business

business VISION ® WINTER 2008 FOR THE ENTREPRENEURIAL SPIRIT Ready, Set, Taxes Tips for tax preparation PLAN FOR RETIREMENT Feel confident about your future OUTSOURCING EXPLAINED Grow your business with outside partners BANKING TOOL KIT Your Guide to Business Banking Products and Services business VISION ® ® CONTENTS 10 Tips from entrepreneurs and experts on how to prepare for retirement F E AT U R E S 4 TA X SEASON SIMPLIFIED Breeze through tax season by organizing records, making quarterly payments and avoiding financial red flags. 10 PRESERVE YOUR FUTURE Don’t let business obligations deter you from implementing a retirement strategy that suits your needs. 14 OUTSOURCING 101 With the right outsourcing assistance, business owners streamline and expand their operations. D E PA R T M E N T S 2 SMALL BUSINESS MONITOR 8 EXPERT VIEW The importance of benefits; pet spending; top business concerns; and more. Banking Tool Kit YOUR GUIDE TO KEY BUSINESS PRODUCTS AND SERVICES News From Key Checking Business Debit Cards Savings Loans and Lines of Credit Other Credit Key Solutions Investing Income Key Insight page page page page page page page page page B2 B4 B6 B8 B10 B12 B13 B14 B16 Author and consultant Jill Griffin provides insight into building customer loyalty. 9 COMMUNIT Y IS KEY One entrepreneur balances social concerns and successful business practices while selling greeting cards. 17 BUSINESS SPOTLIGHT We R Memory Keepers takes the booming scrapbooking industry by storm with fresh, innovative products. K E Y C U S T O M P U B L I S H I N G D E PA R T M E N T Kristen Klein, MARKETING George Baer, EXECUTIVE DIRECTOR; Christine O’Connell, ACCOUNT MANAGER; Robin Kalin, OPERATIONS MANAGER PUBLISHING Chris W. Schraft, PRESIDENT; Tom Stacy, VICE PRESIDENT, CLIENT SERVICES; Hans Helmers, GENERAL MANAGER; Rhonda Hargrove, EXECUTIVE DIRECTOR, NEW BUSINESS DEVELOPMENT; Sinéad Whelan, PRODUCTION DIRECTOR EDITORIAL Elizabeth Shepard, MANAGING EDITOR; Charlene Benson, CREATIVE DIRECTOR; Steven L. Mintz, DEPUTY MANAGING EDITOR; Ann de Saussure, PHOTOGRAPHY DIRECTOR; Valérie Vaz, COPY CHIEF AND TRANSLATIONS DIRECTOR; Ray DiCecco, RESEARCH EDITOR TIME INC. MEDIA GROUP Wayne Powers, PRESIDENT; Leslie Picard, SENIOR VICE PRESIDENT; Lisa Pols, GENERAL MANAGER Cover Image: BUFF STRICKLAND; STYLIST: ELODIE OZANNE FOR ENNIS Contents: STEPHEN MALLON/STONE/GETTY IMAGES; Tool Kit: SOMOS/VEER The copyrighted articles contained herein are provided for informative and educational purposes only. The opinions and views expressed by the authors do not necessarily reflect the opinions and views of KeyCorp or any of its subsidiaries or affiliates, nor does the inclusion of the articles in this magazine constitute endorsements by the authors or Time Inc. or KeyCorp of any of the products advertised herein. CONTENT SOLUT I ONS BUSINESS VISION Brigid Galloway, SENIOR EDITOR; Thames Schoenvogel, ASSOCIATE EDITOR; Liane Burns, ART DIRECTOR; Jeanne Clayton, PHOTO EDITOR; Sara Cahill, Chitra K. Vemuri, SENIOR COPY EDITORS; monıtor small business Gender & Business When factors such as motivation and preference are equal, an entrepreneur’s gender does not affect the performance of a new venture. Still, according to a recent study, male and female entrepreneurs differ in several ways: Experience isn’t everything. Before going into business themselves, approximately 80% of men were employed full-time. Only 57% of women held full-time jobs. Men tend to build; women, sell. Men are significantly more likely to start construction and manufacturing businesses, while women are more likely to open wholesale and retail trade businesses. More girls follow Mom and Dad: Around 48% of male entrepreneurs have self-employed parents, compared with 58% of females. Source: SBA September 2007 research report What are the biggest concerns of small and mid-sized businesses? A 2007 survey conducted by the National Small Business Association indicates that economic uncertainty, the cost of health benefits and the lack of available capital top the list. In comparison, finding and retaining qualified workers, state and federal regulations, and economic uncertainty ranked highest in 2000. Still, 81% of respondents to the 2007 survey expressed confidence about the financial future of their businesses. Source: National Small Business Association, “2007 Survey of Small and Mid-Sized Businesses” CHALLENGES AHEAD THE BEAUTY OF BENEFITS Question: How significantly do employee benefits affect retention rates at companies? Answer: Benefits do play a role in employee retention—an important concern for businesses that want to reduce the risk of losing valuable team members. According to a study conducted in 2007 by the Small Business Administration, firms that offer benefits decrease the probability of an employee’s departure in a given year by 26.2%. By the same token, benefits also increase the likelihood an employee will stay an additional year by 13.9%. To learn more about employee-benefit programs offered by KeyBank, see box on pages B8–B9 of this issue. Source: SBA July 2007 research report Funds for Fido Americans spent $38.5 billion on pets in 2006, and the American Pet Products Manufacturers Association estimates that the 2007 total will increase to more than $40 billion. In 2006, owners spent: OPPOSITE PAGE, FROM TOP: COLORBLIND/STONE/GETTY IMAGES, AKIKO KAWANIA/AMANA IMAGES/GETTY IMAGES; THIS PAGE, FROM TOP: NEO VISION/GETTY IMAGES, FOODCOLLECTION/GETTY IMAGES $15.4 billion on pet food $9.3 billion on supplies and overthe-counter medicine $9.2 billion on veterinary care $2.7 million on grooming/boarding $1.9 million on purchasing animals Source: American Pet Products Manufacturers Association Inc. Coffee, Please Americans continue to spend more money on coffee, particularly coffee consumed away from home. While U.S. citizens spent $19 billion on coffee in 2002, that number jumped to $29.3 billion in 2006. Experts predict that sales will continue to rise, growing to $39.5 billion in 2011. Coffee shop owners are the biggest beneficiaries of this increase—their sales grew more than 19% each year from 2002 to 2006. Source: Tea & Coffee Trade Journal WINTER 08 3 BUSINESS VISION TAXES by Chris Warren tax season Prepare your business for tax season by following a few essential guidelines simplified W 08 WINTER hen Bob Whitaker opened several small businesses in the early 1990s, he never envisioned that tax preparation would become such a time-consuming ordeal. Whitaker, who left a sales career to start a photography studio and a marketing business, soon faced multiple IRS audits within just a few years. No small business owner wants to suffer through even one audit. Beyond mere hassle, the stakes are high when capital and manpower are already stretched thin. For Whitaker, though, the experience turned into an entrepreneurial opportunity. He delved into the minutiae of small business tax law and created a product, the Tax MiniMiser, that helps small business owners track deductions. By packaging the lessons he learned about tax organization, Whitaker devised a tool to save time and money on tax preparation. And several years later, when the IRS wanted to audit his records again, Whitaker was well prepared. With his own product, he had completely organized his tax-related documents. “The auditor went through my records and found legitimate deductions and complete documentations,” he recalls. “It was the ultimate test.” 4 BUSINESS VISION PHOTOGRAPH BY BUFF STRICKLAND; STYLIST: ELODIE OZANNE FOR ENNIS TAXES by Chris Warren TA XES Keeping Track Small business owners, even seasoned ones, often approach business tax receipts much as they approach personal income tax records. Amid daily business duties, they haphazardly collect some receipts and canceled checks and hope that they don’t owe anything when the April deadline rolls around. That simply doesn’t cut it, says Barbara Weltman, author of J.K. Lasser’s Small Business Taxes 2008. “The tax law requires that business owners keep books and records,” she says. “You don’t have a choice.” Instead of occasionally throwing documents in a folder, effective bookkeepers maintain current records throughout the year. For tax purposes, records pertaining to earned income and legitimate expenses are most critical. The Schedule C tax form, used by sole proprietors to report business profits or losses, helps to identify items that need to be documented. Maintain expense records related to inventory purchases, wages, materials and supplies, lodging and travel, business interest expense and business vehicle usage. Also keep up with income records like gross receipts and sales, returns and allowances as well as collected state sales tax. Some business owners use a separate folder for each month for their paper records. While collecting the documents, keep in mind that the IRS has specific record-keeping rules for certain deductions. Take, for example, the rules for deducting a business meal. “You not only need a receipt to prove the amount of the expense, which could be a credit-card slip, but you also need a diary or expense account statement that 08 that the IRS received it, because audits can be conducted beyond the three-year mark if the IRS suspects a business never fi led a return. Retaining so many records can present storage problems, so Weltman suggests scanning all your tax documents and saving them on a DVD. If space needed for more urgent fi les is cramped, consider renting a storage facility. For some small business owners, the task of maintaining such detailed records might simply be too onerous or time consuming. In that case, experts suggest enlisting the help of a professional bookkeeper. Four Business Deductions to Remember Carryovers from prior years for net operating losses and capital losses 1 2 3 4 Quarterly Dues No matter who handles a company’s records, the IRS requires that businesses expecting to owe at least $1,000 in federal taxes pay estimated taxes on a quarterly basis. Eva Rosenberg, author of Small Business Taxes Made Easy, says that despite this requirement, far too many entrepreneurs wait until the end of the year, when they don’t have enough cash to pay their full tax bill. “They owe a significant amount of money later on because they neglected to submit taxes during the year,” she says. “So in April they don’t have the money and they need an extension.” In addition to budgeting issues, missing quarterly estimated tax payments can lead to other problems. The IRS may levy penalties on a business that skips payment of estimated taxes. And failure to track tax implications of business expenses and income throughout the year can cloud the picture of how a company is performing. There are some exceptions to the quarterly estimated tax rule, however. If a business does not Theft and casualty losses, which are fully deductible Interest payments on business loans, including credit-card borrowing shows a lot of specific information,” Weltman says. “For a meal, it’s who you took out and why, what you discussed, when it happened and where you went.” WINTER Incidental costs of business travel, such as laundry 6 BUSINESS VISION make any profit one year, it may not be required to make estimated payments the following year. To avoid penalties, business owners should refer to the previous year’s tax return. If a business pays the same amount in estimated taxes for the current year as it did in the previous year (or pays 110% of last year’s taxes if income is over $150,000), the IRS cannot penalize it. So how long should business owners keep those documents? Because the IRS usually has three years to audit a firm, Weltman says it’s wise to keep all receipts and tax-related documents organized and fi led for at least that long. But it’s also a good idea to hold on to a copy of your filed tax return permanently, along with a confirmation “ Paying estimated taxes on time and being diligent about recordkeeping can reduce the chances of an audit. Avoiding an Audit Paying estimated taxes on time and being diligent about recordkeeping can reduce the chances of an audit. In addition to those proactive measures, avoid activities that flag the attention of the IRS. “Very high meal and entertainment expenses in proportion to your income will stand out,” Rosenberg says, “especially if the expenses are greater than your income.” She also warns business owners against claiming too much in the miscellaneous category. Small businesses that lose money but pay employees high salaries often attract an auditor’s attention, Rosenberg adds. “If someone is making $80,000 in a business that loses $30,000, then the IRS may think it’s a hobby the person is trying to write off as a tax benefit.” Deductions related to automobiles and home offices can also attract the interest of the IRS. While these can still be valuable WINTER ” deductions to take, Rosenberg says business owners should be KeyTax Pay taxes throughout the year with KeyTax ®, which allows small business owners to make federal, state and most local tax payments. For more information, visit key.com or call 1-888-KEY4BIZ ®. meticulous in documenting the reasons for such write-offs. For instance, if you claim a home-office deduction, be sure the office is used exclusively for your business. While few business owners will face the tax challenges that Bob Whitaker confronted, the lessons he learned are widely applicable. Entrepreneurs who maintain organized, complete records and handle tax payments throughout the calendar year can expect a simple and successful tax filing. 08 7 BUSINESS VISION PHOTOGRAPH BY BUFF STRICKLAND; STYLIST: ELODIE OZANNE FOR ENNIS E XPERT VIEW by Jill Griffin Building Customer Loyalty Understanding customer needs and providing unanticipated value are crucial Direct questions reveal how customers define value. What do they like—or dislike—about your business? Ask them to propose ways for you to retain their loyalty. “ C 08 WINTER ” ustomer loyalty is essential to success, whether the business in question is a one-person operation or a Fortune 500 company. To keep customers coming back, businesses must monitor their Research conducted in the 1980s by a highly respected Japanese quality expert, Dr. Noriaki Kano, found that customers experience value at three levels: basic value, expected value and unanticipated value. Consider a hotel. Basic-value delivery means, for instance, that after you check in, the key provided at the front desk opens the door to your room. That’s the least hotel guests can expect, whether at a four-star facility or an inexpensive motel. Hotels can deliver expected value that is a notch higher through such amenities as airport transportation, a health club or spa, and a high-quality restaurant. But what anchors customer loyalty most firmly is unanticipated value. Using the hotel analogy, front-desk receptionists convey unanticipated value when they welcome guests by name and learn their preferences, such as a favorite room location. Small business owners can nurture loyalty among their customers by delivering value on all three levels. And remember: You never get a second chance to make a first impression, so build from the bottom up. If you don’t deliver basic value from the start, chances are you won’t see that customer again. customers’ definition of value and then deliver it in a way that can be recognized and appreciated. Four direct questions can reveal how customers define value. First, what do they like best about dealing with your business? Answers might range from your standard practice of returning phone calls within two hours to your convenient location. Then ask what, if anything, you should change about the way your business handles customer relationships. Third, ask about related products or services your customers want. Finally, invite them to stand in your shoes and propose ways for you to retain their business. In addition to asking those questions, use your front-line staff to better understand how your customers define value. Front-line staff includes employees who work at the counter, answer the phones and make deliveries. Listen to them, as their experiences can furnish many helpful insights and ideas. Meanwhile, take time to reflect on your own interaction with customers. You may be surprised by what customer insights you overlooked in your haste to finish a job. 8 BUSINESS VISION Jill Griffin is the author of several books, including the bestseller Customer Loyalty: How to Earn It, How to Keep It. She runs the Griffin Group, which works with companies to improve customer loyalty. COMMUNIT Y IS KE Y Hopeful Opportunities A Vermont-based business sells cards and helps pull women out of poverty A disadvantaged women. Evan Goldsmith was passionate about his company’s aims, but he knew he also needed business acumen to make the endeavor work. “ ” Women in India use native flowers to create handcrafted note cards. t six years old, Evan Goldsmith glimpsed his future in the pages of National Geographic. “There was a feature on the Himalayas,” he explains. “The area seemed join him. “My father was a logical partner because he could tap into more than 40 years of incredible business experience,” Evan says. Jeannie Lynch, Director of Key4Women—a comprehensive program dedicated to assisting women in business—met the Goldsmiths after they came to Key needing banking services. “When I first talked with them, I thought, ‘What is it about the energy between these two?’ ” Lynch recalls. “Not only are they trying to change things globally, they’re doing it as father and son. I love that.” With Evan serving as president and David as chairman, Hope for Women, located in Burlington, Vermont, launched in 2004 by selling cards through a Website. Soon they began courting retail shops and today distribute cards to more than 250 stores throughout the country, including major retailers like Whole Foods Market®. Meanwhile, the women who make the cards continue to reap benWINTER incredibly new and exotic, and I had a gut feeling I wanted to go there.” He finally did travel to the Himalayas after graduating from college in 1992, and the experience eventually led to the creation of Hope for Women, a for-profit business that pays Indian women a living wage to handcraft greeting cards sold in the U.S. Before starting Hope for Women, Evan worked in the Himalayas with a nonprofit group devoted to women’s development and environmental issues. While there, he admired the beautiful note cards Indian women were making with native flowers and plants. The women’s efforts, however, failed to generate enough income to live on, so they had to rely on low-paying domestic jobs or subsistence farming for additional revenue. Seeing a social need and a business opportunity, Evan started Hope for Women with a mission of providing sustainable employment for economically Though he was passionate about the company’s aims, Evan knew that he also needed business acumen to make the endeavor work. He didn’t have to look far. Evan recruited his father, David Goldsmith, to efits from that growth. Evan reports that Hope for Women is now able to pay the women a monthly stipend in addition to a set price per card, which gives them even greater financial security. Evan attributes the company’s success to maintaining a balance between social responsibility and smart business practices. “The mission is part of who we are, obviously,” he says. “But it’s also about the quality of product at a competitive price. We’ve learned that if you’re also able to embrace social concerns, such as fair trade and environmental awareness, you’ve really got something.” 08 9 BUSINESS VISION 10 WINTER BUSINES S VISION 08 RETIREMENT by Randy Myers ( ) Preserve Y our Future Don’t neglect a retirement strategy Business owners juggle competing demands every day, from maintaining reliable cash flow and building customer relationships to controlling costs and managing employees. With so many urgent concerns, they routinely neglect the one that eventually may count most: retirement planning. While some ignore retirement because of work’s endless demands, WINTER others simply love their jobs and can’t imagine leaving. And as an entrepreneur launches a business, it’s easy to funnel every available dollar into the new venture because everything depends on success. But no matter how much is being put back into the company, no business owner should rule out retirement savings. 08 11 BUSINESS VISION PHOTOGRAPH BY STEPHEN MALLON/STONE/GETTY IMAGES RE TIREMENT Nest Egg Protection When Kathleen Spinelli launched her dream business a few years ago, she made several smart decisions related to retirement planning. Spinelli, along with partner Robert Allen, left a corporate publishing house career and opened Brands-to-Books, a small publishing agency in New York City. Like many entrepreneurs, she does not identify with the concept of retirement, partially because of her passion for the business. “I doubt I’ll ever retire in the classic sense,” says Spinelli, who is in her early forties. Still, she’s not oblivious to the virtues of saving. “Once our small agency is running along nicely, my goal is to continue to be actively involved but reserve the right to go off and travel when the mood strikes.” Meanwhile, Spinelli has been carefully attending to her nest egg. She realized that because her income would drop while the business was getting off the ground, her retirement contributions would also decline. To partially offset that slower growth, she restructured her 401(k) and put a larger portion of the portfolio in growth stocks. And although Spinelli had a 401(k) in place when she started Brands-to-Books, she avoided dipping into the retirement account to fund the business during its first years. Instead, she and Allen arranged a bank loan. That meant neither partner had to liquidate retirement savings to furnish working capital, a move that might have triggered twofold consequences: early-withdrawal penalties and the loss of a nest egg’s tax-deferred, compound growth. I doubt I’ll ever retire in the classic sense. Once our small agency is running along nicely, my goal is to continue to be actively involved but reserve the right to go off and travel when the mood strikes. —Kathleen Spinelli, small business owner “ a fi nancial planner in Tampa. Instead, he advises, “just implement a very basic savings plan, like an individual 401(k). That will begin accumulating retirement savings even at the most minimal rate and help provide a little peace of mind.” An individual 401(k) is similar to a traditional 401(k) plan but is available only to small business owners with no full-time employees other than immediate family. In addition to the individual 401(k) plan, a Simple IRA or a SEP IRA can fund retirement. The Simple IRA is for small business ” owners with up to 100 employees. Those employees, including the business owner, can defer up to $10,500 pretax annually from their own paychecks to fund the plan. Small business owners with a handful of employees often opt for the SEP IRA, which is inexpensive to set up and maintain. Participants do not contribute their own income, but employers put in a uniform percentage of each participant’s pay or a flat dollar amount. Multiple Choices If you’re a small business owner who needs every bit of capital to stay afloat during the first few years, you may want to wait a while before launching a full-blown retirement plan, says Brian Code, 08 WINTER Retirement Planning Find a retirement plan suited to your specific situation. Key’s wide array of options include individual 401(k)s, Simple IRAs and SEP IRAs. To learn more, visit key.com or call 1-888-KEY-2020. A Late Start Because any delay in retirement planning sacrifices time that can multiply the value of saved dollars, experts always encourage early planning. Still, a late start does not preclude a successful retirement strategy, as psychiatrist Raul Capitaine learned. Capitaine operates a flourishing multi-office medical practice in southern Texas. Early on, he intended to prepare for retirement once he was earning enough to comfortably support his family and 12 BUSINESS VISION hire a few employees. But as age 60 approached without his making formal plans, he realized that time was running out. “I didn’t arrive in the U.S. until my late thirties, at which point I had to be recertified to practice medicine in this country, including doing residencies and fellowships,” Capitaine recalls. “I didn’t open my practice until my late forties, and before I knew it I found myself in my late fifties without a plan.” Capitaine asked his company’s accountant for advice, and after carefully considering his options, he settled on a defined-benefit pension plan. “We quickly zeroed in on that plan because of the tremendous amount of money I needed to save in a short period of time,” he explains. The defi ned-benefit pension plan enabled Capitaine to save more each year than he would have saved with a 401(k) plan. He targeted a desired income level at retirement and then figured out an appropriate yearly contribution to reach that goal. So even though he got a late start, he still implemented a plan for achieving his retirement objectives. octopus analogy,” he says. “I tell clients there are no one-armed octopi—an octopus has eight arms. Likewise, your retirement income should also be funded from as many as eight to 10—maybe even 12— different income-producing sources.” Such sources of retirement income for small business owners include Social Security, a 401(k) or IRA retirement savings plan, a definedbenefit pension plan and real estate investments. Other possible sources of income are home equity, mutual fund holdings, and proceeds from the sale of a business or income generated by its continued operation under different management. “Most of us are aware of the obvious income generators, such as the money we’ve made from the sale or dissolution of our business and our 401(k) benefits,” Code explains. “But try to establish several additional sources of retirement income as planning and investing flexibility increases over time.” Many entrepreneurs ignore proper retirement planning either because of monetary constraints or an expectation that they may never leave the business. But by elevating retirement plans to the status of other essential business decisions, small business owners can ensure a comfortable future. Source Strategy A winning strategy for small business owners is to seek multiple sources of income in retirement, Code says, so that financial security isn’t linked exclusively to the success of the business. “I use an An Option for the Smallest Businesses Consider an individual 401(k) if a full-fledged retirement plan isn’t right just yet WINTER If you’re just getting your business up and running, the bulk of your capital must be devoted to your new venture and not to a multi-faceted retirement plan. But it’s relatively easy for a sole proprietor to establish a simple 401(k) savings plan, called an individual 401(k), that allows a business owner or solo employee to make regular payments directly into the plan. The individual 401(k) was established in 2001 but enhanced in 2006 with the inclusion of a flexible funding feature. Under the new guidelines, a business owner may choose to take a tax deduction when funds are contributed to the plan, or when the income is withdrawn from the plan in retirement. An individual 401(k) also allows business owners to borrow against their savings and to save up to $45,000 annually pretax, as opposed to the maximum $15,500 in a regular 401(k). So get yourself into a smart savings pattern by putting aside some money—no matter how little—on a regular basis. 08 13 BUSINESS VISION PHOTOGRAPH BY IMAGE SOURCE PHOTOGRAPHY/ VEER 14 WINTER BUSINESS VISION 08 SLUG TK OUTSOURCING by Peter Strozniak outside w to develop ips that can help Ho partnersh rive ur company th yo outsourcin g At Cynthia Kay’s video production office in Grand Rapids, corporate videos for clients as far away as Switzerland and Germany. To create the videos, they rely heavily on highperformance computers, servers and other technologies. “We had an IT employee, but our technology needs became more complicated as our business grew,” recalls Kay, who launched her company 20 years ago. “We realized it was difficult to expect one person to keep up with all of those technology changes and requirements. We needed another strategy.” WINTER six employees work under demanding deadlines to produce 101 To meet the demands of her business, Kay retained the services of a local IT outsourcing provider more than a year ago. Now, instead of one IT employee, her office has a team of IT professionals who keep the equipment up to date and in working order. “I see our systems running so much smoother than before,” Kay says. “Our IT system enables us to provide great service for our clients, giving them confidence in our capabilities. That’s a huge selling feature that will help our growth continue.” 08 15 BUSINESS VISION PHOTOGRAPH BY JACK HOLLINGSWORTH/PHOTODISC/GETTY IMAGES OUTSOURCING Outsourcing may seem like a complicated proposition, but investigating its potential is worthwhile. Experts suggest that you first identify the function you need outsourced, making the distinction between core functions and delegable tasks. Next, determine specific goals you hope to achieve by outsourcing, and finally, establish a method for selecting and working with one or more outsourcing partners. when we need them, which is far more efficient and flexible,” Feder says. Although she pays more because of the outsourcing assistance, she believes her strategy has fueled her company’s double-digit annual revenue growth. Other business owners outsource so they can spend on other business duties. By hiring a company to handle human resources functions, for example, an owner will be able to devote much-needed time to expanding a product line. Find Your Focus Understandably, small business owners often focus on selling products and keeping the business afloat. But Andy Birol, a Cleveland-based author and small business consultant, finds that attention to less critical chores can sap energy best used to develop a business. “Many business owners spend too much time on too many operations because they believe they’re saving money,” he says. But that only robs them of time that should be spent expanding relationships with current clients and winning new ones. The remedy, Birol suggests, is for small business owners to fi nd what he calls their “best and highest use.” In his book, The 5 Catalysts of 7 Figure Growth, Birol explains that best and highest use “is the point of convergence between what you do well and what customers want or need and will pay to get.” To gain insight into their best and highest use, entrepreneurs should identify the duties they enjoy most and accomplish well. Birol says that an owner should also determine why clients like the company. Then, after these strengths are established, other business responsibilities should be outsourced or eliminated. Select the Right Partners Finding the right outsourcing partners requires time and due diligence. To gather a list of possible partners, ask trade associations or other businesses. Interview at least three companies and focus your questions on which metrics are most important to your expectations. “At some point, it becomes difficult to find out which partners are the best until you try them out,” Feder says. Once you do find a partner, draft a written contract that includes specifics, such as review processes and dispute resolutions. To be safe, hire an experienced business lawyer who can help you through the process and protect your interests. When the working relationship begins, communicate and clarify all expectations from outsourcing partners. The best way to prevent misunderstandings is never to assume anything, advises Feder. When something goes wrong, finger-pointing is a waste of time. It’s better to investigate the source of the problem and simply fi x it. After all, your business might just move on to bigger and better growth with a little help from outsourcing partners. Determine Your Objectives Once business owners decide which tasks to outsource, they must consider their objectives. Many simply want to save money. “The cost savings are real,” says Maurice F. Greaver II, author of Strategic 08 When Outsourcing Doesn’t Make Sense Outsourcing. “But I would argue that outsourcing is worthwhile even if it costs 10% more, because you can get a wonderful return on your investment by paying a little bit more for a higher quality product or service.” Hillary Feder, president of Hillary’s Gifts, outsources various functions so she can provide a wider array of products in a costeffective manner. Her company designs and delivers customized gifts and gift baskets with the help of 20 outsourcing partners. “Our outsourcing model allows us to buy services for what we need, WINTER 1 Avoid outsourcing if you must give away proprietary information that may be leaked, says Charlie D’Agostino, director of Louisiana State University’s business and technology center. 16 BUSINESS VISION D’Agostino also recommends that business owners review outsourcing operations regularly and quit the partnership if the company can complete the task more efficiently in-house. 2 3 According to small business consultant Andy Birol, never outsource your “best and highest use”—the unique aspect of your business that customers value most. BUSINESS SPOTLIGHT We R Memory Keepers makes a splash in the scrapbooking industry with innovative and creative products Beautiful Memories The scrapbook market has been a good industry for us…but our growth has also come from our products. We build great designs and great products. “ F hobby: scrapbooking. now 31 years old. Hiller notes. ” WINTER ourth-generation bookbinder Andrew Hiller found his calling after reinventing the family business with a modern twist. Some 90 years ago, Hiller’s great-grandfather began the Provo Book-Bindery in Utah, which Of the company’s many offerings, its innovative Crop-A-Dile tool has scrapbooking fans buzzing most. The Crop-A-Dile easily punches holes through materials such as paper, leather and tin. At the same time, it reinforces the holes with eyelets, which allow design-minded crafters to thread ribbons and other trimmings through the pages. Soon after We R Memory Keepers opened its doors, the company needed more space. That’s when KeyBank stepped in. “They went through a huge growth spurt, and they’re continuing to grow,” says Brian Van Camp, the company’s Relationship Manager at Key. “We got them into a bigger building and financed that building so they could expand their operations.” We R Memory Keepers also needed a larger line of credit, which KeyBank provided, to start manufacturing products overseas and ship them back to the U.S. According to Hiller, Van Camp not only helped the business obtain fi nancing but also took a personal interest in its success. “I felt like he cared,” Hiller explains. “And Key felt like a local bank.” Hiller attributes most of the company’s success to innovative designs and energetic managers. As he looks to the future, he expects to continue building on an already significant growth curve. “The scrapbook market has been a good industry for us, but I don’t think it’s just the market,” he says. “I think it’s also because of our products and our people.” made one of the fi rst albums designed specifically to preserve photos and other memories. And in 2001, the enterprising Hiller began his own memory-keeping business by tapping into a popular After getting a finance degree and interning at another scrapbooking company, Hiller started We R Memory Keepers, located in Salt Lake City. “When I graduated, I put the two experiences together and just started making products,” says Hiller, who is In addition to designing and manufacturing albums, We R Memory Keepers sells beautiful papers, page protectors and embellishments such as rub-on metallic lettering and colorful ribbons to coordinate with the papers. Stroll through the scrapbook aisle of any specialty craft store and you’ll likely fi nd the company’s leather albums, imported from Italy, or its handmade linen albums in a rainbow of colors. “Our growth has been based around product—we build great designs and great products,” 17 BUSINESS VISION 08 PHOTOGRAPH BY BEARD & HOWELL/DIGITAL VISION/GETTY IMAGES