Archive for the ‘start-up’ category

Tips for Starting a Service Business

November 17th, 2014

Service Business 2Many entrepreneurs are people with specific marketable skills and know-how. Taking the step to self-employment by starting your own services business can take the value of those skills to an entirely new level. But starting and building a business requires an all together different set of skills and know-how. So, if you are thinking about being your own boss, here’s some advice to get off on the right foot.

Write down your business plan

Writing a business plan may seem like a pointless and onerous exercise, but don’t skip it. Putting your plan in writing will force you to think clearly about your new business, your opportunities and your challenges. It will help you set realistic goals and keep yourself accountable. A well-written business plan is also critical for securing financing for your service vehicles or other major expenses. One great resource to help you develop your business plan is the U.S. Small Business Administration. Your local chamber of commerce is another excellent place to ask for help.

Seek advice

Starting any business involves risk. You can minimize yours by taking advantage of the experiences of others. A good mentor, or two, can help you avoid the pitfalls, as well as show you best practices that will get your new service business on the right foot. Mentors can also introduce you to other influential people and help you establish your own business network.

Your business mentor can be a coach or consultant you hire, or a more seasoned businessperson who takes you under their wing. One excellent place to look for no-cost or low-cost expert business mentoring is SCORE, a nonprofit organization dedicated to helping small businesses.

If you are looking for advice specific to your type of service business, it pays to go online. Many professionals in your field will happily help you out on industry chat boards or LinkedIn groups. All you need to do is ask.

Track everything

Business is a numbers game, in more ways than one. Most new entrepreneurs know enough to track income and expenses at the very least. But the most successful ones don’t stop there. Tracking and analyzing everything in your business will allow you to make better decisions, avoid wasteful practices and realize greater profits.

One example of tracking used to advantage is your vehicle fleet. Instead of simply tracking expenses, take it a step further and track fuel economy per vehicle or per driver, time on the road and location of every vehicle. Knowing these parameters will allow you to manage your fleet for maximum efficiency and productivity.

Develop systems for your business

Imagine if your entire business ran at 100 percent efficiency. It would be so much easier to make a profit, wouldn’t it? No business is 100 percent efficient, but developing systems will get you as close as possible. Once you’ve figured out what works, write it down, and make sure every employee knows it’s standard procedure. If the procedure you’ve developed involves multiple steps, create a checklist for employees to follow. Even little things like making a habit of placing tools back in their proper spot when a task is finished can save countless hours of wasted time in your business.

Your business will probably have unique aspects that require you to develop some of your own systems. But look out for ready-made tools and systems that can help systematize your business. Accounting software is a good example. So is a GPS tracking system that can help you track and analyze your business fleet.

Don’t undervalue existing customers

As you acquire customers, take good care of them and keep in touch. Develop relationships and earn loyalty. It’s much easier to sell to existing customers than to someone who has never done business with you. Anything you can do in your service business to encourage customer loyalty will keep your repeat business flowing, and it will also bring in the best free advertising possible — word of mouth.

Expect to make mistakes

If you can’t acknowledge, learn from and apologize for your mistakes, then you’re doomed. Part of becoming successful is learning to handle and recover from mistakes. You will make them. If you think you won’t, you’d best keep your day job.

Starting your service business will require a lot of dedication and hard work. But by following business best practices you can avoid many of the pitfalls experienced by new entrepreneurs. Take these tips to heart, and you will improve your chances of developing a rewarding and profitable new enterprise.

 

2 Concepts for Improving Your Brand

July 19th, 2014

Improving, or repositioning, a brand has a direct impact on the financial performance of a business. Companies that are successful in building their brands enjoy higher customer loyalty and are more likely to attract new customers. An improved brand has a positive impact on profit margins and allows a company to raise its price without becoming less profitable due to a reduction in business. A stronger brand leads to increased market share, revenues and profitability.

Understanding the two concepts of actual value and perceived value, and applying them to your product or service’s brand can help you increase margins for your business and make more money.

Soda sells for 75 cents at the grocery store or $8 at an amusement park. Steaks are priced from $18 at a casual restaurant to around $40 at a fine dining establishment. A cup of coffee can range from one dollar to well over $5. The vast difference in these prices is a result of brand positioning and the value that the brand represents in the marketplace.

If you want to increase prices in your business and make more of a margin on each sale, analyze your brand to see how you can reposition and improve it to be more valuable in the minds of your current and potential customers. Do this by boosting actual value or perceived value.

1. Actual Value

Increasing actual value likely will cost your business more money but will enable you to charge more too if your customers care about the improvements. For example, in the auto business, a sunroof, leather seats and chrome wheels are considered upgrades. It costs manufacturers more to install these, but since car buyers think these features make a car more comfortable, sporty, luxurious, durable or attractive, these add-ons increase the value of the car, and customers will pay more for it.

In your business you are adding actual value when you are paying more on a continuous basis for the cost of materials or labor to improve the customer’s view and desire for your product or service. In the case of the cars, the sunroof, leather and chrome wheels must be added or available every time in order to offer the increased value and capture the added profits that result. Using premium or preferred materials or skill sets rather than just good or good enough materials and labor will allow you to have higher price points if your add-ons are desirable to your customers.

2. Perceived Value

Increases in perceived value are generally more profitable than increases in actual value because you do not necessarily have to spend more money, or any money at all, to achieve increases in perceived value, but you can still charge more for the added value.

Consumers will pay higher prices for attractively packaged products. Making a product package more attractive may not cost more. It can be as simple as using a brighter or darker brand color, a more commanding or refined font or a different shape of bottle. These changes can make a product appear richer or of higher quality, yet the inside product may be the same as a lower priced competitor. It’s all about the perception.

Associations, affiliations and trust also boost perceived value. For example, two identical products may sell for vastly different prices if one is associated with higher professionalism, expertise, style, or just plain fun. For example, if a product is worn, used or favored by celebrities, then it suddenly achieves higher perceived value.

Professional certifications work the same way. A Certified Public Accountant (CPA) may be able to charge a more for bookkeeping and services than an accountant with a degree but no certification. If the CPA is better at the work, it isn’t necessarily due to the certification, but the perception is there for the CPA to leverage.

Protect, build and analyze your brand to figure out ways to boost value for your customers. Whether it is actual or perceived the added buzz and sales can help you reach your annual profit goals faster.

Is Your Budget Incomplete?

October 8th, 2013

Is your budget incomplete?Estimating and matching expenses to revenue (real or anticipated) is important because it helps business owners to determine whether they have enough money to fund operations, expand the business and generate income for themselves. Without a budget or a plan, a business runs the risk of spending more money than it is taking in or, conversely, not spending enough money to grow the business and compete.

So you assemble a budget spreadsheet that starts with your projected profit, then accounts for the operating expenses required to generate that profit, and calculates the gross profit margin, and then estimates the required sales revenues. You look over the results and decide that the profit goal is doable because the sales revenues are realistic and the required expenses are complete. But are they? Have you considered all of the following?

Purchase Price vs Landed Price
Does your budget account for the difference between the purchase price for a product and the landed price? The landed price is what really matters, because it includes the costs of freight, duties, taxes, storage, etc. Knowing the true cost of getting the product into your hands is crucial when setting the price and insuring profitability. Clearly it is advantageous to reduce the cost of each or any component of landed cost. Each one will allow the seller to lower the final selling price or increase the profit margin associated with that sale.

Slow Growth
Many entrepreneurs don’t account for how much money they will spend if their idea does not take off as fast as they hope. When budgeting, make sure to create at least one “very worst case” scenario that does not have much or any growth, just so you know what will happen if it all goes wrong.

The Effects of Scale
Scaling may affect more areas of your business than you can anticipate. Ongoing processes such as training new employees and maintaining quality control are just some areas that might get exponentially more difficult, without even factoring in the effect of any new operations. Be sure to budget in the money and time to make systems and procedures more efficient, as new problems related to scale will inevitably arise.

Insurance, Equipment and Software Applications
Three of the biggest expenses that may surprise you as an entrepreneur are:

Insurance: You need to budget in much more than you pay as an employee for health, disability and business insurance.

Equipment: Will you need additional equipment and office furniture to provide the production capacity that your profit projection required? Even simple items like tools, racks, chairs and file cabinets can add up to substantial costs.

Software: You’ll need to purchase licenses for each user.

The Cost of Networking
Entrepreneurs sometimes forget how expensive it can be to do networking in the right places. Conferences, for example are great for networking. However, ticket costs, hotels and transportation to conferences add up. Even if most of your networking is at free or low cost events, consider how much money is spent taking people out to lunch and coffee to network with them one-on-one afterwards.

The Costs at Home
When you’re caught up in the fast pace of running and growing your business, it’s easy to forget that there needs to be at least enough money to put food on the table at home. Even if you cut your personal expenses down to bare bones, they do still exist. Make sure they make it into your budget, rather than stressing about them down the line.

Paying Taxes
It’s easy if you’re self-employed, especially if it’s in a start-up, to forget to put enough money aside for taxes. Budget 15-20% of gross revenue or 35% of net revenue (until you know your business better) for paying the taxman. It would be advisable to put the money aside in a separate bank account every month so you’ll always be able to make your tax payments in full and on time.

Unpredictable Costs
There will always be costs you couldn’t have predicted, and because of this it’s important to have a buffer-fund of as much money as you can spare to handle those server crashes, extra hires or other incidental costs you couldn’t have known to figure into the official budget. Consider that an extra 10% of your budget should be included in a Miscellaneous Expenses line item on your budget spreadsheet.

Review the Business Periodically
While many companies draft a budget yearly, small business owners should do so more often. In fact, many small business owners find themselves planning just a month or two ahead because business can be quite volatile and unexpected expenses can throw off revenue assumptions.

Bottom Line
Budgeting is an easy but essential process that business owners use to forecast (and then match) current and future revenue to expenses. The goal is to make sure that enough money is available to keep the business up and running, to grow the business, to compete, and to ensure a solid emergency fund.

6 Myths About Starting a Business

July 17th, 2013

Lots of people decide to take the entrepreneurial path and start their own business. The idea of being your own boss, making it big, and having a company that you can point to as your life’s work is very appealing. But the realities of starting up a small business are sometimes overshadowed by myths which make it difficult to deal with the real challenges that arise in those first few years, resulting in unreasonable expectations, frustrated entrepreneurs and potentially a failed business.

Here are some small business startup myths that might keep you from realizing your vision:

1. You should spend a lot of time preparing a detailed business plan
A client of mine in Gardena believed, as many business owners believe, that they should spend a lot of time preparing a detailed business plan, and that the business plan needs to include lots of what-ifs and elaborate financial projections. A grain of truth obscures a much larger point here. Yes, it’s smart to have an overall strategy in mind before diving into a business of any kind.  However, it’s very possible that by the time you finish your do-all-end-all business plan, the market will have changed so much that it will be about time to start on a new one. Business plans are especially important in the initial phases, as it is essential your businesses road map includes your goals. It is also important that you refer back to your plan every few months, check these goals, and add or change them accordingly.

The problem is that detailed plans work best when you are pursuing a fixed goal, such as losing weight or sticking to a budget. In these cases, a planned sequence of steps will best accomplish the goal. In business however, the goal is meeting consumer demand, which is often a moving target. Look at all the businesses (like Google) that are now doing something radically different from their original plan. So create your business plan, and then get busy developing a product and trying to sell it. Then resolve to be open-minded and react to opportunities as you see them emerge.

2. You have to develop the coolest, most innovative product
Many entrepreneurs think they have to develop the coolest, most innovative product. Entrepreneurs are often creative-types, dreamers and inventors, and they get so caught up in the coolness of their product that they forget that they need see if anyone will actually pay money for it.

What you do need to do is get your product to market as soon as possible, to start generating revenue and gain customer feedback. All companies, large or small, need to be more customer-oriented than engineer-oriented. You have to take into account customer demand, and develop products based on that feedback. Too many entrepreneurs so endlessly improve their products before starting to sell them that by the time they finally do, they’ve run out of capital and have to shut down.

Get a workable product out the door and fix the bugs as you go along. That way you also get valuable feedback about its strengths and weaknesses, for the market doesn’t necessarily agree with you about what’s perfect.

3. You’ll have more time to do what you want
Yes, you do own your time. By, ironically, you will find yourself using more and more of this time to run your business. Whether this hoped-for scenario actually pans out, is largely a function the business you are in and how much time you devote to it up front. Early on, you will almost definitely not have more time on your hands.

As a client of mine in Manhattan Beach found, there are many benefits (personal and financial) to having your own business, but plenty of free time is not one of them. You will probably have a little more flexibility, as many small business owners choose to work late at night so that they can spend time during the day with their families; but there are still some major sacrifices, such as sleep. Starting up a small business requires that you work until the work is done, without exception. Those fantasies of taking long vacations while your business grows itself are just that, fantasies.

None of this is to say that you will not ultimately have more freedom as a result of running your business. However, to expect a lot of it in the early days would be an exercise in self-delusion. So prepare yourself for immense demands on your time.

4. You’ll be able to write everything off
Absolutely not, unless of course, you have a desire to get audited. I can’t tell you how many clients have come to me over the years for help getting their books in order only to have to be told that even with a complete set of transactions and reconciliations, their books won’t be clean until we remove all the personal expenses they’ve burdened their profit picture with. Personal expenses should not be expensed to your company, and the business expenses you do incur should be clearly connected to the business you’re running. While it’s true that business owners can write off more than employees can, there is great risk in taking this too far.

Typical real expenses can include your computer and business operating and account management software, rent, employee salaries, money paid to independent contractors, advertising costs, and your business phone bills. You probably will not get away with deducting 100% of your car payments, nor gas and repairs. You can write off the portion of auto expenses that you can document as being essential to your operations. The key word here is “document”. Keeping good records is critical. Basically, if you cannot document it and cite a clear connection between the write-off and the operation of your business, your attempt at a write-off could trigger audits, fines or worse.

5. If you build it, they will come
Despite the Field of Dreams reference, setting up shop and getting your startup ready for business, doesn’t mean that the world will beat a path to your door. A former client in Torrance found out the hard way that today’s consumers have an endless array of choices, meaning simply “building it” will not cause customers to walk through your doors and snap up your products. No matter what type of small business you choose to start, it will rarely, if ever, be sufficient to open up shop and idly wait for business to start pouring in.

You still need to market and advertise your business strategically. That means having a plan and a budget.  It also means researching the most effective methods for marketing and advertising. There is no shortage of ways to waste money in advertising, as a client in Lawndale discovered, and it can end up being a huge financial drain on a fledgling company. No matter how good you are, there is lots of competition and your small business has to establish a presence and reputation to go along with your talent.

Consider your number one priority after opening your doors to be spreading the word about your product to your target market as much as possible.

6. Starting a Small Business is Rewarding
One other common myth about starting a small business is that it can be an incredibly rewarding experience. But unlike the myths presented above, this one has great potential to become true.

The independence and the satisfaction of turning a business idea into a successful enterprise are probably what most small business owners find the most rewarding. And there are all kinds of other satisfactions, including creating a successful new product or service as a result of solving unforeseen problems, or from customer feedback. So don’t let the myths of starting a small business put you off; the reality is so much better.

Small business is one of the most exciting arenas for earning a living.  There is plenty of creative potential, and a chance to really make something tangible for yourself and your family. But doing so requires more than just the vision and determination of a bold risk-taker. You need to be intelligent about how your business is framed in the marketplace, and what obstacles there are to overcome. You also need to be aware of the tools and support that you have at your disposal. Staying focused on these realities, and avoiding the myths that many fall prey to will only increase the chances of success and longevity in your small business.

 

Short is Sweet for Today’s Business Plans

October 22nd, 2012

It’s not just entrepreneurs who have come to the realization that exhaustive business plans may be overrated. Venture capitalists, angel investors and bankers are also in favor of stripping down such documents. Many say they simply have no time to read a 100-page plan, even if they were so inclined, and that there is little value after the first few pages.

The modern business plan is a dramatically distilled version of those from five or ten years ago. The best ones today address market opportunities and how the venture will pursue them, in a few well-written paragraphs. That’s it.

It’s not that people shouldn’t incorporate planning into the process of starting or growing a business, it’s that the process and final output has changed. No entrepreneur should spend 6-8 months writing 100+ page business plans. Instead, they should write down some notes to define the following:

1. The problem they are solving

2. Their solution to the problem

3. Who the target customer is and the size of the addressable market

4. Current competition or alternative solutions to the problem

5. Estimated costs and revenue

6. Key partners & resources needed to run the business

7. Sales channels and planned marketing activities

This first pass at a plan should be no more than 1-2 pages. Entrepreneurs should then set out to validate their assumptions: Do potential customers really have the problem the entrepreneur thinks they have? Do potential customers think the solution is a good idea? Are they willing to pay? Etc.

Based on this early customer feedback, the plan can be revised and expanded. It’s much more of a “plan as you go” approach where the entrepreneur keeps the plan alive and is constantly refining it as they learn more about their customers and their business.

Those longer plans, that used to be the standard, may signal hesitancy or doubt about a concept’s viability. A shorter plan, on the other hand, signals a bias toward action and away from planning. This is not to say that planning is unimportant, but a lot of people get stuck in the paralysis of planning and never actually do anything.