on what to do in this situation, you just pull it out and implement it; it’s like a business prenuptial agreement. If you don’t have an agreement, though, things can suddenly turn ugly.

I mentioned earlier in this book the importance of setting realistic goals and budgets. If you have a partner, there is always a chance that the relationship simply won’t work regardless of how  close you  are as friends  or relatives today. If it reaches the stage when  you need to part company (and you will know that time when it arrives),  you need to have  what is commonly known  as an exit strategy. This is simply  a plan  that outlines how you or your partner  can get out of the business  with minimal damage and loss.

I strongly recommend that you budget some money when setting up your business to have a lawyer draw up a partnership dissolution  agreement, which is the legal form for an exit strategy. It is in both your and your partner’s interests to have such an agreement. It is important  that all parties are fully aware of what it means and the implications  of signing it. Basically, an exit strategy document normally allows the remaining partner the first option to buy out the departing partner at a  price determined in a preagreed  manner.

I have painted a pretty grim picture of partnerships, and you may now be looking  across your desk at your partner with  some trepidation. However, like any relationship,  a successful business partnership can also be very emotionally and financially rewarding. It’s all about communication and working together. If you are lucky enough to have a strong partnership, congratulations; if you are involved  in an awkward partnership, try to work things out.

My pool of advisers all made the same comment: partners are often  a necessary evil. You may need their  money,  their  expertise, or a combination  of the two. Ensure that everything  is in writing and plan for the day that you hope never comes.

Assuming that you have made it through the first year, the second year starts and you  are a lot smarter. You have made a few  mistakes, lost some money,  done  some great work and some that you might  like to forget. Financially it’s still hard, but you  can see light at the end of the tunnel. Towards the end of the second year you start to notice that there  is always a little more money left in the bank account at the end of the week, and you seem to be getting more and more customers because word of mouth  is starting to spread about just how wonderful your business is. At the same time, you are tired and stressed because it’s been a hard two years.

You are into the third year and business starts to boom. At the end of the week there is a lot of money left in the account and you can now start  to reward  yourself.  Perhaps you buy yourself a new  car, maybe  even a new  house, maybe  a good holiday. While you are busy spending this money, phone calls aren’t being returned,  customers are starting to leave, bills aren’t getting paid and you don’t notice.

As you start  the fourth year, your attention  is shockingly brought  back to the business when the tow truck pulls away with your shiny new sports car. At about the same time, the bank rings to say that your cheques are bouncing  and finally you are forced to close the doors.

I’m not saying that every business goes through   this cycle, but if you keep an eye out you will notice that it happens  a lot. Being aware of it may help you to avoid it.

There  is a basic  business  practice  which, if followed, will make determining  your costs  a lot easier. First, you need to know how much it costs  to run your business (see Booster Tip #6). Second, you need to decide how much you want to make out of your business. Add this to your costs and you will come up with a figure that determines how much money you need to make each hour, day, week, month  and year.

From here you can generally determine an hourly rate, or the number of items that you need to sell at a certain price to meet your targets. Once you have determined this rate or price, do some homework.  Check the prices of other  businesses to see how much  they are charging for similar products or services. If your sums are right you should be in the ballpark.

There are also some other factors to take into consideration. If your business is brand new, you are an unknown  quantity you have no customers to serve as testimonials or references, so prospective  customers have to assess you based on what you tell them and the prices that you charge. If your prices are too high with nothing to back them up, you might be looking for trouble.

On the other hand, if you have been in business for a while you will have a track record, happy customers, and experience that has a certain value. Based on this you can afford  to charge more because you  are a known quantity that can back up any promises that you make.

It is common for business operators to undercharge. I know that  as consumers we always feel that we are being overcharged, but in reality it’s often the other way around. Many business operators undervalue their own time and expertise.

My advice is to charge what you are worth. As long as you can deliver  what you promise, you should  be fine. It’s  also much harder to put prices up than it is to lower them. I’m not saying that you should rip people off in fact, the exact opposite: give people value for their money and they will be prepared to pay for it.

Winning business or customers on price alone is hard work, and there are many, many examples of companies that haven’t thrived using this principle. Determine what to charge based on your costs, your desired profits, the competition  and your unique  business features.

It is  smart  business  to keep  your costs  down as  much as possible. There aren’t too many  businesses that couldn’t shave thousands of dollars off their yearly operating costs by making a few simple changes or reviewing  a few operational procedures.

It is important  to think long  and hard  about  the areas where cost cuts are to be made. Unfortunately,  staff are normally  the first to go, followed closely by advertising and marketing. These are often  big expenses and they  appear to be areas where cost savings can be made quickly.
Of course,  dropping  staff  numbers  can lead  to customers having to wait longer, phones not being answered, orders not being processed, and so on. While  there is no doubt that businesses sometimes become too staff heavy, it’s essential that the level of customer  service be monitored when changes are made to ensure that you don’t start losing  business  as a result of your cost cuts.

With advertising and marketing, there is absolutely no doubt in my mind that the time you need to promote your business the most is when you are quiet. Advertising  and marketing  can take time to begin to have an effect.  If you stop advertising altogether, you can compound your problem.

The point behind this booster tip is the need to plan your cost cutting; don’t just be reactive.

If you are wondering where you put your cheque book, or that garbage  bag  in which you’ve stuffed  the last five  years worth of receipts don’t worry, it’s never too late. Pay a book keeper to get your records in order. It’s not that expensive and it really is worth the effort.

There is something  very satisfying in being able to press a few buttons on a computer and know exactly how much you owe, how much is owed to you and how much profit you have made so far this year. The only way you are able to know this is by keeping good records.

Taxation systems throughout the world are forcing business operators to keep better records, and while it can be time consuming it really isn’t all that difficult. I know a number  of people who don’t pay themselves at the end of the week until they have brought  their books up to date, or they pay them selves a bonus  when  they have done  their books. Whatever works for you is fine.

Often the biggest problem with book work is where to put it. There are receipts, bank statements, cheque stubs, invoices, statements, and countless other bits and pieces. If you are not an organised person, you may need to find someone who can sort out your books for you.

I have  a bookkeeper   who comes in once  a month. They spend five or six hours keying in the information,  and at the end of the session I am given a profit and loss statement. This costs me around $200 per month. For the peace of mind it gives me this is a small price to pay.

Chasing bad debts costs time  and money, sometimes a lot of both. I once owned a publication that was owed a lot of money, in excess of $50,000,  that was long overdue. The business had struggled for a long  time  because credit  was given too easily. It reached  a point where the viability of the business was doubtful because this outstanding money couldn’t be collected.

As I wasn’t getting any results, I employed  a debt collection agency. While they managed to get some money  in, the vast majority was  still outstanding. I was  incurring costs  all the time, and eventually the debt, with collection  costs, was actually growing.  Some of the companies that owed money went broke and I ended up recovering only a few cents in the dollar. Others were taken to court and judgments were received against the businesses  but I still had to chase  them for the money.

In reality, it was a joke. The majority of the money wasn’t collected; in fact, I was almost $20,000  worse off due to collection  fees, wages and telephone,  stationery  and other  costs. This doesn’t even take into consideration  my time and the stress that the whole situation  caused. I made the decision to write off the debts that couldn’t be collected, and I have to admit that this was a very hard decision to take. If I didn’t write them off I could still be chasing half of them today, and imagine how much they would  have cost me then!

The moral to the story is to know when to say, ‘Enough  is enough’.  As much  as it might really  aggravate you,  there is a time when you have to let go of a debt and use it as a tax loss. This is particularly important when it comes to collecting small debts that can easily cost more to collect than the value of the debt. An associate  of mine had worked out that it cost his company $100 per month to chase each outstanding account. Obviously, what for them was a small account of a few hundred dollars would  soon be used up in collection  costs.

If you are using a debt collection  agency, make sure that you know  exactly what steps they will take to recover your money and how much you are likely to be up for at every stage of the collection  process. Getting  a judgment  in a court is no guarantee that you will get your money.

It’s sometimes the case that people who owe you money are having legitimate problems and I would always  say that it’s better to work with these people and accept a payment  plan, even  if  it’s  only a  small amount per week  or per month. By working with them you may get all of your money, and if their business turns around  you may just end up with a very loyal client.

A friend  of mine used to own a very seasonal business that sold gifts and souvenirs to tourists. In the peak of the season he had lots of cash flow,  but in the off season he was always struggling. Over  the years he had established a good rapport with his suppliers where for six months of the year he paid cash on delivery and for the other six months he paid in 90 days. This  relationship worked for all parties and he always honoured  his payments. His communication enabled him to work with his suppliers to ensure that his supply wasn’t cut off in the off season, and they had  a good  customer  who paid on the spot during the peak trading period. A situation like this is obviously a win–win, even if it is somewhat unconventional.

At the end of the day, if I don’t get paid, I can’t pay other people. It’s the classic vicious  cycle that is very common in business. If you run a business where people pay you on the spot, you are one of the lucky ones. If you run a business in an industry that generally works on invoices and accounts, you need to be very careful.

The point of this survival tip is to be careful about giving out credit in an attempt to win the business. Of course, the majority of businesses are excellent at paying  their  accounts. They  are not the ones to worry about. It’s the others who are slow, or perhaps not trading very well, who are the concern.

If you give credit, you should have a system in place to check the applicant to make sure that they are good at paying their bills. Even the smallest business can have a credit check system in place. A simple form asking for several trade references is really all you need. (See the appendix at the back of this book for a sample credit request form.) Many companies now ask for a director  of the company to sign a guarantee. It’s up to you.

If we are approached by a new  client for credit, we ask for several trade references and we always check them. We also ask other  business associates if they know of the client and if they know much about them. If they check out, we will extend credit. If they don’t check out, we ask for payment up front. We generally ask for a 50 per cent deposit from all new clients as a matter of course to ensure that costs are covered.

Another important issue with extending credit is to ensure that your payment  terms are clearly explained. If you are issuing a 30 day account, spell this out. If  it’s a seven day  account, make sure that the customer knows and acknowledges the fact. They may not be able to work to such a short payment time (often the case with large companies), so you will need to make another arrangement. Frank, open discussions about money and payment terms in the early stages of a business relationship will avoid problems in the future.

Another important point is that a company  may be trading well when you start working together; they pay their bills on time and everything is fine. Then they start slowing down and 30 days turns into 60 days, and 60 into 90. Be aware that this is a warning  signal that there may be a problem and you need to communicate with them to ensure that your money is safe.

Some businesses, when they have their credit cut, change suppliers. A good tip that I have read in the past is that if you suddenly get a new customer for no apparent reason, be careful that it isn’t because no one else will give them credit.

I have a friend who is a photographer and publisher. He runs an extremely successful and profitable    business. I remember talking to him one day about how well his business was going. He looked me in the eye and said that he had to be very careful because his rapid expansion was making things very difficult financially. I was shocked and didn’t really understand, until he explained that every time he expanded his products into a new business it cost him several thousand dollars in set-up costs and then he had extra outlays with maintaining his customer base.

Because his products were in such large demand, he had lots of shops that wanted to sell his books. It was nothing for him to have 50 or 60 new customers per month, which in reality cost him almost $150,000 to set up. It would take up to a year to recoup that money, so it’s easy to see the burden that this kind of expansion would have on the company’s cash flow. Luckily, he is a smart operator and he employed a good finan cial controller to help steer the company through the ongoing expansion.

There is a general philosophy that businesses should be growing and expanding all the time. It’s important to under stand that there is a cost to pay for this expansion and that you really need to plan your business’s growth carefully, at a rate that you can afford.

Of course, for many businesses there are cost advantages to expanding, such as increased buying    power. My point is that to get to that stage costs money, and your business needs to be able to afford the growth.

Another friend of mine, who owned a large transport company, always said that it was much harder to downsize a company than to expand. The point that he was making is that when you expand, you are    basing the expansion on increasing revenue from more customers. If, for some reason, that suddenly stops, it’s very hard on everyone to shrink the business down to a profitable level. Staff have to be laid off, office size reduced, debt decreased, and so on.

The main point of this booster tip is that if your business is growing due to demand, that’s great. But be careful about how you manage that growth, and build into your business plan the fact that one day you might need to downsize.