Cash Accounting vs. Accrual Accounting.

Good accounting is basic to every successful business.  It is the job of the business owner to ensure that the best method of accounting is being applied.  Here is the definition of accounting from Wikipedia: “Accounting or accountancy is the measurement, processing, and communication of financial information about economic entities such as businesses and corporations.”  This provides the basic idea.  Without accounting, a business is sloppy, and it is impossible to run it successful.  Accounting is a structural aspect of every business that should not and cannot be overlooked, there are two basic methods of accounting that are given in the paragraphs below.

Cash accounting method.  In using the cash method of accounting, sales are recorded when cash is received, and the expenses are recorded when cash is sent out.  This may seem like a very basic method, and it is.  However, there are issues.  When using the cash method, the economic reality is distorted.  Some expenses have to be paid months or years in advance, this throws off the financial statements and presents a lot of confusion.

Accrual accounting method.  In the accrual method of accounting, the revenue is recorded when the service or good is delivered no matter when the cash is paid or received.  This is the reverse of the cash method.  It is simple, and it is more productive.  “Accounts payable” is the term we use to record these unpaid expenses.  The accrual accounting method, unlike the cash method, clears up economic confusion and allows for more accuracy in financial records.

My favorite product-based company.

There are countless different types companies that provide a large array of products and services to individuals around the world.  All of these businesses can be categorized in one or both of two categories: product, or service.

A service-based company, such as Uber, a lawyer, or a plumber, offer a professional service.  Select services could be done without these companies but a majority of the population would rather hire the work to someone else.

A product-based company, such as Amazon, Walmart, or Barnes and noble, provide products.  Some select product-based companies, manufacture and distribute their products, while others have suppliers from which they get their products and then they distribute to buyers.

Determining my favorite product-based company is a hard decision, however, it would have to be Amazon.com.  It is really handy to have a reliable online platform that carries nearly every imaginable item sold on amazon.  Jeff Bezos, the founder of Amazon, did a remarkable job in creating and developing an effective online shopping platform.  Amazon offers opportunity for other smaller businesses to distribute their products, and it also offers opportunity for individuals, such as bloggers, to earn money by promoting their products.

Amazon manufactures some of their products, but a majority of products are sold by businesses and individuals, through the Amazon platform.  Amazon is like an online mall, only, way bigger than any physical mall.  Amazon was an innovative idea, that has created a unique online community that has been a huge convenience to many people (including me) throughout their daily lives.

Harry Browne’s 5 point sales process.

Harry Browne, in his book The Secret of Selling Anything, Browne presents a 5-step formula that has given the advertising industry a new perspective.  Browne has created a method of selling as a service.  Find out what the customer wants, and help him get it.

  1. Discover the prospect’s motivation.  Ask questions.  Make time and effort to listen to the problems and demands of the prospect.  It is important to identify, or help him to identify, his motivation, this will lead to the next step of the process.
  2. Summarize the motivation. Repeat the motivation of the buyer back to him, and agree with it.  Define it to him or her and give them an opportunity to agree.  This builds a unique trust, the buyer now feels significant because the salesperson took the time to listen to and make an effort to understand his motivation.
  3. Present your product (or service) based on his wants.  At this point, the buyer wants to know if the product will fulfill their needs.  They do not care about ALL the revolutionary features this product or service includes.  Present the relevant benefits that will motivate the buyer first.  The salesperson needs to focus on the buyer’s motivation, and present it based on what the buyer needs to achieve.
  4. Answer his questions.  Most buyers will have objections and doubts, it is the job of the salesperson to help the buyer understand the offer.  Do not ever twist the truth, give them real facts.  It is crucial that the salesperson knows the product or service, and is willing to go out of the way to answer the prospect’s questions.
  5. Close the sale.  End the process with a call to action, and continue to answer any questions that might arise.  If the product or service fulfills the prospect’s needs, this final step should be easy.

This basic process has been proven to attain loyal customers.  The focus of the sale should be on the benefit that satisfies the needs of the buyer.

Franchise vs. Independent

Starting a business, though it involves risk, can be a very profitable venture.  There are two different ways for an individual to obtain a business.  There are franchise opportunities, and there is potential opportunity as an independent, both can be very profitable.

With a franchise, the aspiring business owner virtually buys a piece of operation from a bigger cooperate business and operates it in a location.  The cooperate business provides them with inventory plans and provide a detailed blue print.

The cooperate business wants the business to succeed, they suppy the businessman with everything they need and set them up for success.  Depending on the franchise, it can involve a major investment, but there is a high probability of success.  If one wants to avoid the risk of going out on their own, and use an already proven idea, a franchise is a great opportunity.

Independent, or “doing your own thing,” is substantially different.  The aspiring businessman must do everything on their own.  If no one has done it before, it is nearly impossible to know whether the business will survive or not.  While there is more risk, there is also a lot more potential reward for an independent business.  All proceeds go to the business owner.  As an independent, the owner gets to make major business decisions, where as with a franchise, the major decisions are made exclusively by the major brand cooperation.  For the innovative business mind, starting as an independent is the superior option.

Aspiring businessmen should look into both options, and invest time in establishing which kind of business they should start.

3 Structure Points of a Successful Business.

There are 3 areas of every successful business.  Without solid foundations in these 3 areas, a business will suffer.  These 3 areas are: 1. Sales and marketing. 2. Operations.  3. Finance and administration.

Sales and marketing is how the business presents itself to their prospects.  For a business to survive, it must have customers, and to have customers, and business must have sales and marketing.  Operations is the process of obtaining and developing the product or service and then making it available to potential buyers.  Finance and Administration is the process of handling legal affairs, and of course, the finances of the company.  Each of these 3 aspects are crucial to the structure of a successful company, and without one, the company will fail.

To give an example, I am going to explain how the 3 areas of business apply to a business in my city.  This is a business that I am familiar with because I have a part-time job working at this facility.  This is the indoor flea market.  This is a well known and respected local establishment, and one that I am familiar with.

For sales and marketing, the business uses several online tools, as well as focuses on creating long-term relationships with customers.  Because of  new merchandise coming in every day, the owner has added all of the employees as administrators of the Facebook page, and each one of us writes posts about new and unique items that come in.  The business also really focuses on customer service and creating relationships with the customers, thus most of the locals tell visitors to stop by the indoor flea market.

As far as operations, the flea market does not have to provide the merchandise.  The warehouse is divided into 7′ by 10′ booths that are rented out to vendors who stock the spaces with unique items old and new.  The flea market relies on these vendors to create a unique shopping environment.

For finance and administration, our office manager ensures that the vendors pay their monthly rent, and that the vendors get paid for the items that sold that month.  She also pays employees and assists the owner with the accounting and legal issues.  The owner of the company, ensures that everything is running smoothly and is constantly working to solve problems and improve the business.