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The SBC Small Business Newsletter

presented by the Peak Small Business Center

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June 20, 2002

Table of Contents

 

Welcome

Quote of the Week

Administrative Stuff - YOUR INPUT PLEASE!

Featured Resource - KEYWORD LIVE

Staff Article - ANDERSEN/ENRON REVISITED - ARE AUDITS MEANINGLESS?
Marketing Tip of the Week

Guest Article -  DEVELOPING THE RIGHT ATTITUDE FOR MAKING MONEY ONLINE
Parting Comments

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Welcome

Thank you for subscribing to the Peak Small Business Center Small Business Newsletter!

For those of you who prefer the html version of this newsletter, you can find it at the following location:

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Quote of the Week

Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.

-John Quincy Adams
 


Administrative Stuff

WE NEED YOUR FEEDBACK!

We know we have quite a few subscribers who are "home business" owners rather than "small business" owners. If there is enough interest, we are considering publishing a "home business version" of this newsletter.

If you are interested in switching to a home business version please send us a quick, blank email to one of the following email addresses indicating whether you want to receive both newsletters or switch to the home-based version.

s2home@peakconsultinginc.com - to switch to a home business version and unsubscribe from the small business version.

both@peakconsultinginc.com - to receive both versions of the newsletter.

There may be some overlap between the two versions where it is appropriate, for example, an article that applies equally to each type of business.

PLEASE give us your feedback. We can only do this if there is enough interest.


SUBSCRIBER DEALS - Removed


Featured Resource

KEYWORD LIVE

Here's another good, free tool to help you find popular keywords in the search engines. You set up Keyword live, let it run, and it monitors and collects statistics on actual searches being performed on several major search engines. It displays the top 100 keywords and phrases in real time. It's very easy to set up and run. We learned some very interesting things the first time we used it that will result in a new website marketing strategy being put into effect in the next week or so. Try it out!

http://www.analogx.com/contents/download/network/keyword.htm
 


Staff Article

ANDERSEN/ENRON REVISITED - ARE AUDITS MEANINGLESS?
by: Cary Christian

You may recall reading our story about the Andersen/Enron debacle a few weeks ago and the potential affect on auditing public companies in this country. The Senate Banking Committee voted 17 to 4 yesterday to adopt a far reaching legislative response to the Enron collapse that promises to change the way public companies are audited in this country. The Senate bill will go much further than the proposed House bill.

The groundswell has begun. Changes are on the horizon. That's good news. But I want to concentrate tonight on what an audit really means. If you rely on financial statements for any purpose -- such as investing, evaluating a business you'd like to purchase, or sizing up a joint venture partner -- you need to understand what an audit does and does not tell you.


WHAT DO AUDITORS ACTUALLY LOOK AT?

Many people think an audit involves looking at every transaction a company enters into during the year. For a company of any size at all, this is literally impossible. Auditors use statistical sampling to review a portion of the transactions in a given year to provide comfort that particular accounts are properly stated. For many accounts, a particular audit "scope" is set whereby the auditors will only look at transactions that exceed a specific dollar level. For a company the size of Enron, that scope will be very high, say $100,000 to $1,000,000 depending on the account and how much risk is involved with that particular type of account.

There are two concepts in that last sentence that highlight two major areas of risk in any audit:

1. If the auditors use the same or similar scopes each year for the audit, a company official who desires to process misleading transactions can do so through a series of transactions that each individually fall below the audit scope. Yes, auditors do some random testing of transactions that are below scope to attempt to catch this type of activity, but it is not likely that they will.

2. The auditors set the scope on various accounts based on THEIR assessment of the inherent risk related to that account. This is a judgment call. There is no science involved. If the auditor's judgment is faulty, the entire audit can be rendered meaningless.


THOSE IRRITATING GRAY AREAS!

The entire audit process, which in Enron's case cost millions of dollars in professional time each year, culminates in a simple, standardized two or three paragraph report. This report states that the company's financial statements either:

1. Fairly present the company's financial position in accordance with Generally Accepted Accounting Principles,

2. Do NOT fairly present the company's financial position in accordance with GAAP, or

3. Fairly present "except for" certain transactions which are then briefly described.

Again, whether or not the financial statements fairly present the financial position of the company is a judgment call BECAUSE there are so many judgment calls required during the detail portions of the audit. That's where the gray areas come in. Just as the application of tax laws is rarely black and white, the application of accounting principles is also subject to interpretation.

As an example, most larger companies maintain a LOT of reserve accounts. A reserve account is set up to book an estimated liability where the company knows there will be a liability of some magnitude, but the amount of the liability is not known.

Let's say the company sells products under warranty. Under Generally Accepted Accounting Principles, the company is required to record a liability for warranty services it must provide free of charge in the future. The company has no way of knowing what the exact amounts will be, so the amounts must be estimated based on historical warranty claims and sales levels.

It can be difficult to "certify" that these reserves are adequate, particularly since the auditor does not know the business as well as the company does. A company with hundreds of different reserve accounts can overstate its income very easily if these reserves are understated by just a few percentage points.

Of course, there are hundreds of other areas where material misstatements of income can occur, but we do not have the time or space to go into more in this editorial.


SO HOW CAN YOU TRUST ANY AUDIT?

The key to properly analyzing audited financial statements is to know where the "risk areas" are with any particular industry. If you understand the risks in an industry and understand the effect they might have on the company you are reviewing, you will see the financial statements in a whole new light.

Under current auditing and reporting standards, YOU have the responsibility to learn what to look out for or to hire another accountant to interpret for you. Having your own accountant do this for you is a very good idea. But there is something else that should be done and this is where the "editorial" piece of this article comes in.

In addition to the audit report, the auditors usually prepare a "management letter" that covers areas of concern raised during the audit. This document is not available to the general public, so the auditors tend to bring up every single major risk area they have identified and provide management with recommendations for minimizing the risk and improving controls. These documents, or something very similar, should be required to be issued publicly with every audit opinion issued. Management will take these recommendations much more seriously if they know the public is watching.

Accounting firms, securities firms and corporate executives are going to be lobbying feverishly for as little change from the status quo as possible. This is unfortunate. If investor confidence is to be rebuilt, massive changes must occur and now is the time to commit to them.

I do not know how many of you ever get worked up enough to write to your Congressman, but if you do, this is a good issue to write about. It is important and it affects us all. If you are so inclined, write and tell your Congressman to keep the pressure on for meaningful change. If you need assistance crafting your letter, let us know and we'll be glad to help.


Copyright (c) 2002

(For those new subscribers who might not have read the previous issue that discussed Andersen and Enron, Cary started and spent the first eleven years of his career as a tax and systems consultant with Andersen).


Marketing Tip of the Week

You've probably all heard that it takes about 100 targeted visitors on average to make a sale from your website. It also takes about 1,000 non-targeted visitors to your site to make a sale. Ever wonder how effective different types of advertising is? Here's some "rule of thumb" numbers for you based on a 1:100 sales to visitor ratio:

Pop-under ad - 1 sale for 2500 to 3000 displays
Banner ad - 1 sale for about 100,000 displays
PPC Engines - 1 sale for 100 visitors
Search Engines - 1 sale for 100 visitors
FFA Submissions - 0 sales for millions of submissions
Bulk Email - Just don't do it!
Safelists - 1 sale per 165,000 postings

If you can get your visitors to subscribe to additional information via autoresponder before they leave your site, your sales conversion ratio can get a lot better. A good autoresponder series can produce up to a 15% conversion ratio of sales to subscriptions! If you can't get the sale this time, get them to sign up for your autoresponder before they leave.

 


Guest Article

DEVELOPING THE RIGHT ATTITUDE FOR MAKING MONEY ONLINE

By Terry Dean

 

Do you really want to make money online? Do you want to develop a business which can make money for you 24 hours a day 7 days a week almost automatically?

I am sure you do...Or else you wouldn't be reading this ezine right this minute. I have good news...and bad news for those of you desire this for yourself.

The Good News is...YES, you can do it. Many others have created full-time incomes while only working part-time online. It is within your grasp. Plus, many of them have started with little or no money!

The Bad News is...Many of you will need a change of attitude before you will be able to reach your goals.

That's right...Even with the right information and the right foundation, many people have still failed in their online ventures just because they did not develop the right attitude. An old statement that comes to mind right now for me is "Your Attitude determines your Altitude."

Your success in life cannot bypass your attitude about life. If your mindset is that you are poor and always will be poor, it will show itself in anything you do. No matter what you do, your results will be poor in your business.

Having a positive mentality about yourself and about your business is a part of this right attitude, but that is not what I want to focus on in this section. I want to focus on your reasons and vision for your business.

If your vision for your business is to just make enough money for a little extra income or to just produce a full-time income for yourself, you will be severely limiting your results. If that is you, you need a change of attitude.

Those who are the most successful people in business are the ones who LOOK for problems and develop solutions to them. They have a vision which is bigger than just to make a little money. They have a vision to solve problems for others.

YES, you need to learn about Internet Marketing Techniques and about how to write killer ad copy. Yes, you need to know how to produce sales, BUT what is it that you are selling?

Are you selling just another product OR are you selling a SOLUTION to people's problems. Are you just in business to make a little money or do you honestly care about helping other people? The ones who become the most successful in their business are the ones who find a NEED and fill it. They develop the answer that people need.

This factor is true and can be applied no matter what type of business you are in. For example, if you run a network marketing site, are you just trying to hype people up in your program OR are you becoming a source for information on how they can succeed through this method of distribution.

LOOK for problems...

People are frustrated with learning how to submit to search engines!

People are frustrated with learning how to use certain software!

People are frustrated with not being able to produce sales!

People are frustrated with health problems!

Look for these types of problems and frustrations and develop or find products which have the answers. In other words, DON'T just try to think of new ways to make money...Think of ways to solve more problems for more people! Then, the money will come once you learn the marketing side of the equation.

Too often we want someone to just hand us a completely developed business or a business-in-a-box. The truth of the matter though is that most of the time, these types of plans just don't exist. Any type of business you get involved in will require you to begin thinking of new ways to advance it if you want to be as successful as possible.

The Good News is that all you have to do is start changing your attitude over to being a problem solver. What problems are still out there in your specific market? What problems do people have when they order from your competition? What can you do to make your product or service a better answer to people's needs?

When you ask yourself these types of questions you are often taking the first step to success. You are recognizing the problem. Now, with the right attitude, you can start looking for the solution. You have the question. Now, Apply the thinking, brainstorming, research, and work to find the answer.


-------------------

Terry Dean, a 5 year veteran of Internet marketing, will Take You By The Hand and Show You Exact Results of All the Internet Marketing Techniques he tests and Uses Every Single Month" Click here to Find Out More:
http://www.peakconsultinginc.com/nbt.htm


Parting Comments

We hope you have enjoyed this issue of the Peak Small Business Newsletter and found it useful.  Please visit our website at http://www.peakconsultinginc.com to check out all the resources we provide. 

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