Looking at traditional approaches to business software, the choices were not all that advantageous for small business. Basically, you use a program that you install on a single computer, such as a laptop or desktop computer in your office. Data is only available there, and any sort of software or hardware problem meant costs for IT maintenance, reliance on backups if you were diligent enough to maintain them, and potential downtime for your business.

If your business became large enough to afford it, the next step beyond that was to transition (often at great expense) to a multi-user client/server model, which used a dedicated server, with redundant storage and automated backups. That alleviated the issues of downtime and sharing data among multiple users, but called for more expensive hardware, software, setup, and maintenance costs. To bring a level of predictability to this scenario, a company would normally sign up for a service contract, where a third-party provider would assist with installation, setup, maintenance, updates, backups, etc. This is an effective, but expensive approach. Moving a significant business to a major enterprise software package could result in up-front costs easily into 5 figures and often six, and that’s not including the obligatory annual licensing and monthly maintenance contracts. Ok for a large enterprise, but a giant leap for a developing small business. Open source is a third option, which I’ll touch on in a future article.

Enter SaaS. Picture the above scenario, with redundant servers and storage, backups, updates, security, backup power, and maintenance, all scaled up to a much larger size and shared among thousands of users. From your end, you simply access through a web browser– any web browser, from home, work or even your mobile phone. No up-front cost for hardware or software, just a flat monthly fee based on your requirements.

Apropos of this website, I like to think of SaaS as “fractional enterprise software”. With the SaaS approach, you are effectively getting highly featured software, and associated support, maintenance, and backups, on a fractional basis.

Certainly there are downsides to SaaS. The greatest of these is that they lack the level of flexibility that accompanies a high-end enterprise product. That said, most offer some level of customization, and for some vertical markets there are niche products specifically tailored to the way those businesses work. A second downside is that packages lack truly high-end features because they are designed for simplicity. That is rapidly changing however; SaaS providers are quickly adding features, and even integrating with each other, making it possible to share data from one provider to another, across functions or even to and from more sophisticated packages. With the cost of adding features amortized among thousands of users, it comes as no surprise how quickly these offerings are developing.

Imagine you operate a company called “Short Cut Lawn Care”, a hypothetical company offering landscaping services. A potential customer, Betty Smith, visits your website, hosted on a service providing hosting for $10/month. They request information via a web form, which feeds the information directly to your Customer Relationship Management SaaS provider, which costs $10/month. Later that month, they receive your company newsletter, sent via an email marketing SaaS package that costs you about $15/month. A few days later, the sales person assigned to them notices that they’ve read the email and clicked on a link back to your web site. They make a phone call to the potential client, and offer them a special, bingo, you have a signup. The sales person then uses a free online booking tool integrated with your website to schedule the appointment. With one click, you transfer the person to your online accounting package ($29/month). Your labourer attends the person’s address, does the work, then records the time directly into your accounting system through his/her iphone. At the end of the month, a few clicks and they’ve received an invoice via email. Another call from the sales person as a follow-up to the service, and they agree to an annual lawn-care contract. Your online scheduling system and accounting packages allow the scheduling, invoicing and accounting to be almost completely automated.

Monthly cost: $64.
Up-front cost: $0.
Maintenance, backup, and IT expenses: $0.

That’s $768/year. You could spend that on an annual license for ONE software package, let alone the associated costs for everything else.

In future articles, I’m going to take an in-depth look at some popular business functions where great SaaS solutions are available.

-Gord.

by Raymond Flandez

This past year, Al Lovata, chief executive of Be Our Guest Inc., cut expenses for his party-equipment rental business by laying off staff and reducing workers’ salaries. He credits an “outsourced” chief financial officer with helping him prepare for the worst of the economic downturn.

The Boston-based company had sales growth in the double digits for the past few years, when revenue fell flat last fall. Now, thanks to the part-time CFO’s guidance, the company is stable with revenue down 20% to 30%, but profitability higher than in the previous months, he says.

If we hadn’t had this service, “we would still be struggling,” Mr. Lovata says.

Mike Loria of Re.Source Partners Asset Management, in Detroit, consults his CFO, Sheri Pawlik of B2B CFO.

Some small-business owners in need of accounting help to balance their books and guide them out of a financial black hole are renting CFOs rather than hiring them. The strategy comes at a time when the deep recession has forced small companies to look for money-saving alternatives that can yield good returns yet avoid substantial overhead costs.

“They’re looking for ways to streamline and be efficient as they can,” says Glenn Dunlap, a co-founder of Milestone Advisors LLC, a small-business consulting firm in Indianapolis that provides CFO services.

The average annual salary for a full-time CFO in a small- to medium-size businesses ranges from $94,250 to $175,750, according to a 2009 Salary Guide by Robert Half International Inc., a Menlo Park, Calif., staffing services firm that serves the accounting and finance fields. Renting one can be significantly cheaper.

B2B CFO Partners LLC, a Phoenix, Ariz., firm that has over 100 CFOs-for-rent, charges at least $300 to $400 per month for the service. The company has doubled the number of small- to mid-size business clients to 650 since 2007, says Jerry L. Mills, founder and chief executive.

Business owners often want such a service when their company’s finances are getting more complex and need someone with more financial expertise, says Germain Böer, professor of management and director of the Owen Entrepreneurship Center at Vanderbilt University in Nashville.

Still, he cautions that some small businesses that have simple financial structures or are completely self-financed may find renting a CFO not so useful. But “if you have a loan in the bank or an outside investor, something like this is well worth considering,” he says.

These CFOs have a bigger role than accountants, who mainly keep track of the company’s books. They work with business owners to manage their accounting and finance departments, connect them with business sources that can help them grow and provide financial data to help make strategic long-term or day-to-day decisions. Many are certified public accountants.

The payment structure varies. Some are on project-oriented deals, such as developing financial projections, assisting with raising capital or completing a business plan. Some are on-going in nature and can be based on an hourly or flat monthly fee.

Concerns regarding privacy from such consultants can easily be mitigated by nondisclosure agreements, experts say. Mr. Mills suggests that small businesses interview at least three CFO candidates, assess the quality of the firm they work for and avoid long-term contracts, if possible.

Some business owners turn to CFOs to establish proper bookkeeping systems. Ruthann P. Lacey, owner of a law practice in Tucker, Ga., brought in a part-time CFO in October. Before, an office manager handled bookkeeping while she also turned to her husband for ad-hoc financial and tax-preparation advice. “I didn’t really know what the big picture was,” she says. “I only knew we made payroll every month.”

Upon the advice of her rented CFO, she installed QuickBooks software, hired an accountant and sorted out the company’s accounts-receivable system, billing those customers who owed the company.

Ms. Lacey also began reviewing monthly reports about cash flow and profitability that’s making it easier for her to make hiring decisions or put more into the marketing budget. She says she’s quite happy paying the rented CFO’s $185 per-hour rate about 15 to 20 hours per month, because she can’t afford a full-time executive. “This is something I should have done a long time ago,” she says.

Entrepreneur Bob Compton, founder and chief executive of Vontoo Inc., an Indianapolis-based voice-messaging company, says he has rented CFOs for six companies he has started or been a lead investor in. “To hire a CFO in the early-going is a waste of money,” Mr. Compton says. “It’s much better to invest that money in engineers and sales people.”

For Vontoo, he pays $5,000 a month for the CFO’s strategic advice, bookkeeping services and accounting expertise. “It’s a tremendous cost-saving,” he says.

A company outsider can also help deliver a reality check. Re.Source Partners Asset Management Inc., a reseller of technology products in Detroit, has used cash to fuel growth since 2001 but is now using a line of credit for the first time, and needed help managing the new financing. In 2007, Mike Loria, the company vice president, brought in a part-time CFO who advised the company to rein in aggressive plans for growth and prepare for flat sales this year of about $9 million.

The CFO is more objective and “someone who can prevent us from making any bad decisions,” Mr. Loria says. “It has really given us a level of confidence that we did not have in decision making.”

Write to Raymund Flandez at raymund.flandez@wsj.com

by Gord Hooker

Intellection Property is a topic that few entrepreneurs consider and even fewer truly understand, but it can have important ramifications for your company. Like many forms of property, intellectual property (or IP, as it’s often abbreviated as) has value, and like anything of value, you must take precautions to protect it.

Copyrights, registered trademarks, and patents are all measures taken to protect a different type of intellectual property. The purpose of this article is to define each of these measures and discuss how you implement them.

Copyrights

A copyright gives the author of an original work exclusive right for a certain time period in relation to that work, including its publication, distribution and adaptation, after which time the work is said to enter the public domain. Copyright applies to any expressible form of an idea or information that is substantive and discrete and fixed in a medium. (Source: Wikipedia).

Copyrights do not need to be registered, you need only display the copyright symbol to assert copyright, and be able to prove you are the author of the work. In the book publishing world, the common practice is to submit copies to the national library of the country of origin. A second simple method is to seal a copy of the work and then mail it to yourself. As long as there is a dated postmark on the package, and the seal is unbroken, it could be used in court to prove your ownership. There are also services online that can help assert copyright.

Trademarks

A trademark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities. In other words, a trademark should exclusively identify the commercial source or origin of products or services.

Trademarks can be registered or unregistered, as distinguished by the symbol ® for registered trademark, or ™ for an unregistered trademark. An owner of a registered trademark can commence legal proceedings to prevent unauthorized use of its trademark. An unregistered or common law trademark still offers similar protection, though that protection may only extend to geographical areas where the owner operates or would be reasonably expected to operate in the future. (Source: Wikipedia)

Patents

The term patent usually refers to a right granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof. A patent is a set of exclusive rights granted by a state (national government) to an inventor or his assignee for a limited period of time in exchange for a public disclosure of an invention.

A patent is requested by filing a written application at the relevant patent office. The application contains a description of how to make and use the invention that must provide sufficient detail for a person skilled in the art (i.e., the relevant area of technology) to make and use the invention.

The application also includes one or more claims, although it is not always a requirement to submit these when first filing the application. The claims set out what the applicant is seeking to protect in that they define what the patent owner has a right to exclude others from making, using, or selling, as the case may be. In other words, the claims define what a patent covers or the “scope of protection”.

After filing, an application is often referred to as “patent pending.” While this term does not confer legal protection, and a patent cannot be enforced until granted, it serves to provide warning to potential infringers that if the patent is issued, they may be liable for damages.

For a patent to be granted, that is to take legal effect in a particular country, the patent application must meet the patentability requirements of that country. Most patent offices examine the application for compliance with these requirements. If the application does not comply, objections are communicated to the applicant or their patent agent or attorney and one or more opportunities to respond to the objections to bring the application into compliance are usually provided. (Source: Wikipedia)

For example, a grocery store is highly scalable. Simply restock shelves more often, and add more checkouts, and you can accommodate a huge increase in sales volume. Notice that you rarely see a grocery store with the all of the tills open? That’s because the additional overhead from that extra capacity is so inexpensive that they build in a large amount of excess capacity from day one. Conversely, I would not consider a restaurant as scalable, because it requires a large capital investment to add more kitchen equipment and space to the dining room. If business slows down, it is very difficult to scale back the operation.

How scalable is Google? Just add more servers!

How scalable is your business? One day, you may wish to sell it. Scalability will have a huge impact on its value.

Lets consider the following potential buyers: individuals, competitors, and strategic buyers.

Individuals will simply use standard valuation tools like discounted cash flows or multipliers of sales or earnings.

Competitors will do likewise, only you have the added disadvantages of exposing your trade secrets to a competitor, and selling to somebody whose understanding of your market space means that they are certainly going to by buying the steak, not the sizzle. For these reasons, competitors are considered the worst audience to try to sell your business to, yet most entrepreneurs go there first, thinking their competitors are the only ones who “get it”.

You will only get top dollar for your business from a strategic buyer. Why? Because they will be buying with the intention of leveraging their position to massively transform your business. If there is synergy between the buyer and seller, the strategic buyer will pay far more than any individual or competitor ever would!

In order to realize the potential gains from the synergies, strategic buyers need to see well established and documented processes that can scale to a much larger operation. This is absolutely critical if you wish to get top dollar. Their strategy may be to use their capital and expertise to geographically expand your business, or use their distribution network to grow sales of your product. Either of these approaches will require a well defined and documented operation in order to be successful.

What can you do to make your business more scalable?

Take a look at your own business. How can you make it more scalable? How can you take a fixed cost and turn it into a variable cost?

Some examples:

• Contract out easily replicated parts of your business, such as creation of components, to a larger company. You will reduce your overhead, and make that part of your business more scalable.
• Standardize and simplify processes as much as possible. You will minimize training requirements for new staff and expand your pool of potential labour.
• Simplify your product or service lines. How much complexity are you adding to your sales, marketing, and operations by trying to “do it all”? Determine how much contribution each product or service line is making, and weigh that against the added complexity it brings to your operation.
• Create “self-service” approaches that reduce the need for human intervention. Some examples are online ordering, providing account information, service or product notifications to keep your customer informed, or improving displays to make purchasing easier and products easier to find. Can you imagine a restaurant without menus or a grocery store without price tags? Now take it to the next level! Communications is the key!

The benefits of scalability can be huge. A Fractional Executive can help. Contact us today for more information.