If yes, read all these ideas that have been implemented by clients and have benefited them giving their businesses dramatic boost in profitability. Most ideas can be put to action immediately. Each idea has the potential to give you many %points increase in net profits.

Research shows profits increase by 4%-56% and costs reduce by 18%-37% within 2 years using the simple 5 step process called the Profit Maps Model. Usually a 5% reduction in cost is adequate to turnaround most loss making businesses.

Businesses can calculate the value of the savings by these 2 simple formulas

If the business made a loss

Total Costs and Expenses = sales + absolute value of net loss +/- income tax = say X

Minimum Savings you will make in 2 years = 5% of X (which was calculated above)

If the business made a profit

Total Costs and Expenses = sales + net profit +/- income tax = say Y

Minimum Savings you will make in 2 years = 5% of Y (which was calculated above)

So how much can you save? Improve your profits by?

Revenue

This category typically contains inflows of resources into the business generated through operations.

Needless to say the profit building process can be used to generate marketing and sales ideas. The following ideas were generated with the objective of increasing revenue with little or no impact on the cost structure.

Revenue Increasing Ideas

1. If your company has facilities located over a multi-geographical area you may be able to rent antenna space to cellular phone companies. Typically these companies will pay for the use of rooftops as a place to erect their antennas. Another option is for billboards as advertising if you occupy a central location with a high visibility building. This enhances your revenue without any additional cost you. The point here is to explore alternative uses for your facilities. Remember they are assets that can be used 24 hours a day, seven days a week. There are numerous opportunities available for increased revenue if you look for them. Training room and function room facilities can be rented out in the evening or weekends. How about spare land or excess slots you own for public car parking?

2. Determine whether your business can market commission and non-commissioned products as add-on sales. Look for opportunities to sell products to your existing customer base at no additional cost. Examples are catalogue sales to airline passengers and the sale of miscellaneous products to credit card customers. You may have the opportunity to do something similar. Your customers have more value than you realise.

3. Is there any additional value in your customer database? Perhaps your business could generate additional revenue by selling the data. Alternatively consider starting a telemarketing department to market another line of products or services. Depending on your business and the nature of your customer base you may have something great here.

4. Explore the advantages of an effective e-strategy including e-commerce, e-business, e- people and e-technology. There is no question that the new opportunities available through the Internet offer new and innovative ways to increase profits and reduce costs. Consult with an expert in this area including a cross-section of your employees and magic will happen.

5. Segment your customers into heavy user and light user categories and determine the difference between these two groups. What needs to be done to generate another sale from both categories? All customers are critical. What can you learn about the different types of customers to determine whether more selling occasions possible? Make the most of these customers; you already have them.

6. Develop retention strategies as well as growth strategies. In today’s markets, it is as important to hold on to your existing customer base as it to grow your business. It took you a certain amount of resources to attract your customers: you may want to explore ways to retain a high percentage. What is your cost to acquire a customer? What is your cost to retain a customer? Do your employees know?

7. Continue to look for augmented products and/or services that would add value without adding expense.

8. Explore opportunities to licence or franchise your business products or services for additional market share or penetration

9. Explore merger and acquisition scenarios where efficiencies would be gained for all businesses concerned.

10. Develop a relationship with a long-distance carrier whereby your company will distribute phone cards to your customer base in return for a fee or residual commission.

Salaries

This category typically contains charges associated with

· Management Pay
· Non-management Pay
· Hourly Wages
· Training Labour
· Overtime Pay
· All Other Pay, Wages and Salary items

Cost Saving Ideas

11. Establish a 45 to 60 hour per week work environment among the managers. Cost structures among your competitors are basically similar to your cost structure so you will obtain an advantage because your managers are working more hours. This assumes that your managers are productive. Managers who have responsibility for a workforce of hourly employees are usually at the facility, a retail outlet, restaurant or office at least this amount of time. Sometimes business volume is extremely low at early or closing hours. During the slow hours managers can save substantially by scheduling fewer employees and filling it themselves. In addition to the Labour savings, managers will become more knowledgeable about operations and will find ways to improve customer service, training and operations. I have put this procedure in place in several places. At the beginning there will always be resistance, but once managers get beyond the initial hump things will run smoothly. I also find that certain incentive programmes work well here. Get the manager’s incentives based on Labour dollar saved and they come to understand the process.

12. Effectively manage your salary administration programs. Many companies pay lip service to this principle but failed to obtain true levels of success in salary administration and management. To start, make sure you have a salary range for every position in the company. Salaries should be structured so that the midpoint is 100, the minimum is 80% and the maximum is 120%. The basic philosophy is that the candidate should be hired into a position between the minimum and the midpoint on the basis of his or her level of experience. The employees are then moved higher in the range on the basis of performance. This philosophy is based on the premise that mid-point is the amount the position is worth to the company. Employees can obtain an additional 20% through stellar performance. Few employees should be paid over the 120% range. Each job is worth a specific amount to the organisation. If a new hire needs training to become efficient in a particular job, that employee is working at a level below the worth of the position and therefore should be paid at the minimum salary range. When the employee’s performance rises at successful completion of training and can perform 100% of the job duties move the employee quickly toward the midpoint of the salary range.

13. Insist that a salary survey be done every year to ensure that you have achieved the desired community position relative to your competition. In this case the competition is those companies that would recruit your employees. You need to make sure that if you survey 10 competitors; you have a salary range higher than 75% of these companies for your key positions and higher than 50% of these companies for lower-level positions. Implementing this strategy will help you reduce turnover and will also ensure that you are not overpaying for positions.

14. Make sure your salary administration program allows for regular salary review. Typically, this is done once a year for salaried employees and every six months for hourly employees. The review should include a performance appraisal form and the employee’s performance levels should correspond with established pay increases. In other words, establish the pay for your performance review system.

15. Establish a bell curve of salary increases. Let’s say that approximately 8% of your employees are superior performers, 12% are above average, 60% are average, 12% are fair, and 8% are poor. Create a salary increase guideline that mirrors this curve, with the better performing employees receiving higher increases. For example superior employees are given 6% to 7%, above average employees 4% to 5%, average employees 3%, fair employees 2%, and poor employees 0%. This allows the organisation to check and reward performance whilst still meeting its salary increase budget. Obviously, your goal is to continue to train and develop your workforce. Occasionally, low performing employees have to be replaced with those most suited to the position. The Bell curve is just a process to ensure that star performers are recognised and rewarded for their work.

16. Establish the salary increase guideline budget and stick to it. Plan salary increases for the coming year by using the Bell curve mentioned in the above idea. Department managers should budget salary increases for employees assuming that the next year’s performance will be at the same level as this year’s. Please be aware that some performance ratings will change. There will always be exceptions. This process will help ensure that your organisation will remain within the new salary increase budget.

17. The salary increase guideline budget should be preapproved. When a different rating is submitted during the year, treat it as an exception and make sure to justify it because performances can change- it may go up or down. A strict salary administration program will ensure that budgets are achieved.

18. Establish a training rate for all appropriate positions. This is crucial when your organisation experiences higher levels of turnover during the first and second months of employment. The training rate is lower than the standard pay rate and is applicable only during the training period. Employees are given a raise once the training has been completed satisfactorily. Determine whether the training rate could be established for other positions in the organisation.

19. Where the training rate is not appropriate, establish a probationary rate for the standard 90 day period. This rate is lower than the standard pay rate and is applicable only during the first 90 days of employment. If performance is satisfactory, the employee will receive a raise to the standard pay rate. Determine whether a probationary rate could be established for all positions in the organisation.

20. Develop a labour-management system whereby a computer predicts daily or hourly volume and the amount of labour needs on the basis of seasonality. Most businesses have a trend cycle that can be measured with 15 minute increments. First, you must find a way to get past the notion that your business cannot be tracked this way. There is a pattern to your business. Discovering your business pattern is the first step toward determining how to manage your Labour cost. Management will give you many reasons why the business cannot be tracked. Once you work through all their concerns, you and your team can identify those trend items, aspects of your customer behaviour that, in fact, can be tracked and schedule Labour accordingly.

21. Determine whether your new hires would qualify for the targeted job tax credit program whereby a percentage of training dollars is refunded by the government.

22. Determine whether your organisation would qualify for tax benefits for providing employee childcare services.

23. If your employees handle cash transactions, install software driven cash reconciliation process to save time at shift changes and at closing. This will also reduce cash shortages. This type of procedure also saves time in the cash out process.

24. Constantly look for software modifications that can reduce labour. Seconds saved could also mean dollars earned. Using technology is a natural approach to the whole effort of productivity improvement. If your business has not recently explored this area, effective tools that currently exist may surprise you.

25. Have an industrial engineer evaluate your business in terms of time and motion studies to determine whether additional efficiencies can be achieved in areas where high throughput is important. This approach can still work today. Some managers run their businesses the same way they did 10 or 20 years ago. Time and motion studies can have an impact on cost savings, productivity, customer service, and employee morale.

26. Establish a self-regulating team with the specific responsibility of improving productivity and reducing costs in a particular department or area of the organisation.

27. Develop an incentive to reduce absenteeism. This incentive should be linked to productivity improvement goals and to the availability of the workforce. It should be based on reducing absenteeism from previous period. The incentives could be a vacation bonus based on a 1% reduction in absenteeism

28. Develop a variable pay program whereby management salaries are reduced 5% to 10% across the board and these dollars are set aside into a bonus pool. When there is goal achievement, managers have the potential to earn even higher levels of compensation. However, these dollars will be at risk if managers do not achieve profit objectives. The potential to earn even higher levels of compensation will help sell this item.

29. Controlling your staff turnover is another way to reduce operating costs. Implementing strategies throughout the entire human resources cycle to ensure that all systems, procedures, policies, and practices are tight preventing employees from falling through the cracks. I refer to this as the human resources closed loop. If you think about it you will see that there is a cycle to the human resources process. It starts with recruitment, interviewing, selection and placement and continues to orientation, training, salary administration, performance appraisal, development, promotion, and finally termination. Then the cycle begins again. Make sure that all of the areas mentioned are employee friendly and are designed to retain employees. Identify any areas where improvements would reduce the number of employees leaving.

30. In order to determine where are to place additional controls, measure your labour costs in terms of cost per unit, cost per test, cost per guest check, etc. Breaking your labour costs down to the lowest unit will help you better identify cost saving ideas. It will also make it easier to affect and control.

Other Personnel Costs

This category would typically contains charges associated with

· Applied Payroll Burden
· Superannuation Employers Portion
· Vacation
· Paid Holidays
· Sick Leave
· Bonuses
· Short/Long term disability
· Group medical

Cost Saving Ideas

31. Make sure your company has a program that offers all full-time employees the opportunity to receive a higher salary in lieu of accepting certain benefits (such as medical, dental and life-insurance). Today many employees are being carried on a spouse’s plan. Why not let these employees choose a higher salary instead of benefits? As long as salary increases less than the cost of benefits, the company will save money and employees will increase their income.

32. Evaluate the cost of your superannuation administration. There are competitive programs that can reduce administrative costs. A simple evaluation of three different companies will determine whether you have an opportunity to realise savings. Even if you do not want to change the current superannuation administration you may still be able to negotiate better terms by showing your evaluation.

33. Reduce workers compensation insurance by aggressively reducing accidents. Evaluate your workers compensation actual to determine your claims history. Most companies set an actual rate and never re-evaluate them even though their experiences change. Depending on your business you may be surprised at the potential savings here.

34. Using the Internet conduct benefit surveys to comply your cost with those of similar organisations.

35. Challenge third-party providers to reduce administration costs by using the Profit Maps Model and passing those savings along to you.

36. Continue to monitor workers compensation costs and develop action plans to reduce them.

37. Develop a back to work programme that puts injured employees in alternative positions. There are times when injured employees want to remain active in the organisation and appropriate positions are available.

38. Negotiate settlements when long-term workers compensation situations dictate.

39. Eliminate alcohol at all company sponsored activities. This approach can prevent accidents, cut beverage costs at functions and reduce risks.

Communications

This category typically contains charges associated with

· Long-Distance Telephone
· Cellular Phone
· Pagers
· Data lines
· Fax lines

Cost Saving Ideas

40. Authorise a telecommunications consultant to analyse all your communication costs in terms of rates charged, equipment used, and programmes offered, promotions available, usage, cellular phone options, long-distance carrier performance and pricing, fax and security line combinations, past bills, and so on. Structure the contract so that the consultant bills on the basis of percentage of cost saved or refunds received. In this way, there will be no cost to you if the consultant is not successful in improving your bottom line. Review all areas of communication to ferret out these pockets of expense that often go unnoticed. Pagers and cell phones are usually ordered and distributed without the benefit of an organised plan. There are real and meaningful discounts if you shop around.

41. Continue to renegotiate rates and terms with the vendors who provide services. Set up an ongoing procedure for constantly renegotiating rates and terms.

42. Monitor and control your communications cost on the basis of the cost per unit test (guests check, or that like) in order to determine locations for exerting any additional control.

Utilities

In this category typically charges associated are

· Gas and Electricity Usage
· Water

Cost Saving Ideas

43. Authorise a utility consultant to analyse your utility costs. Such consultants would know how to deal effectively with the local public service companies in order to discover advantages or missed opportunities associated with gas and electric services. They should be fully authorised to check existing equipment and records. They should be experienced in developing an index and analyses and creating demand graphs to spot situations where you may have been overcharged. They would also represent your issues to the public utility commission.

44. Pay your consultant on the basis of a percentage of the savings associated with his or her action steps. The typical rate is 25% to 30% of the demonstrated savings and refunds over a specific period of time. There should be no charge if savings are not demonstrated.

45. Take energy conservation action steps including setting thermostats at 72°F. Automatic controls should be put in place to control temperature during off hours.

46. Turn off lights in conference rooms, restrooms and officers when they are not in use.

47. Turn off all lights not related to security at the close of business.

Professional fees

This category typically includes charges associated with professional services such as

· Legal and Human Resources Related Fees
· Proposals (domestic and international)
· Fees for Technical Services
· Other professional fees

Cost saving ideas

48. Talk about fees. If your lawyer does not bring up the subject of fees, you should. Do not be shy. In business, lawyers are free to set their own fees. The best time to discuss is at the beginning of a new legal matter.

49. Try to settle cases rather than litigate.

50. Have lawyers design standard forms you can use in routine transactions.

In New Orleans, Rick Hart’s home based cajun Cargo ships seafood nation wide. In Palatine, Illinois, Stephaine Heavey works from home designing and selling original patterns for fabric dolls. And in Dallas, Lisa McElya published the Dallas Party & Event Planners Guidebook from the entire first floor of her two-story home.

These three people are living the new American dream of owning a business, but avoiding the high overhead and start-up costs of a commercial location. If the idea of working from home is appealing, but you don’t know where to begin, here is a step-by-step guide.

STEP #1 DECIDE WHAT PART OF THE HOUSE TO USE

Select an area away from family activity. The perfect space is a separate room (or perhaps the garage), but any area will do, if it can hold all the business supplies and equipment, and also provide enough work space for desks, tables, or counters.

STEP #2 DETERMINE HOW MUCH TIME YOU CAN SPEND ON THE BUSINESS

Many people start a home business on a part-time basis while raising children or working outside the home. Others start full-time when family and finances allow. However you begin, figure out how may hours per week you can devote to the business Make a weekly chart of your activities, examine it, and determine where the business fits. Don’t assume you have time and find out later you don’t.

STEP #3 DECIDE ON THE TYPE OF BUSINESS

Make a list of things you like to do, your work and volunteer experience, and items you own that can be used in a business. Look over this line-up, and using ideas from it, list possible businesses to start. Eliminate any business that isn’t appealing or doesn’t fill a need people have.

For ideas on different types of businesses, consult the end of this article. Other ideas can be found in the source material listed at the end of this article.

STEP #4 CHOOSE A LEGAL FORM

The three basic legal forms are sole proprietorship, partnership, and corporation. The most common is the sole proprietorship. As its name implies, a sole proprietorship is owned by one individual. It is the oldest form of business, the easiest to start, and the least complicated to dissolve. Here are some of the advantages of this business form:

1. You own all the profits
2. Your business is easy and cheap to organize. You don’t need any government approval, although you may be required to carry a city, state or county license. Your only other obligation is to notify the Internal revenue Service (IRS) for the purposes of sales tax.
3. You’re the boss
4. You enjoy certain tax savings. You must pay regular individual taxes on your income, property, and payroll, but these are not levied as special taxes, as with a corporation. You will also have to pay sales tax which you have received from your customers.
5. Greater personal incentive and satisfaction. Since you have your investment to lose if your business is not successful, you should be more willing to put time, thought, and energy into the business. And when your business is successful, you enjoy maximum sense of accomplishment since you know its success was dependent upon your decisions about your management ability alone.

For more information about this and other forms of business, send for the U.S. Small Business Administration (SBA) Publication MP25. Selecting the Legal Structure for Your BUsiness (50 cents). It outlines the advantages and disadvantages of each legal type of structure. If after reading it you are still uncertain what form of the business should take, consult an attorney.

STEP #5 DETERMINE WHERE THE MONEY WILL COME FROM

There are three ways to finance start-up costs: use your own money, obtain a loan, or find investors. If possible, it is better to start small, use your savings, and not worry about repaying a debt. also keep in mind that since you are a home-based, chances of qualifying for a loan or finding investors are slim until the success of your idea is proven.

STEP #6 GATHER INFORMATION

Spend a few weeks researching home-based businesses. A library or bookstore can provide numerous books on business basics, and on the specific type of business that interest you. Homemade Money by Barbara Brabee (see sources) is an excellent book to start with.

If you are considering a computer business, get in touch with the association of Electronics; Cottagers, P.O. Box 1738, Davis, CA 95617-1738. To keep informed of what is happening in home business world, contact National Home Business report, P.O. Box 2137, Naperville, IL 60566, for subscription information; and Mothers Home Business Network, P.O. Box 423, East Meadow, NY 11554 (send SASE for free information).

STEP #7 CHECK ON ZONING RESTRICTIONS

Find out how your property is zoned, the call City Hall and ask what regulations apply to home businesses in that zone. Also, if you rent or live in a condominium, check the lease or homeowner’s association rules to be certain a home business is allowed.

Generally, if you do not annoy your neighbors with excess noise, odors, and traffic, you will not be deterred from running a business at home. The neighbors may not even be aware of the business, but it is necessary to know exactly what you can and can’t do before you start. This is important should any problems or questions arise later.

STEP #8 PICK A BUSINESS NAME AND REGISTER IT

If the business you choose is different form your name, file an assumed (or fictitious) name certificate with the county. You are notified if another business already has that name, so you can select a new one.

Do this before investing in expensive stationery and brochures. It costs only a few dollars to file, and it protects the business name from being used by someone else in the county.

STEP #9 WRITE A BUSINESS PLAN

A good business plan clarifies your ideas and establishes a plan of action. A good business plan should include a description of what you are selling, your background and qualifications, who the prospective customers are and where they can be found, what is needed to build the business, how you plan to promote, and how much money is need for start-up costs.

SBA Publication #M925, The Business Plan for Home-Based Business ($1) is helpful.

STEP #10 GET AN IDENTIFYING NUMBER

If you are the sole proprietor of the business and have no employees, you may either use your Social Security number or an Employee Identification Number (EIN) as the business number on official forms. If you have employees, or the business is set up as a partnership or corporation, you must obtain an EIN. To do this, complete IRS Form SS-4 (Application for Employer Identification Number) and file it with the nearest IRS Center.

STEP #11 OBTAIN A SALES TAX PERMIT

If the product or service you sell is taxable, you need a state sales tax permit. Call the local tax agency, explain the type of business you have and what you sell, and ask if you need to collect sales tax. If you do, they will send you the necessary information and forms to complete. You also use this tax number when your purchase items for resale.

STEP #12 OBTAIN LICENSES & PERMITS

It’s very important not to overlook any necessary license or permit. For example, some cities and counties require a general business license, and most have special laws regarding the preparation and sale of food.

Call City Hall to find out what is need for your particular business. In addition, Chamber of Commerce provide information on city, county and state licenses and permits.

STEP #13 SELECT BUSINESS CARDS, STATIONERY, BROCHURES

Spend time on the color, design and paper for these items. They make a definite impression-good or bad- on the people who receive them. If you are not certain what is most suitable and effective, consult a graphics designer or a creative printer whose work you like.

STEP #14 OPEN A BUSINESS CHECKING ACCOUNT

Call several banks to find out what services they offer, and what minimum balance, if any, must be maintained to avoid paying a service charge. Also ask about credit card if you plan to offer this convenience to your customers. Bank fees can be significant, so shop around for the best deal.

If your personal checking account is with a credit union, see if it can also provide a separate business account. when you open your account, you may need to show the assumed name certificate and business license.

Finally, investigate obtaining a credit card in the business’s name. If this is not possible, set aside a personal credit card to use for business expenses.

STEP #15 SET UP RECORD-KEEPING SYSTEMS

Put together a simple and effective bookkeeping system with an 8 1/2 x 11″ three-ring binder, columnar pad sheets and twelve pocket dividers from the office supply store. For each month, set up columnar sheets for income and expenses. Use a pocket divider for each month’s receipts, bank statement, deposit tickets, and canceled checks.

In addition, an automobile log for business mileage, and filing system for correspondence, invoices, supplier catalogs, client records, etc. are two other useful tools.

For more information on record-keeping, see IRS publication #583, Information for Business taxpayers.

STEP #16 CHECK IRS REQUIREMENTS

If you comply with basic IRS guidelines, you can deduct a percentage of normal household expenses (mortgage, interest, taxes, insurance, utilities, repairs, etc.) as a business expense. see the box accompanying this article and, for more detailed information, IRS publication #587, Business Use of the Home.

Also become familiar with these IRS forms: Schedule SE (compensation of Social Security Self-Employment Tax) and Schedule 1040 ES (estimated Tax for Individuals). Depending on circumstances, you may have to file them.

STEP #17 OUTFIT THE BUSINESS

Make a list of everything needed to start the business, but before you buy anything, look around the house for things you already own that are usable.

When you are ready to start purchasing, check the classified ads and garage sales. Both are good, inexpensive sources for office furniture, typewriters, computers, answering machines, etc. But only what is absolutely necessary for start-up, and wait until the business is off the ground to get the extras.

STEP #18 DECIDE ON TELEPHONE REQUIREMENTS

Call the telephone company to find out the cost of a business phone in your area. If you cannot afford a separate business line, investigate the telephone company’s regulations on using your personal phone in a business. It may be possible to do this if you follow certain guidelines. Keep a record of long distance business calls as they are a deductible expense. Finally, consider the benefits of an answering machine to catch calls when you are out.

STEP #19 CHECK OUT THE POST OFFICE & UPS

Using a post office box as the business address down plays the fact you are home-based. It also prevents customers from dropping in at all hours.

While looking into box rental, ask for information on the various postal rates, particularly bulk rate, if you plan to do large or specialized mailings. If you mail many packages, check out United Parcel Service (UPS), as it is less expensive than the Post Office.

STEP #20 PURCHASE THE NECESSARY INSURANCE

Check with your homeowners insurance agent about a rider for your existing policy or the need for a separate business policy. Also make sure you have adequate personal and product liability coverage. Shop around, as each company has different rules regarding home businesses

To save money on medical insurance, join an association and participate in their group plan. One such body is The National association for the Self-Employed: they can be reached at 800-527-5504.

STEP #21 ORGANIZE THE HOUSE & YOURSELF

To have more time for business, organize and simplify household routines. Start by holding a garage sale to get rid of unnecessary possessions. Next, have a family conference and divide household duties, making sure each person does his or her part. The, set up a planning notebook to keep track of appointments, things to do, calls to make, errands to run, shopping, etc. Finally, set up a work schedule so you won’t get sidetracked by TV, neighbor’s visits, snacking, and telephone calls.

Creating and operating a home business is a wonderful and rewarding challenge. The satisfaction is not only in the money earned, but in doing what makes you happy.

Active Income – Income for which services have been performed. This includes wages, tips, salaries, commissions and income from businesses in which there is material participation. Active income is income from any of the following:

– Wages, salary, commissions, bonuses, or other payments for services rendered;
– Profit from a trade or business in which you are a material participant;
– Gain on the sale or other disposition of assets used in an active trade or business;
– Income from intangible property, if your personal efforts significantly contributed to the creation of the property.

Passive income is income from either of the following:

– Any trade or business or income-producing activity in which you did not materially participate; or
– Subject to certain exceptions, all rental activities, whether you materially participate or not.

In general, if you receive income (or losses) from a business but are not an active participant in the business, it is passive income. So why do I need both? Well, to get a good passive income online, it is going to take some time and energy and some cash. Keep the active income flowing while working on the passive income. You ask, if I have active income, why do I need passive income?

“I would rather earn 1% off a 100 people’s efforts than 100% of my own efforts.” – Rockefeller, John D. (America’s first Billionaire).

If you have a physical store, there are only so many hours you can have your store open without hiring someone,100% of your own efforts. However, your online store can be open continuously; your online store is your 1% of 100 people efforts. You cannot be everywhere, every time someone needs what you are marketing. Even when you are at your active employer or at your children’s game or play, your store is working for you.

Ready for the bad news about passive income? The “passive” part is deceptive. To create a business that will continue to spin off money for you when you are doing very little in the “business” takes time and effort to create. A lot of focused work will be necessary at the beginning. If you are new to your choosen niche or the internet there will be a LOT you have to learn. But just like a garden it’s well worth the effort to plant extra, because once you’ve set up your passive income plants, with just a little watering now and then, you really can make steady autopilot profit.

I often wonder if business owners who are looking at purchasing a business take the same sort of outlook as when they are buying something in the stock market.

Let’s take some thoughts from the way Warrant Buffet looks at a company and determine if we could be using those same successful strategies.

Those strategies tend to be summed up in a very concise manner -> make sure you understand what you are buying, ensure the industry prospects are favorable, and if management is going to stay on in some capacity make sure they know what they are doing!

Many owners I meet look to buy into businesses, or franchises for that matter, in an industry they don’t understand. We would say that if you can’t positively feel good about knowing the real sales potential, how expenses occur, what is the cash flow cycle of the business then you should not by look to purchase that business. Naturally many business owners will often get a strong sense of missing a major opportunity – the business owners forgets that Buffett once said ‘above average results… are often produced by doing ordinary things’.

Many business owners like to focus on buying a turn around business, a business that has been either abandoned or poorly managed by its previous owners. While there are clearly some great turn around stories out there, more often than not these transactions become large challenges and financial nightmares. More simply speaking: The business was cheap to buy for a reason!

In a perfect world, (and we realize it’s not!) it is optimal to consider purchasing a business that has a solid product and reputation.

The people aspect of purchasing any business is also important, and great investors such as Buffet place a large emphasis on management. Obviously the business purchaser has the focus of either keeping management or replacing management. Naturally management that has a focus on the bottom line and on long term growth are to be very valued.

At a certain point it gets down to ‘price’. Business acquirers should focus as much on return on equity as just net income. That is one the key areas in a Buffett type purchase decision. A huge mistake is to also focus on volume as opposed to profit margins. Most business acquisitions involve the buyer assuming or generating debt. The overall focus, it goes without saying is to minimize debt.

Getting back to our legendary investor, Buffett creates a formula for what he calls owner earnings – which formula is as follows:

Net profit + deprecation – Capital assets needed to be acquired

We would agree that this is a great way to look at profit potential in any business being acquired.

Buffett modeled his career on one book, a famous finance book entitled ‘The Intelligent Investor ‘, by a fellow named Ben Graham. As dry and out of date this huge text might seem to today’s business person, we could still all use a little ‘ intelligent investing’ assistance when make a major decision to buy a business.