Part 1: Your Customers Live in an Internet World (chapters 3 and 4) Business Behavior: Finance and Productivity in an Online World

Rahul Razdan

10/26/2014 09:56 AM
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This article is part of an book on bringing a small business online.   You can get free PDF version on top of this page or a kindle/paperback HERE

Chapter 3.  Business Behavior: Finance in an Online World

Finance and payments are critical aspects for any business. We will first cover basic concepts for analyzing the financial health of your business. We will then expand our scope to look at the financial tools that are available to you online. Some of these tools are designed to help you understand and keep track of your business. Other tools can help you accept payments online.

Finance Basics

At the core of any business is an exchange of value—either a product or a service—for monetary compensation.  The sum of all such transactions is your business.

The three main ways to track your company’s financial health are:

1.      Balance Sheets

2.      Profit and Loss Statements

3.      Cash Flow

Balance sheets: A business’s balance sheet shows its assets and liabilities at a given moment in time. An asset could be cash, it could be inventory, and it could be a piece of equipment. It is anything that counts toward a company’s worth at that instant. A liability is anything that will negatively impact the company’s ability to continue operating. Debt is a liability, as are unpaid bills. If you have performed a service or sold a product and you are still waiting to be paid, that outstanding balance is considered an asset (or “accounts receivable” in accounting terms). 

Profit and loss: While a balance sheet is a view of your company’s business at a specific instant in time, a profit and loss statement details your company’s financial health over a specific period of time. Profit and Loss—also called P&L—statements track the amount of money coming into your company and the amount of money going out of it. Your profit margin—or the money you actually make—is the difference between the two.  P&L statements will give you a sense of the rhythm of your business. Do you have periods of peak activity followed by quiet spells? Can you reliably predict when you will be busy and when you will be slow, and can you consequently be prepared for both?

Cash flow: As the name implies, cash flow tracks the movement of cash into and out of your company. For a small business owner, cash flow is critical because it determines whether or not you can pay your bills. For example, consider the case of the “land rich, cash poor farmer.” Old MacDonald might have a lot of assets, but if he doesn’t have cash on hand, he won’t be able to pay his utility bill. Similarly, if you have sold your goods or services but your customers have not yet paid for them, your P&L statement might look good, but you won’t have cash to pay your rent.

You can apply these financial tools to understanding and planning your business’s financial operations. With this information, you can determine the profitability of your different business offerings, you can identify what kind of cash flow to expect, and you can figure out how that impacts the working capital you need in the bank to keep your business operating successfully.

Online Financial Tools

Large businesses spend a great deal of time and energy managing and examining their financial transactions. They have the resources to do so, and they know that understanding their business operations helps them improve those operations. Until recently, these tools were custom-developed or required financial experts to do the analysis. Over the past few years, many software programs have been developed to help small business owners manage all aspects of their businesses’ finances without having to hire teams of finance experts.

There are some excellent tools available online for handling the finances for your business. You need to pay your employees, your vendors and your suppliers. You also need to track how much you owe the IRS in taxes. With products like those offered by Intuit and Freshbooks, you can easily:

  1. Track Payments:  Categorize your budget items and build awareness of where the money in your business is coming from and where it is being spent.
  2. Track Invoices: Know which customer has paid and whose payment is still outstanding.
  3. Manage Payroll:  Organize payment of wages and salaries, communicate with the IRS and state revenue departments, and create W-2s and withholdings. 
  4. Manage payments to consultants: Create 1099s.

Online Payments

If you are selling something, then you need to make sure your customers can buy it. If you have a physical storefront, this probably means you already accept cash, checks, or credit and debit cards. If your business has an Internet storefront, you need to decide what forms of payment you will accept online. Customers will often have their preferred method of payment, and they will expect you to be able to accept it.

Many options are available to allow you to accept various forms of payment online. Customers often prefer to use credit cards and debit cards for their smallest transactions. They may use checks or electronic funds transfers for larger transactions, and they may use online payments systems for smaller transactions. PayPal and Google Wallet are two of the more popular online payment systems. They allow for the secure storage of credit card or bank account details, enabling the customer to pay for online purchases.

In the past, moving from a cash-only business to one that supported different payment types could be expensive and cumbersome. You had to develop a relationship with a bank, set up a merchant account, and figure out how to support electronic fund transfers. If you wanted to handle credit card transactions, you had to buy an expensive Point-of-Sales (POS) System from Visa or MasterCard. This process was time consuming and expensive. Some small business owners chose not to go through it, resulting in a loss of potential revenue.

Many companies now offer platforms that help you manage payments in forms convenient to you and your customer. These platforms have helped eliminate the high initial costs that used to be associated with online payments, making online payments more accessible.

Point-of-Sale transactions (POS): Services like Square or Intuit’s GoPayment provide you with a device that connects to most mobile phones and allows you to swipe credit cards and accept payment.

Online Payments:  Services like PayPal and Google Wallet make is easy for customers to send you funds without the need for a credit card.

Checks and electronic funds transfers: While you still need a bank to handle these transactions, most banks now have easy-to-use Internet portals for depositing checks and enabling electronic transfers.

The Internet levels the playing field for managing finances, and small businesses like yours now have affordable access to some of the same capabilities that larger businesses use for financial management and reporting. These products have improved small companies’ financial capabilities in the same way FedEx and UPS improved their logistics. These financial tools have made it possible for small business owners to claim their rightful spots in the Internet’s global marketplace.
Chapter 4. Business Behavior: Productivity in an Online World


In this chapter, we will first talk about what it means to be productive and to improve your productivity. Before we start, we should point out that small businesses need to worry more about productivity than large businesses. Why? Small businesses face the same fixed costs as large businesses, but they have much less margin for error. Thus we will look at some ways the Internet can help you become more productive.

Productivity Basics

When people talk about your business’s productivity, they don’t merely refer to the goods you produce. Productivity is a measurement that compares input (labor, costs, materials, and time) versus output (finished products and revenue). Businesses that increase their productivity either produce more for the same cost or produce the same for less cost, and hence they are able to be more profitable.

Businesses can improve their productivity by analyzing the process by which they bring their goods to market and then looking for ways to become more efficient in that process. Some common strategies for improving productivity include: improving workers’ capabilities through training, making supply chain and distribution changes, and finding technological advances that aid in production.

Improving Your Productivity Online

There are many ways in which the Internet can help you increase your productivity. How many times have you shuffled through a pile of papers or rifled through your desk trying to find a specific piece of information about a client? Have you ever driven halfway to a meeting only to realize you left an important spreadsheet in a file at your office? Has an unexpected opportunity presented itself and you realized that you didn’t have the information you needed on hand?

Using the Internet gives you ready access to all your pertinent information from wherever you happen to be. When your back office exists online, files don’t get misplaced, and they don’t get forgotten at the office while you are on the road. They are with you whenever you bring along your smartphone or computer. You can use the Internet to make your business practices smoother and more efficient, thereby making your company more competitive and more profitable.

The Internet has been called “the great equalizer” for its ability to level the playing field for smaller companies. Internet technology has been evolving rapidly, and many small businesses have yet to take advantage of all the value it has to offer. There are four main classes of online tools that help increase your company’s productivity. They are:

  1. Content Generation/Management
  2. Tools in the Cloud
  3. Communication
  4. Online Scheduling

Content Generation and Management

Over the last 30 years, more and more people are putting away pen and paper and turning on their computers when they need to create content. Computers can assist you with bookkeeping and financial analysis, with invoicing, with preparing documents for publication, and with creating slides and graphics for presentations. They provide you with spell checkers, built-in fonts, and built-in drawing packages, letting you create professional-looking documents quickly and easily. They allow you to update, copy, search for, store, and back up your documents.

The other important content generation tools are your friendly digital cameras, tablets, and smartphones. Today, people use these to produce text, video, music and graphics that can be posted online and linked to a business’s website. In the past you could only use these tools on your computer at your desk. The Internet enables you to be able to create and manage content online from any device you choose.

Overall, these innovations provide small businesses with the capabilities to generate and manage content that will compete in look and professionalism with that of larger businesses with many more resources at their disposal.
Tools in the Cloud


Most productivity tools are available to you “in the cloud.” What exactly does this mean? Before the Internet became so pervasive, your personal computer stored all the programs and data you needed to do your work. This model had its advantages, as all you needed was an outlet to plug in your computer, and you could access all your programs and data. 

This model of operation also had many disadvantages. You needed to buy tools like Microsoft Excel from retail stores like Staples and install them on your computer.  The content generated from these tools was stored either on your hard drive or on removable disks or drives.  This meant you as a small business owner became responsible for all the technical issues related to your computers. You had to:

  1. Maintain up-to-date versions of the software programs.
  2. Back up critical data in case of physical issues with your computer.
  3. Make sure data was stored securely.
  4. Figure out how to transport data to other computers and devices.

All this was a distraction from your main goal—managing and growing your business. The “cloud” addresses these issues by moving hardware (computers), software (programs) and data to large, professionally managed service providers.

The backbone of the so-called cloud is provided by enormous datacenters run by companies like IBM and Amazon. They offer you computing resources, so you don’t need to purchase and continually update your own hardware. Additionally, your own devices do not have to be so powerful, as the computers in the cloud do the heavy computing. The software you need on the cloud comes from companies like Intuit, Ocoos, Freshbooks, Google and Microsoft, and instead of buying this software and loading it onto your own computer, you buy the Software as a Service (also known as SaaS), which you utilize through the cloud. Companies like Dropbox, Google, Amazon or Microsoft provide data storage on the cloud. You can now purchase hardware, software and storage resources individually or as a bundled service.

When your programs and data are stored on the cloud, you have easy access to whatever information you need from any device, and you aren’t responsible for maintenance, backup or security. Using cloud-based solutions, you can focus on using the capabilities you need to run your business without worrying about technology support issues. If you need more hardware, it is easy to upgrade. If the software changes, you automatically get the new version. And additional storage is only a click away. 

Cloud-based services also lower your upfront fixed costs. You don’t need to buy computers and software—instead you can purchase what you need for the time you need it and in the volume you need it. By providing these services in volume, the cloud providers are able to lower their costs and often pass on the savings to you.

The bottom line is that cloud-based services increase your productivity, lower your cost and take the hassle out of technology. They free you to focus more of your attention on growing your business.

Cathy runs a boat rental service. “I can manage my entire business with my laptop. Customers schedule their rentals and make payments for them online, I send them detailed directions via email, and they sign legal documents with a digital signature.  All my financial data is in the cloud, so I can get to it from my computer or my iPhone.”


As it has with content generation and management, the Internet has revolutionized communication. While some communication still is best delivered on paper in an envelope by the post office, email has replaced the letter in most business settings.  It is a low cost—sometimes no-cost—way to communicate instantly throughout the business world. Letters can be sent via email, and so can pictures, videos, spreadsheets, and large documents. Automated mass email programs and email tracking software enable you to run email-marketing campaigns, provide you with tools to analyze consumer response to those campaigns, and then let you tailor your message based on that response. 

Voice-over-internet protocol (VOIP) services such as Skype and WebEx are growing quickly and changing the way we speak to people. Remember the days of worrying about long-distance telephone charges? VOIP services turn your computer into a phone line and let you communicate with clients near and far for minimal or no charge. This technology also offers you additional communication capabilities. You can set up and conduct conference calls through your computer with WebEx and Skype, and you can run online meetings with or Screenleap, which lets you invite participants to see the images on your computer screen.  These tools provide you useful features to communicate effectively with your customers.
Online Scheduling


If you are a small business owner, you are often juggling the demands of speaking with clients, scheduling appointments and needing to be on the road or at work conducting your business. You either have to hire someone to handle scheduling for you or accept that you won’t always be free to talk to customers when they call for an appointment, and some of these potential customers may take their business elsewhere. Integrated online platforms like those offered by Ocoos, or dedicated tools like Bookfresh and Appointy, have automated the scheduling process, letting clients see your availability and select an appointment time that is most convenient for them.

Susan, a hair stylist, used to stop working on a customer to answer calls and schedule future appointments. “I felt like my phone would always ring when I was in the middle of giving someone a hair wash—I didn’t want to leave my client sitting with shampoo in her hair, but I also didn’t want to miss out on booking appointments with another customer,” says Susan. “Now I have my clients schedule their own appointments online, and it’s been great for everyone. It certainly is easier for me, and I also feel like my business has actually increased, because people can schedule whenever it suits them, not just when I am around to take their calls.” 

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