Why All Companies, Public and Private, Should Write Annual Reports

An annual report isn’t just for shareholders.  Writing an annual report forces you to look deeply into the activities of the past year and see what worked and what didn’t. Those insights are vital to planning your next 12 months.

An annual report also creates a history of your decisions and their outcomes that can be used for future planning and dealing with unexpected problems. Being able to find an answer to a current problem by looking back through your annual reports for that similar situation you remember from eight years ago is a big time-saver and can help you dig into other records that you used to create that annual report.

This article gives you an idea of how to write a good annual report:

Simplified Structure of an Annual Report

An annual report is necessary if your company is a corporation with shareholders or limited liability company with members. Even if you have a sole proprietorship or a one-person corporation, writing an annual report can be a beneficial exercise. If you apply for a loan or hire professional services, you may be asked for a copy of your annual report. A simple document of a few pages in length is adequate.  MORE


How to Write a Vision and Scope Document

You should be doing this whether you are just starting to plan your new business, working on your plans for the new year, or preparing a presentation for funding.

Sitting down to write a vision document and a scope document helps you see holes and inconsistencies in your business activities and can give you a great new idea …


Vision and scope documents define what your customer or company has in mind as well as describe the work process necessary to reach that vision. For example, entrepreneurs benefit from writing a vision and scope document to define their business ideas and list how to develop them into reality. Project managers use such a document to identify the expected result of the project and to set forth the methods and activities necessary to achieve that result.

Time for Caution …

A friend sent me the following chart and part of an article that claimed moderation of margin rate of change is an indication of continued rally in the S&P 500.  I added the notes in the yellow text boxes


This is what I think of the claim that moderating margin debt might be an indicator of a further rise in the S&P 500 — First, computer trading has been in the market since the mid-1990s and if you look closely you can see the Crash of 1997 and the rise in margin debt as the Fed pumped money into the system. In 2000 it was the demise of the dot-coms followed by 9/11 and cautious use of margin following a peak. Well I think the peaks are retail investors and some less-than-bright hedge funds driven by greed to get into the market for what they expect to be a big rally [I feel claims of potential rally conditions are “jaw boning” – a Wall Street term for spinning things to draw in unsuspecting investors]. Right now the professionals are being careful and if the rate of margin increases, I would think that is the ‘stupid factor’ coming into the market, which signals a coming crash.
Look at the above chart in conjunction with another article that I believe supports what I am saying about conditions in the marketplace. CNN’s Fear-Greed Index:
What this all means to entrepreneurs, and anyone else for that matter, is BE CAUTIOUS.
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The Jaws of Death – Entrepreneurs Beware!

The Jaws of Death - Entrepreneurs Beware!

This is an article from Kitco everyone should read!

It shows a likely stock market crash on the way, and that brings on very difficult times for everyone. In this case, on top of the most sluggish and prolonged recovery from recession I have ever witnessed, it could quite easily create a situation much worse than the Great Recession.

I know you get sick of hearing me warn about over-expanding before you know what is around the corner … well … this just might be the monster around the next corner.

I know you are also tired of me warning about taking on debt at this time, but if things look like like what this chart is showing, debt will strangle you!

And, although I no longer carry my mountains of securities industry licenses, and I can’t give investment advice, I can say that you might want to read up on the subject of “Protective Puts” if you have any investments in the stock market.

What ‘No Fed Tapering’ Means to You and Your Business

Yesterday, the Federal Reserve blew it.

Ben Bernanke nervously [and he did look nervous] announced that the Fed would continue quantitative easing (QE) because the Board of Governors didn’t think the economy was strong enough to curtail monetary stimulus.  Oh, but inflation is not a problem. [Yeah, right. Have you been to the supermarket recently? Has your rent increased? Your cable bill? Your fuel costs? And are you making more money to pay for all this? No?]

As you already know from our statement, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and to make no change in either its asset purchase program or its forward guidance regarding the federal funds rate target. [see http://www.federalreserve.gov/files/FOMCpresconf20130918.pdf for the text of Chairman Bernanke’s statement]

The carnivores on Wall Street couldn’t believe their luck because the bond market rallied and the stock market rallied and every one of them made a lot of money. However, the Fed’s actions also caused them to worry.  Here is the problem:

The markets had already adjusted

I have already talked about how rumors of Fed tapering off its stimulus buying of Treasury bonds [also known as monetizing the debt – dumping $85 billion per month into the economy] caused the bond market to take a dive, which drove interest rates higher. The markets had already discounted Fed taper. Now we know tapering won’t happen until unemployment reaches 6 1/2 percent … expected in 2015 or 2016. That means the stimulus will continue for the foreseeable future.

Where is all that money going?

The money has gone into the coffers of financial institutions, which is where it always goes when the Fed adds money to the nation’s money supply. This is done under the assumption that when the financial institutions have money, they will use that money to lend out to consumers and small business. When money is lent to consumers, they buy houses, cars and other expensive items. This creates jobs in the manufacture and distribution of these products and that helps the economy recover from recession. When money is lent to small business, it is used to expand the businesses by creating new products, buying raw materials, manufacturing and hiring new employees.

Very little of that has been happening since Fed stimulus began after the Credit Crisis of 2008. Part of the reason why it hasn’t happened is interest rates were already very low thanks to Chairman Greenspan’s extensive lowering of rates to spur the housing market [which resulted in the housing bubble and mortgage woes].  The reason is that, at current interest rates, banks aren’t getting paid to take on risk so they are making loans to only the safest borrowers — major corporations and wealthy individuals.

Banks are businesses, too

No matter how much you hate your bank, it is a business and it must make profits to survive. In fact, back in the 1980s when I was the asset/liability manager of a major financial institution, banks needed 200 basis points above their borrowing costs to break even and I bet that they now need an even larger spread. In other words, if they borrow money at 1%, they have to lend it out at 3% or higher to break even — that’s not making a profit, by the way. With interest rates so low, banks resist lending money long term in hopes interest rates will rise so they can increase earnings. You may have noticed that you are getting higher fees on nearly everything you do at banks plus all kinds of offers of things to buy. Banks have been forced out of the banking business and into the sales and marketing business, in effect.

So where is $85 billion a month going?

The big corporations are using their borrowing power to invest overseas in factories and employees where such investments are inexpensive. After all, big corporations are businesses, too, and they need to make profits. This is important to understand in terms of how little extra money the American consumer has to spend these days. Corporations must be able to supply goods and services at low prices, and to do that, they must go overseas for their manufacturing.

The stock market is rallying because corporations are making profits and institutional investors can buy lots of stock on very low margin rates and even borrow extra money at low rates, and they dump all this money into the stock market to get a bigger return than they could get at the bank or in bonds.

So the $85 billion a month is primarily going everywhere else than it was intended to go, which was into loans to consumers and small business.

So why did the Fed make a mistake?

Well, they decided to continue the QE and that means the problem described above is going to continue, as well. Even Wall Street realizes that low rates are bad for the economy, so the bond market and stock investors carefully prepared for the expected rise in interest rates. The markets discounted the rise in rates. However, now the Fed will continue the stimulus and not raise interest rates. That doesn’t mean that the bond market won’t raise rates because of the risk to the economy. There is a term for this: Bond Vigilantes.  They show up when the Fed is doing stupid things that are actually harmful to the economy. The bond market traders and investors start requiring higher interest rates on the money they invest because they see risk in the economy and the possibility of serious inflation in the future. [‘Inflation‘ refers to inflation in the money supply which creates way too many dollars chasing a fixed amount of goods and services. When that happens, prices rise because they can. Someone will always pay the higher price.]

As I write this, I am monitoring the movement of the bond market on the Treasury 10-year and 30-year bonds. Since yesterday, they have rallied only about 15 basis points, which is not huge in terms of rallies. Yes, anyone holding bonds yesterday made money today, but the market didn’t return to the levels of prior to the tapering talk. I think the Bond Vigilantes are just waiting to jump in.

I am going to continue this diatribe later. For now, feel free to ask questions by emailing me at vduff@ConfidentialBusinessCoaching.com or fill out the contact form below.

What is Wrong with This Product?

A video has been going around the social networking sites that I believe teaches a powerful marketing lesson.  You can find it here and I suggest you watch it:


It shows Ellen DeGeneres roasting Bic Pens over a new product they had asked her to promote.

Let’s take a look at what went wrong:

  1. Bic has used the “For Her” branding on their line of women’s razors to highlight features that conform better to women’s usage needs. The marketing people at the company clearly thought of the “For Her” brand as an asset and decided it could be expanded into other products. While the razors may have some features that made their use on women’s leg, underarm and bikini areas more effective than using the normal men’s products, a mere presentation of pink and purple colors does not constitute factors that make these pens more effective for a woman’s needs. In fact, it makes me wonder whether the coloring on the “For Her” razors is the only difference in features.
  2. It is a foolish use of an established and valuable brand. The “For Her” shaving line makes sense. Pink and purple pens do not. Women use shaving razors on different places than men, but the same does not apply to pens. Yes, a woman who wants to use a pink or purple pen might buy the package, but I am a woman and I would like yellow and green pens, myself.  It seems to me that a successful brand of women’s shaving products gets diluted by the addition of products that are somewhat questionable in relevance.

This lesson applies broadly. It is kind of a skewed reiteration of the old warning “If it ain’t broke, don’t fix it!”

When introducing a new product line, take a careful look at how you are branding it. I can see that Bic probably thought creating a line of pretty pens might sell to the women’s market, but who buys a razor and then says “Wow! I can now buy a matching pen! Won’t my friends be envious…” A brand name like “Pretty Pens” would be much more appealing and probably sell better because it identifies the true difference between those pens and other pens on the market.

The take-away is the same one Coca Cola learned when it introduced “New Coke” in a classic marketing mistake. Their consumers liked Coke the way it was. It was a brand that had a specific function as the preferred taste choice for millions of people. Did they want it to change? The answer was a resounding “No!” Changing Coke was not necessary. Adding a line of pens to a well-established line of women’s shaving products was also not necessary.

If you are looking to add a new revenue stream with a new product, brand that product according to its function. Don’t attempt to fit it in somehow to the branding for another product.


Three Signs You Should Read …

This morning an important economic indicator, Consumer Sentiment, showed a big drop. The talking heads blamed it on higher interest rates and consumer fears that those higher rates would choke off improvements in the housing market. What improvements? Most of the movement in the housing market has been due to hedge funds and other big investors buying bank REO (real estate owned) and troubled properties. New home sales, an area of the housing market that represents individuals buying homes, has been performing poorly.

Retail Sales, the economic indicator that measures about 70% of domestic US economic activity, also reported a disappointing number that was not in keeping with the image of economic recovery that has been promoted. That is particularly worrisome since August and September are ‘Back to School’ months that rival Holiday Season consumer spending.

And in case you haven’t noticed the price increases during your last trip to the supermarket, the Producer Price Index (a measure of wholesale prices) was up mostly from food and energy prices.

The Stock Market is still surging because the big institutional investors, who are mostly in the driver’s seat on Wall Street these days while average individual investors have been notably absent, expect the Federal Reserve to continue dumping money into the economy — money that is clearly not making its way to Main Street USA.

I have clients desperate to get funding for their good solid businesses, but the banks are not lending.  And why should banks lend? Banks make more money when they can charge higher interest rates. These days, they are making their money off overdraft charges and account fees — waiting for the Fed to allow interest rates to rise.

If you have been following this blog, you know I have been warning about the signs we are moving into another recession. If you think doing business has been tough, be prepared for more difficulties on the way. Conserve your cash and start talking with your partners and employees about how to survive an economic downturn.

I am putting together an online session to talk about how to survive another economic downturn, so stay tuned …

If you want to set up a private session, email me at vduff@confidentialbusinesscoaching.com …