Ten Tips for a Successful Performance Review

1.  Create a safe environment.

Ideally, you don't want to be interrupted, so if you have an office with a door you can close that's perfect. Most employees have some anxiety about performance reviews, so it's important to create an environment where they feel at ease. For example, if a closed-door meeting with an employee in your office only happens for disciplinary actions, you should consider how using your office for performance reviews, too, might put your employee on edge. If you can't commit the required amount of uninterrupted time for the appraisal, consider rescheduling to a time when you can.

2.  People can change behaviors.

Try to focus on the employee's behavior, not their personality. 

Unhelpful:  "You're unprofessional"

Helpful:     "When you chew gum while you answer the phones, it sounds unprofessional."

Being specific about where the problems are allows employees to work on correcting them. The same is true for praise.

Unhelpful:  "You're really good at your job,"

Helpful:     "I thought you did a really excellent job of managing our inventory so that we never ran out, but never had unnecessary amounts of stock on hand"

Being specific about achievements and good performance lets the employee know what they did well.

3.  Let the facts speak.

If you can keep a journal on the behavior of each employee from review to review, you'll have a good deal of anecdotal and analytical information to base your assessment on. Since most of us find it much easier to remember the things other people do badly, rather than the things they do well, if you rely on your memory, the review could turn out to be much more negative than you think. Let the facts speak, instead of fitting facts to a pre-conceived idea of what the employee deserves.

4.  No surprises.

When you go through the performance review process with your employee, nothing you say should be new to them. If you've been coaching them through the year, they'll know that you're aware of the things they've done well, and the things that they didn't do quite so well ... there should have been a conversation about those things at the time. If it wasn't important enough to talk about when it happened, it's unlikely to be important enough to document on a performance review.

5.  Be prepared.

Any Boy Scout knows the value of preparation. If you have forms to fill out, fill them out before the appraisal. Figure out what you want to get out of the review -- if you're hoping to move someone up in your organization, that might require a specific review score, but be wary of making the review fit the goal. If the employee is at the right stage of their development to move up, their behavior will show it. Promote them too soon, and they may be unprepared for the increased responsibilities and challenges. That can impact your employees' confidence in your ability to manage them, and your employers' confidence in your ability to assess the talent at your disposal.

6.  Written goals provide clarity.

As part of your preparation, take a good look at the employee's job description. Before you sit down to score their performance, ask whether it was an expectation that the employee would do specific things. In the day to day running of a business, it's easy to assume that an employee knows that something is part of their everyday duties, when the employee might have no idea at all -- and sometimes that's because the expectation isn't documented anywhere. Be careful that you are assessing whether the employee is doing a good job compared to the job that you offered them, or some unspoken set of tasks that only exist in your head.

7.  Employees are more than a job description.

Sadly, for a lot of companies, the majority of employees' skills are never utilized. While these skills and outside interests are explored a little at the hiring interview, they are often ignored once the employee gets settled into their position. If you're looking to fill a new position, it's possible that the skills you're looking for are already in your company in a different role. The person with a former career in commercial real estate, who is now working for you in sales, may be the ideal person to take a lead role in developing new office space for your company. You hired people with an employment history, reveiew time is a great time to ask them if there are other skills they have that they'd like to use more often in their job.

8.  Keep them engaged and invested.

In order to keep employees engaged in the growth of the business, the business should be engaged in the growth of each employee. That doesn't mean you have to pay for college tuition, either -- by setting goals and assigning tasks that expand the employee's horizons, and improve their career prospects, you achieve two things: one is that the employee feels respected and invested in, and can see their future career options; the second is that you retain a motivated member of your team who sees their future at your company.

9.  Your employees will talk, but you shouldn't.

After the performance review is concluded, your employee is going to leave the safe environment you created for them to talk about their performance  -- and go straight to their colleagues and tell them all about it. Understand it and accept it. You can ask them not to talk about it, but you can't actually stop them. It's human nature -- the first thing your newly appraised employee will want to do is celebrate a great review or moan about how you just denied them a pay raise. The best thing you can do is tell them that certain things shouldn't be disclosed -- and if they divulge too much to colleagues, take some time to talk to them about what your expectation was, and how they did not meet it. Then put it in your journal for the next review.

10.  Be their champion.

However you think your employee has performed throughout the year, your employee will have a different idea. And, if asked to document it, your employee will probably err on the side of modesty. Ask your employees to fill out their own performance reviews, so you can discuss it with them. This has a couple of advantages: the first is that they will have a better memory of their achievements and disappointments than you do; and secondly, you get to tell them that they're being too hard on themselves -- and give them better performance scores than they gave themselves. Even if you agree with their criticisms, you're agreeing with their assessment of themselves, which will also be perceived as a positive.

The employee will leave the assessment feeling like you built them up and agreed with them, rather than knock them down and point out their flaws -- and wouldn't we all like a boss like that?

Ten Interview Questions that Sound Like They Should Be Okay to Ask (But Aren't).

The Civil Rights Act of 1964 and the Equal Opportunity act of 1972, along with the Education Amendments of 1972, are what most of us think about when we talk about equal opportunity in the workplace, or any other place where personal information is requested from us. These laws outline several groups which are protected from discrimination. A person who belongs to one of these groups may not be discriminated against for being a member of that group.

While this seems like a big list of "no" to obtaining useful information, many job candidates will volunteer a lot of personal information that you can't directly ask for. If you take notes for interviews, you should remember that those notes are a legal document and can be sub poenaed in any litigation, so while writing notes like "pregnant," or "married," or "wheelchair" might help you recall that one person in the 20 you interview, they can also be evidence of discrimination.

Most often, the first thing an interviewer should consider is: does this question relate to a job function, and could the answer be interpreted to obtain other personal information not relevant to the job?

1.  Are you a U.S. citizen?

Seems harmless enough, if you're trying to figure out if they're legally authorized to work for you. But if that's your real question, it's the one you should ask. Unless there's a special reason that the potential employee must be a citizen (like jobs with some federal agencies) the information isn't relevant. Instead, you can ask, "Are you authorized to work for any company in the United States?"

2.  Where do you live? Are you renting or buying?

Great questions if you're chatting to someone in line at your local Starbucks, not so good if you're sitting across the desk from them in an interview. The candidate's proximity to the work location has nothing to do with whether they can carry out the function, and asking if they are buying ... well, it's a reasonable deduction that if the person in front of you is looking for a job but they're buying a house, then there's another money earner in their life, most likely a spouse. And you can't ask if a candidate is married. What you can ask is whether they'd be able to get to work at the start of their shift.

3.  So is this "Miss" or "Mrs." Employee?

Bad interviewer! Inquiring about marital or familial status is illegal, so don't do it. 

You can ask if they've ever worked under a different name to the one they provided on their application, for the purposes of obtaining references, and most times you'll hear, "Before I was married I used my maiden name." But you can never, never ask about marital status. Not unless you want to suffer a sexual harassment/equal opportunities lawsuit double-whammy.

4.  Do you smoke or drink or use drugs?

As a non-smoker it always frustrated me, in a previous job, that the smokers would take multiple smoke-breaks through the day and would never get called to account for the several hours of non-productivity they'd add to each week. As an employer you can't ask this question, but you can ask if the candidate has ever had disciplinary action for violating a workforce policy on alcohol or tobacco or illegal drugs, but not whether they use them.

5.  Do you observe Christmas/Hanukkah/Ramadan?

Sure, it might be useful to know if an employee is going to fast during office hours, or if they'll need to cut out at dusk to be with their family (which you can't ask about) to light their menorah. But you can't ask about it. Even though it's unlikely that an Orthodox Jewish or Muslim person would feel comfortable working in a non-kosher or haram butcher or deli, if you are hiring for such an establishment, it's not up to you to decide whether a particular candidate would feel comfortable doing the job. But you certainly should mention whether or not the animals are slaughtered in accordance with a particular faith.

6.  Is this your first child? (Especially frustrating for employers when the candidate is obviously heavily pregnant.)

But you still can't ask. The number of children an employee has has nothing at all to do with their ability to carry out a particular job. If you hire someone with children, there are likely to be days when they need to stay home because one of their kids has a fever. That's normal. And, frankly, a single person with no commitments carries a risk of them calling in "hungover", at least in the Company.com offices. In fact, you should be aware that, even if a candidate goes into labor on your interview desk, you can't ask if she's pregnant. You can ask how you can help and what's going on, though. If you're interested in knowing what a potential employee's future availability is going to be, then ask that question.

7.  I see you graduated from State Tech -- my brother is an alum, when were you there?

No, no, no, no, no. And no. Those things might be true statements, but asking someone to tell you their age, in whatever approximate or round-about way, is a "no." A person's age is not relevant to whether they can do a particular job. Sure, the job might be intended as a growth position so that in three years you have a successor, and the older candidate you're interviewing might want to retire at some point, but you have to ask the question in a way that is related to the job, like "What are your long-term career goals?"

8.  Are you a member of the National Guard?

Everyone loves a patriot. Employers don't always love that the law requires that a veteran's job be held open for them for up to five years while they are on active service. Reservists and Guardsmen are expected to participate in training events which might affect their availability, and there is a risk that those employees might be activated and shipped out to Afghanistan or Kosovo. But you cannot turn someone down for a job because they are in the military. What you can ask is whether the candidate expects, for any reason, to be away from work for an extended period of time. Most personnel in the National Guard or Reserves will tell you up-front that that's what they do, it's understandably a source of pride. It should not be a source of rejection from any hiring process.

9.  Are you related to Bobby Employee who works here?

What if Bobby Employee is a stellar worker, always on time, always does a great job -- what does that say about the candidate in front of you? That's right: nothing. And what if Bobby is less-than-diligent? It still says nothing. Hiring someone because they're related to someone else can get you sued by all the condidates you didn't hire, who weren't related to that person. So don't even think about asking this question, and there isn't a sneaky replacement for it.

10.  Do you have a partner? What's his/her name?

Okay, these questions are wrong for a couple of reasons, but the most important are that a) it's none of your business whether a potential employee is single or has a harem of partners, so long as they do the job you pay them to do, and; b) asking a person their partner's name can be construed as an inquiry about their sexuality. And honestly, does the fact that Betty Candidate's partner is named Jim really going to help you decide whether to hire her? No, and it should be equally unimportant if Betty's partner is Gertrude, or if Jim's partner is Chuck.

The moment a candidate submits an application, they are protected by all of the equal opportunity legislation. You should know that you can be sued by someone who you don't interview just as easily as by someone who you interview twice and then reject. 

Many employers are using information in the public domain -- essentially information that the candidate volunteers -- to find answers to these kinds of questions. MySpace, Facebook, Google, blogs, Twitter ... can all provide this data if it's important to you and it's out there. Just know that a lot of candidates will find that investigation intrusive and creepy. Having information that is volunteered or publicly available isn't illegal, using it as the basis to deny a candidate employment could be. 

The "protected classes" of race, color, religion, national origin, age, gender, familial status, sexual orientation, gender identity, disabilty, and veteran status, are the things to stay away from when asking questions and making hiring decisions.

If in doubt about whether the elderly, wheelchair-bound, Belgian cross-dresser would be a "good hire" for you, ask yourself if you'd have the same doubts if they were a middle-class white college graduate, or a black VP of another company, or an hispanic entrepreneur. Cut through the adjectives and focus on the qualities the candidate has, and whether they can fulfill the requirements of the job description, and you should be able to stay on the right side of the law.

Accounts Receivable Factoring: Better Than A Bank Loan in the Great Depression

Accounts Receivable factoring, or AR factoring, is not a new cash flow management technique, even though it might be new to you as a business owner.

Small-business owners don't start their companies to be short-term loan officers for customers. But when your business allows customers to pay on 60 or 90 day terms, that's effectively what part of the business becomes -- and sometimes that means hiring or subcontracting with a collections company to make sure you get paid. So not only is your business not getting paid quickly, it's also incurring extra expenses to make sure that the agreed payment happens. 

The cash flow problem most small businesses have is that they pay for all the materials to fulfill orders, then make and ship the orders, then ... they wait. And wait. They wait for the customer to make payment. Sometimes they wait as much as 60 or 90 days, and sometimes the customer skips town and doesn't pay at all. What if, in that 60-90 days, the manufacturer gets a huge order -- but without the money from that customer's payment there is no cash to buy materials to fulfill the new order? What can the manufacturer do?

1. Chase the customer to pay up early. 

2. Let that second order slip away.

3. Find a way to get the cash to pay for materials for order #2.

Probably the quickest and easiest way for businesses to get money quicker is to sell the invoice to an Accounts Receivable Factor.

Here's a list of things you ought to know about AR factoring:

1. The Factor (the entity purchasing the debt) isn't interested in your ability to pay a debt. You are not under scrutiny -- the customer whose invoice you are selling is the subject of that investigation. To look at things from the Factor's side, would you knowingly pay to buy a debt which you knew the debtor could not pay back? 

2. The debt is purchased at a discount, usually in the two percent to seven percent range. The actual amount will depend on how much debt you are selling, the payment history of each debtor, the length of time until payment is due, and the number of invoices that are being sold. A large invoice for a customer who pays on time and in full will be more attractive to Factors, and will probably have a lower discount rate.

3. There are two main kinds of factoring. A "full service" factoring deal will mean that the Factor has puchased the debt and the responsibility for collection. They also purchase the full risk of collection in the event of non-payment. "Recourse" factoring is different, and is riskier to you as the seller of the debt. If the debtor doesn't make good on the debt, and fails to pay the Factor, you'll be required to buy the debt back, or replace the debt with other invoices.

If you have sold an invoice for a customer who always pays on time and always pays in full, it's probably a better choice for you to use recourse factoring, since the risk is low. As a result you get a better discount rate.

4. Not having to wait for your customer to pay their invoices has multiple up-sides for you: faster cash flow can improve your financial statements and ratios, you'll have more money in your business to make other payments or invest in growth, being able to pay your suppliers early or on-time can improve your credit rating, and you could even reduce the size of your billing and collections department.

5. If banks ever get back to lending, and you have a good credit history, and you want to borrow enough to make it worth the bank's time, you could probably take a bank loan to fund your business growth. But that process can take a long time, but the loan increases company debts, and will likely be provided at a double-digit interest rate. Factoring puts all the scrutiny on the customers whose invoices you are selling, and many Factors will pay for the invoice in as little as three days. Factoring adds no debt to your balance sheet -- it just changes an accounts receivable item into cash.

Pants on the Ground: Tips for Not Looking Like a Fool

What We Learned from the "Pants on the Ground" Guy.

As a teenager, Larry Platt marched with Dr. Martin Luther King, Jr., and Reverend Hosea Williams, in Savannah. He was beaten by Alabama's police officers during the Bloody Sunday march from Selma to Mongomery. He worked with peaceful protest organizations like the Southern Christian Leadership Conference and the Student Non-Violent Cooordinating Committee. He is a hero and veteran of the Civil Rights movement. And in less than four minutes on American Idol, Platt changed his legacy. Once remembered as a survivor of racial abuse, attack dogs and fire hoses, he is now destined to be "that dude who sang that 'Pants on the Ground' song." 

If you didn't see Mr. Platt's performance on American Idol in January, you can click here to check it out. 

Unlikely as it seems, Platt has taught us some business lessons, perhaps without even knowing it.

1.  Keep it Simple.

Don't over-complicate your idea. A simple, clear message is easier to communicate. While Platt's delivery was perfect for getting exposure, what he wanted to communicate was too complex for the medium. Instead of taking away a message about respect and empowerment, viewers took away a message about appearing foolish, with your pants on the ground.

2.  Patents and copyrights may be a good idea.

Perhaps Platt couldn't have seen the way his song would explode across the Internet. If he could have guessed that he'd have (as I'm writing this) almost six million hits on YouTube, maybe he'd have taken steps to legally protect the song. As with any idea, if you want to make money from it you'll need to be able to prove that you own it. So get those copyrights and patents.

3.  Plan your launch.

If you're considering some kind of guerilla publicity launch, with a lot of exposure for a little investment, take a few moments to consider this: What if it works? What if your launch exceeds expectations? What then? Platt may have done himself a disservice by failing to anticipate the popular interest his performance would generate, since he was unprepared to immediately convert that interest into dollars. If you want to generate attention, know what you're going to do when you have it.

4.  Know your audience, and keep it relevant.

If you have something to sell, whether it's a product, a service, or a message, you need to put it in front of an audience that cares. It's why breaks in sports events are populated by ads for cars, beer, and Disney vacations. Platt ran into two problems here. The first is that he spectacularly underestimated the power of the three and a half minute clip of his performance. Secondly, his message (ostensibly about Gen Y young adults failing to honor the promise of their parents who lived through the Civil Rights movement), was in completely the wrong forum. Instead of talking to young idealists with a hunger for social change, he spoke mainly to bored 30-somethings who catch the show between dinner and putting the kids to bed.

5.  A single idea will only go so far.

The meme that people caught onto here was about "looking like a fool with your pants on the ground." Good and catchy, but not the meme Platt intended the audience to take away, I'd bet. And when he had the audience in his hand ... nothing. There was no follow up, no "hey, now the camera's on me" civics lesson. Instead Platt turned into Elmer, a spaniel I had in my 20s, who loved to leap into a field teeming with rabbits -- but once he was there, he had no idea what to do next. Have a plan. Don't be Elmer.

6.  Have an exit strategy.

It's now two months since his performance on American Idol, and while the meme is still circulating, it exists completely independently of Platt. Somewhere along the line he lost control of it. In fact, he's currently being sued by American King Music, who are trying to recover production expenses for recording a full length version of his song. But mostly, that lawsuit seems to be about American King Music trying to claim part-ownership of the song and its lucrative distribution rights.

In a bid to stay involved, Platt may have lost his best chance at building capital for his next venture. At the very least, figure out how protect your assets and reputation, and how to move on to the next thing if your current business fails.

7.  Consider your legacy.

I've been wrong before, and I'm pretty sure I will be again ... but not about this. Larry Platt will forever be the "Pants on the Ground" guy, immortalized on YouTube until the Internet is replaced by group-think and transdimensional thought-sharing. It really won't matter that he was involved in one of the most significant movements for social change in history, nor that he met two of that movement's most revered leaders, or that September 4th was proclaimed Larry Platt Day in Georgia long before Mr. Platt stepped into Simon Cowell's auditions. He's the "Pants on the Ground" guy. Forever.

If you're considering doing some headline-grabbing publicity stunt, get a second opinion. Ask how this new thing will enhance your existing reputation. If the risk of looking like a fool, going all-in with everything people know and think about you, is a risk you're prepared to take, the rewards might be great. I just can't name anyone who's done that successfully.

8.  Have an advisory board.

If the only thing they do is keep you focused on the things that help you to not make these mistakes, then their input is invaluable. Usually an advisory board is made up of people who have been there and done that, but a couple of good friends who will be honest with you when they don't think you've thought things through might be all you need.

Social Networking - Dos and Don'ts of Blogs, Comments, and Tweets.

There's a delicate balance between good communication and spam. If what you're putting out into the world has little actual value -- and be honest with yourself about that -- you're going to turn people off. If you join in conversations in the many forums you could join, there are some simple etiquette guidelines to follow.

DO proofread what you're about to post before you submit it. Typos may be forgivable, but spelling and grammatical errors are a sign of carelessness.

DO be polite and give credit where it's due.

DO keep on topic. Hijacking the conversation isn't the best way to show you care about the forum's subject.

DO learn abbreviations like LOL, IMHO, etc.

DO make the conversation about your new friend, about your shared experience, and your relationship will be defined by what you have in common. If you behave like the wolf in those Looney Tunes cartoons and your eyes turn into $ signs at the merest mention of what you do, your new friend may be uncomfortable recommending you to their social network.

DON'T put anything out there that might cause embarrassment to you, your family, your friends, or customers now or in the future. Sound like a big responsibility? Good, it should. Take it seriously.

DON'T get into arguments in an online forum. They can make you look petty and hostile, and are permanent.

DON'T comment if you have nothing useful to add to the conversation. Especially don't comment if you're just asking for business.

DON'T use profanity. Obviously.

Social Networking - Facebook, Twitter, LinkedIn and Your Business.

A friend of mine, Richard was commuting from Scotland to London last year, attending training seminars. He flew with EasyJet, an airline based in the UK. His experience was not good. And all his Facebook friends read about it as he used Twitter on his phone to tweet out his displeasure and frustration (often very amusingly). On one such delayed flight, Richard was tweeting his annoyance out to the world at large, and he received a response from EasyJet customer service, offering sympathy, but no compensation for his troubles. And while good recovery is certainly no substitute for good customer service, Twitter appears to have a place in that customer satisfaction process. On a side note, if you're taking the step of contacting an annoyed customer, while they're still very angry at your company you'd better have something more than sympathy to offer them.

Why do I mention this? It's a good example of how companies can use social networking tools to drive customer satisfaction. 

But let's take a step back. Let's talk market penetration. Imagine having a product that, in less than six years, is used by 1 out of every 17 people, and has grown entirely through word of mouth. Now imagine that the number of users of that product, in the 35-49 year old range, DOUBLES every three months.

That product is called Facebook. Currently there are over 500 million registered Facebook users, and one and a half million are small businesses. 

Several questions require answers here: What is social networking? How is that useful for my business? Are there any tips for doing social networking well? We present the basics for you. This is what "normal" looks like, right now.

What is Social Networking?

First and foremost: social networking is a verb. It is a doing word. If you aren't doing then you are not networking.

Social networks are about connecting with other people. Whether it's sharing vacation stories or connecting one of your friends to another for a job opportunity, social networking is about connecting. Church choir? Social network. Gym? Social network. Library? Social network. Chamber of Commerce? You better believe it (and join it).

In the last few years, with the popularity of Facebook and YouTube, social networking has taken on a meaning and a life of its own -- what did we ever do before MySpace? Well. We did social networking the old-fashioned way. We went out and connected with people, listened to their stories, and exchanged business cards. Guess what? It works the same online as it works face-to-face.

There isn't a "trick" to dealing with online social networking. It works just like real life. If you approach someone in a coffee shop and immediately start telling them how wonderful your company and products are, they're likely going to bid you good day. Or something less polite. If you strike up a conversation about the notebook they're carrying, or the kind of coffee they're getting, they'll probably be receptive -- maybe they'll even take your business card when you offer it.

Make no mistake, this requires effort. You should expect to keep up to date with your network -- participate in your friends' and clients' lives, give information when that's appropriate, and get recognized as an expert at what you do. But that effort is rewarded with positive word of mouth. Yes, for most business owners out there, that is the intangible prize for having a social networking presence.

But that positive word of mouth really does have a value. The Nielsen Company, which compiles TV viewing figures, also compiles a biannual "Trust, Value and Engagement in Advertising" report. The 2009 report shows that 90 percent of consumers trust recommendations from people they know, while only 41percent trust sponsored ads on Web pages. It's why online reputation management is such a growing industry. Think about it -- when you buy things on Amazon, don't you check out the reviews? How about Hotels.com or TripAdvisor for vacations and business travel? Consumer reviews are everywhere, and in Web 2.0, the consumer really is king.

How Is Social Networking Useful to My Business?

And let's just replace the word "useful" with "valuable" here. The value of having a social media presence is in the trust you can inspire in current and potential customers. Our social networks start with the people we know (and presumably trust). After that we go to the friends of people we know, who we can build relationships with -- again, that's trust. We add in companies and service providers recommended by those trusted people.

A second advantage -- constant contact with your client base. You can respond to their questions, and even use a survey site like SurveyMonkey to do your own market research. In a recent survey conducted by Forrester Research and shop.org, 96 percent of retailers surveyed ranked customer ratings and reviews as an effective or very effective tactic to driving conversion. Social networking channels like Facebook can be very useful for encouraging that feedback.

Crowdsourcing opinion can help with product development, and give you a market intelligence edge over your competition. And that opinion isn't necessarily local, if your network extends to national or international levels, you can find out what does and doesn't work in different regions and adjust your marketing to be more effective.

If you're thinking of hiring someone you might check out their Facebook page just to see if the person they presented in the interview is the person they are outside of work. Remember that people are always on their best best behavior for job interviews, and in the current market may "forget" to tell you something that's relevant to your decision-making process. Yes, it seems a little bit "Big Brother," but you'll thank us for the advice when the person you are hiring shows up in Facebook and has a hobby or two that make you think twice about whether they'd be the right fit for your company. To be clear, you absolutely should not discriminate against any of the protected classes, but if the candidate didn't mention that they do Evel Knievel stunt re-enactments on their weekends, that might be worth considering. 

The other side of that hiring coin is that you might find the ideal employee in your network, and reduce the cost of hiring, or you could get a recommendation from your network about someone who fits your hiring needs.

Remember the story about my friend, Richard, and his experience with EasyJet? There's a narrow line between responsive and ... well, stalking. 

Responsive is good, but exercise caution if you're thinking of responding to customer concerns vented on Twitter -- if your customers aren't expecting to get into a conversation with you, it can be disconcerting for them, and at a time when they're already upset with you. Catching your customers off-guard, making them feel pressured into resolving the issue on your schedule, could potentially backfire on you. So pay attention to what they say and how they say it -- and reschedule the conversation for a time that suits your customer.

Tips for Doing Social Networking Right

Okay, this is where the rubber meets the road. Debra Murphy, President of Masterful Marketing based in Marlboro, Mass., said, "Social media is a channel, not a marketing strategy. If people don't understand the fundamentals of marketing, that effort on social media and internet marketing is wasted by sending the wrong message to the wrong audience." It's a problem Murphy overcomes by going back the the start and asking clients if they have a marketing plan. 

After you have your plan, Murphy says, "you need a really good Web site" to drive your traffic to. If you want to sell something, you need a compelling call to action, if your plan is to educate, you'll want something intuitive and easy to navigate.

If you're thinking of using social media to reach your customers and clients, Murphy's advice is simple -- "Go back to your marketing plan, figure out where your audience is." If you don't know where your customers and clients hang out, you have no hope of reaching them.

The Web site CMO.com recently published a Guide to the Social Landscape which is a wonderful tool for figuring out which social media channels best suit your needs.

There are a lot of places you can call home, but most businesses would benefit from accounts at Twitter, Facebook and LinkedIn, and if you can integrate them using a tool like Hootsuite, it will make your life a lot easier.

When you know who your target audience is, and where to find them, the next things to consider are the tools to use to reach them, and the message you want to send.

"You've got to use different tools to attract and retain [customers]," Murphy said. "Facebook is more engaging. It's more social than LinkedIn. I wish there were more conversations on LinkedIn. I don't see Twitter having the biggest advantage, and if someone has time constraints I'll have them set up a Twitter account, but most of their stuff is going to come through Facebook.

Murphy endorses the use of Facebook Pages to promote your business. Facebook only allows people, not organizations, to have a profile, but you can have Fan Pages for your business. She also recommends that 80 percent of your updates and tweets are about other people and companies that would be interesting to your followers and friends. The other 20 percent should be used to promote you and your company.

The short version of this is something you already knew: conduct your business online the way you would do it offline -- in a way that makes your clients want to tell their friends about you.

Taxes for Entrepreneurs Tax Resolution

With Jason Peckham, 20/20 Tax Resolution.

Taxes can be the death of your business. Or rather, a failure to understand or pay taxes can be the death of your business. If a liability with the Internal Revenue Service is not addressed quickly, the Collections Division can be rather aggressive. The IRS can levy bank accounts and/or accounts receivable, garnish wages, or seize assets. 

So, some time has passed and you’ve received no word from the IRS. You’re not worried, right? 

Jason Peckham, Director of Business Development for 20/20 Tax Resolution in Broomfield, Colo., cautions business owners with such a liability to take it seriously, even if the IRS does not seem to be chasing you right now. 

“The IRS can be slow to acknowledge and deal with liabilities. A taxpayer could accrue a liability in 2008, but [the IRS] might not get to it until 2010,” Peckham said. “Sometimes it takes two or three years before the IRS figures out what’s going on – but once they do, they can move quickly. That can fool taxpayers into a false sense of security. They might think ‘I accrued that liability two years ago, but the IRS hasn’t done anything yet. They’re not interested in me. I’m going to be okay.’ Unfortunately, a business that ignores notices or other communication from the IRS can be quickly levied out of existence.”

If you operate as a limited liability company or corporation, you might think that your business insurance protects your personal assets from the tax man. However, the Trust Fund Recovery Penalty provisions of the Internal Revenue Code allow the IRS to pursue individuals in a company with a tax liability, if the IRS finds those individuals to have been "responsible" and "willful" in the non-payment of taxes. A person deemed “willful and responsible” by the IRS can be assessed with a portion of the original liability. The TFRP allows the IRS to file liens and go after personal assets, including levying bank accounts or even seizing personally-owned property.

If you happen to be unlucky enough to get audited or fail to pay your taxes, you could quickly accrue a $10,000, $50,000 or $200,000 tax liability. There are some actions you can take to resolve the situation. Initially, the business needs to get back into compliance. All returns must be filed with the IRS. All current federal tax deposits must be made in full and on time. Essentially, a line in the sand must be drawn.

Peckham advises that businesses owing taxes to the IRS should act proactively to address the issue. Maintaining communication with the IRS is important. Business owners should be prepared to provide financial information to the Collections Division of the IRS. A proposal, one based upon what the business can actually afford, should be submitted to the IRS Revenue Officer. “You don’t want the IRS to frame the issue. You want to provide the jumping-off point for the negotiations,” said Peckham.

No matter how the liability came into existence, it is important that you cooperate with the IRS in a forthright manner. Peckham says, “If you misrepresent your situation [to the IRS], you’re likely to get caught. Revenue Officers have relatively easy access to a lot of information. Once you’ve been caught, you’re probably not going to get the benefit of the doubt in any situation. The IRS does not have to give you an Installment Agreement. They do not have to give you an Offer in Compromise. Instead, they are going to keep pursuing levies of your bank accounts and accounts receivable until you are no longer in business.”

Given the level of complexity of the IRS and the stakes involved, a business owner may want to consider representation before the IRS. “Essentially, it’s about the comfort level of the owner,” said Peckham. If the owner is comfortable with the negotiation process, the amount of time involved, and confident the amount the business will repay on a monthly basis is reasonable, there is probably no need for a representative. On the other hand, if the owner begins to feel uncomfortable with the process, it’s probably a sign that representation is needed.”

Tax resolution services, like 20/20 Tax Resolution, can help after you have accrued a tax liability. However, business owners should beware of tax resolution companies that make promises of settling with the IRS for “pennies on the dollar.” Several companies with commercials promising settlements with the IRS for “pennies on the dollar” have been sued by various state attorneys general for deceptive advertising. “Make sure to research the company you are hiring,” said Peckham. “If it sounds too good to be true – you know the rest.”

Ultimately, it is easier to avoid a liability with the IRS than negotiate a resolution on the back end. Peckham suggestions that “You should have a checklist for starting up your own business, and making sure you understand how taxes work should be on that list.”

In 2009, more than two million businesses and individuals owed money to the IRS.  The most important thing to remember is there is always a resolution, many times more than one.

COMPANY.com Taxes for Entrepreneurs Series

Your First Tax Season

Limiting Your Audit Risk

Taxes for EntrepreneursYour First Tax Season

It’s no coincidence that taxes are due around Easter each year. Anyone who’s ever needed an answer to a tax question will be familiar with the rabbit hole that they call the IRS Website. 

If, like tens of thousands of individuals, you started a business last year, this year might be the first time you’ve ever needed to file business taxes. You might think that they’re just like individual taxes, but you’d be wrong. Business taxes are the Complete Works of Shakespeare. Your individual taxes are the Cliff Notes of “Where’s Waldo?”

Call the Internal Revenue Service, and they’ll direct you to their website to answer your questions. You should review its checklist for starting a business. But for the non-CPA, non-tax attorneys out there, the Web site can more confusing than an average episode of “Lost.”

This article isn’t going to talk about those differences. Instead, we’re going to discuss what can trip you up and precipitate an IRS audit, how valuable a good CPA can be, what to do if you screw up (or worse, lie) on your business taxes and bring the Feds to your door and, finally, what you need to do for your employees.

The IRS has 14 PDF files in their “Recommended Reading for Small Businesses” section, totaling over 600 pages. It recommends that you read them all. We think you should, too, but if you don’t read anything else, read at least the following:

• P1635 – Understanding EIN
• P1779 – Contractor or Employee?
• P587 – Business Use of Your Home
• P583 – Starting a Business and Keeping Records
• P334 – Tax Guide for Small Businesses
• P505 – Tax Withholding and Estimated Tax
• P535 – Business Expenses
• P15 – Employers’ Tax Guide  

If you are starting a business and you can’t be bothered to read about how to do your (and your employees’) taxes right, you’re not going to be in business very long. So read them. All of them. Sorry.

The first, and most valuable, piece of tax advice is this: Find a CPA you trust.

Overwhelmingly, small-business owners advise using a CPA. Have one audit your accounts, listen to his or her recommendations, and plan your business accordingly.

Good CPAs will probably save you as much money as they cost – from making sure you get all your deductions in a row at tax time, to alerting you to cash-flow crunches, to keeping you off the IRS audit radar, their advice will help you limit your exposure to the risk of being audited.

How much does an audit cost? Diane Kennedy, author of Smart Business, Stupid Business, says, “you can count on paying $5,500 in extra taxes. And that’s before you count penalties and interest and accounting and legal fees,” which Kennedy says make the real cost closer to $8,000. Kennedy also says that the chances of being audited are 1 in 3 for sole proprietorships, but only 1 in 100 for S corporations.

Large corporations can much more easily afford to fight an audit. The National Small Business Association claims that “the IRS is preying on those least able to defend their businesses, and giving large corporations a pass. In 2007, IRS audits of the nation’s largest corporations plunged to its lowest level in the past 20 years.” The NSBA also say that the IRS learned that “a far easier way to raise tax revenue is to target small-business owners who may not have the resources to defend themselves.” 

So you’re probably wondering what someone like you might do to keep the IRS from knocking on your door, asking for all your receipts.  

Forbes Investopedia has a list of 10 things that will trigger a red flag or audit:

1. Large Charitable Deductions
2. Large Business Expenses
3. Inaccurate W-2 or 1099 Reporting
4. Excessive Itemized Deductions
5. Concealment of Cash Receipts
6. Tax-Shelter Losses
7. Informant reporting you to the IRS
8. Prior Tax Problems or Audits
9. Complex Business Transactions
10. Complex Investment Transactions

Avoid these, and you should reduce the chance of being audited. You can never eliminate that chance, because a perfect tax return will be suspicious, too (who files perfect taxes?) Company.com has its own ten ways to avoid an audit – we figure that most small businesses don’t have big accounts in the Caymans or Switzerland, and that if you’re reading this you haven’t run into significant tax problems in the past.

A good CPA is essential. If you aren’t an accountant – and the fact that you’re reading this article indicates that you probably aren’t – you don’t deal with tax and accounting issues all day. Unless you deal with them all day, you probably won’t have the kind of in-depth understanding of these issues that a CPA has. And even if you know what the rules are, you might be guessing at how the IRS wants you to apply them. So get a good CPA and talk to them regularly. It’s a relationship worth investing in.

If you think you want to enlist the services of a tax preparation company, that’s probably not going to work for you. Tax preparation companies that handle individual tax returns are generally not equipped to handle business taxes. 

Whomever you get to handle your taxes, help them as much as you can. The easier you make your tax preparer’s job, the more time and attention they’ll devote to getting your taxes right instead of chasing you for information, the less likely they are to make errors that can cost you money.

If you’re going to choose between a retained CPA and a one-off payment to a tax prep company, you should consider that a CPA you call a couple of times a month is going to be far better acquainted with your business than a seasonal hire tax preparer who may not even be an accountant. If you fail to provide documents to your CPA, chances are they’ll probably know your business well enough to ask if you have them. If you fail to submit documents to a tax prep company, they have no obligation to chase you to get them – and that’s important because ....

Pritchett v. Commissioner, 63 T.C. 149,174 (1974) is a tax law precedent that says, “The general rule is that the duty of filing accurate tax returns cannot be avoided by placing responsibility on an agent.” Since you’re responsible for the accuracy of your taxes, whether you prepare them or not, leads us to the question of whether it’s worth doing them yourself.

Only you can answer that question. If you’ve worked in financial or legal services for years, you probably are in a better place than most to handle the nuances of the paperwork. If this is your first year of business and you’re planning to do your own taxes, see the section above about audits and penalties. Then reconsider your plan. If you’re going to insist on preparing them yourself, buy some up-to-date software that includes all the latest changes to tax law. Then take the return to a CPA to review it before you file it.

If you prepare your own taxes and you screw up and catch it, file an amended return as soon as possible. If you don’t, there’s a chance that the auditors will be heading your way. If you flat-out lie on your taxes and get caught, there’ll be heavy fines and maybe even jail time in your future. 

The IRS isn’t evil. It doesn’t spend 8 months of the year hatching Machiavellian plots to catch taxpayers out in the other 4 months. They just want to make sure that all the money the government said it needed to run the programs outlined in the budget get collected. And that means they’re actually (gulp!) patriots (seriously.) And all they ask from you is honesty and diligence.

Your employees don’t expect much from you at tax time. Really, it’s simple:

1. Make sure you’ve paid your employees’ payroll taxes throughout the year.
2. Make sure your employee records and documentation are up to date.
3. Send them accurate tax statements – W2 for employees, 1099 for contractors.
4. Stay in business. Do your taxes right and that will help a lot.

COMPANY.com Taxes for Entrepreneurs Series

Limiting Your Audit Risk

Tax Liability Resolution Services 

Taxes for EntrepreneursLimiting Your Audit Risk

You can never eliminate that chance of being audited, because a perfect tax return will be suspicious, too (who files perfect taxes?) Company.com has ten ways to reduce your risk of an audit – we figure that most small businesses don’t have big accounts in the Caymans or Switzerland, and that if you’re reading this you haven’t run into significant tax problems in the past. Otherwise you'd know this stuff already. 

1. Make your business a business, not a hobby. If you are in your third year of business and reporting a third year of losses, that’s going to raise a red flag with the Internal Revenue Service. Despite what you might think, the IRS isn’t evil, and if you show them the evidence, they’ll understand that you’re a loss-making small business -- for a while. If you’re in year four and still making a loss, expect a call from the IRS about when you plan to start earning money.

2. Report your income accurately. If a client pays you $3250 for a service you provide, and you round that down to $3000 while your client reports the actual number, that’s a red flag, too. It tells the IRS that you’re not keeping accurate records -- and they do cross-check that stuff.

3. If you use a CPA or tax preparer, understand what they’re doing and why. If you’re uncomfortable with something, ask them to explain it till you are comfortable or they do it your way (as long as it’s legal.) Why would you do that? You do it because you’re responsible for the accuracy of your company’s tax return, even if someone else prepares it -- and that means that you, not your preparer, will be liable for any additional taxes, interest charges, and penalties if you get audited. If your tax preparer promises to save you a huge amount of money, don’t trust it. The only way to save huge amounts is to cheat.

4. Prepare to be audited from the first of the year to the last. If you keep your receipts, journal your expenses and mileage as they are incurred, and keep accurate records of your income, you’ll be able to show that you’re not guessing at your numbers. Show the IRS auditor that you can’t get the easy stuff right and you’re just inviting a more thorough examination of your finances. Mark Green, IRS Spokesperson for Georgia, told company.com that keeping good records of expenses as you incur them is “a must” for all businesses.

5. “Pay estimated taxes if you’re a sole proprietor or independent contractor. Pay them on time, and keep them current.” Green said.

6. Don’t ignore notices from the IRS. If the Feds are trying to get your attention, answer them while it’s still a polite cough. If they’ve to come to your door already, you’re in trouble.

7. The IRS publishes a “dirty dozen” (yes, it’s called that, you can Google it) list of the top 12 tax scams that they’re going to be looking for on tax returns. Do yourself a favor -- make sure you haven’t involved yourself in any of them. If you have, be prepared to admit it and face the possibility of an audit and penalties. You can’t get out of paying taxes. No way, no how.

8. Your business has employees, and you’ve been withholding taxes from their paychecks to pay the IRS. It’s been a tight month and you have bills to pay, so you think you might just borrow from the withheld taxes and pay it back next month. And then you do it again a month later. And again. Before you know it, you’ve borrowed all the taxes you were supposed to send to the Feds, and you’re still not earning enough to pay it back. DO NOT borrow from the taxes your employees have been paying, no matter how tempting it may be. It can get your business levied out of existence.

9. The IRS isn’t stupid. It has a pretty good idea of what a reasonable range of dollars for your business’ taxable deductions should be. If your company earned income in the lower end of the range and took tax deductions in the higher end of the range … then see item #1. The IRS is happy for you to take business deductions but if you have a yard service and you want to buy a crop sprayer plane to put down Weed-B-Gon on your clients’ yards, you’re probably going to get audited.

10. Don’t try to claim credits you’re not entitled to. Do you let your sales team drive around in commercial farm vehicles? If not, you’re not entitled to the Fuel Tax Credit. And if you didn’t hire any recently released felons, you need to look at other reasons to claim the WOTC for the additions you made to your workforce this year.

COMPANY.com Taxes for Entrepreneurs Series

Your First Tax Season

Tax Liability Resolution Services 

Ten Ways to Raise Capital

1.  Dotcom IPO

This used to be the gold standard for getting rich with absolutely no product. Got a vague, but exciting idea for a Web site that can be easily monetized? Then sell the future worth of the company you haven't even started yet, and which hasn't made a single cent in revenue. To Wall Street! For millions! 

2. Venture Capital

This is probably the hardest kind of capital to get because VC people know how to turn a profit: buy low, sell high. And if you're looking for investment, you're at the "buy low" end of things. Venture capitalists like to deal with really creative people with limited sales know-how. If you believe in your product and are willing to share your beautiful Utopian enterprise with Gordon Gecko, you might have a shot at some VC money.

3. Friends, Family and Fools

If your mom has been telling you for years that you are a great inventor/entrepreneur, see if she'll put her money where her mouth is. Really. If your mom isn't prepared to invest in you, how likely is it that anyone else will?

4. Comercial Loans

Oh Big Banking, you took all that taxpayer money and bought up smaller banks who weren't big enough to be too big to fail. Now it's time to, at the risk of looking like a bleeding-heart-commie-liberal, share the wealth. Sadly, for small businesses, banks moved the goalposts for how you can get a loan. Unless you're prepared to be responsible for the death of the rain forests, there's a good chance you don't even want to get into that paperwork at all.

5. Angel Investors

Does someone at your Chamber of Commerce drive a Maserati? When you Google them, do they show up on Advisory Boards of start-ups? Chances are, they have a decent net worth, and that they're interested in investing in new business. Talk to them. Have your elevator pitch ready. Your company might be the next thing they want to invest in. Or it might not, but there's only one way to find out.

6. Cash Out Your 401(k)

Not advised. Maybe if you'd done it in 2006 when it was worth something, but really ... isn't it currently valued at slightly less than the 1984 Renault Encore you had in college.

7. Government Bailout. There's ARRA and TARP money out there -- and you don't have to be a giant, financially negligent corporation to get to it, either. The SBA have loan programs funded by TARP money.

8. Community Banks

Small banks are actually one of the smarter choices for small businesses. They're local, and understand local politics and economics. They also want your business, assuming they think you're going to be successful. While big banks are only interested in your ability to make payments, community banks are much more likely to look at your business as a whole, rather than your financial ratios.

9. Accounts Receivable Factoring

If you've been successful in growing your business, you might just be waiting for the checks to roll in. It's okay to be impatient -- call an accounts receivable clearing house, and they'll buy that future income from you at a discount. Is it worth it to you to have 90 percent of your billings in your bank account now? If it is, this might be the way to go.

10. Business Retained Profits

Or personal assets. If you've been somewhat successful in your business venture, you might have a nice house you can mortgage, or your business might have enough retained profits to fund future growth with the application of a little strategy.

Some Things to Remember.

1. "Vegas, Baby!" is not in this list for a reason.

2. If you borrow from your 401(k) you can't retire.

3. If you borrow from your company payroll tax trust account, you can go to jail.

4. People who invest in your company will want to have a say in how it's being run.

5. Investors are not wealthy by accident, they're usually pretty smart.

6. Bake sales work. On a small scale. On a large scale, you'd have to be the Girl Scouts to have it fund your organization.