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Blog 8 image Getting the Word Out Marketing and Advertising your Business Part 1

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*The following information was taken from East Bay SCORE’s manual, “How to Start and Manage Your Small Business”. All references lead to the full copy of the guide which is free to download.

Getting the Word Out: Marketing and Advertising your Business (Part 1)

Overview 

Marketing is the act of taking a product or service from the idea phase to the marketplace. Although closely related, marketing and advertising are really two distinct activities. A marketing plan needs to be devised first. Think of marketing as an overall strategy for promoting your product or service. Second, consider advertising plus other forms of promotion as the tactics you use to carry out your strategy. An advertising program plus these other promotional elements can then be put into place using the marketing plan template.

In this chapter we will lay out for you the four “P’s” of marketing, the essential elements in the process of developing an effective marketing strategy. We will provide you with a sample marketing calendar that indicates how you might proceed in a typical business cycle. You will see a “marketing mix” containing not only an advertising program but also such things as free publicity through sponsorship of local events, public relations efforts such as personalized holiday cards, the utilization of promotional materials, participation in trade shows, attending chamber of commerce and other networking events, etc.

We have provided for you a form to use in developing a marketing calendar for your business. In addition to responding to your business’ cycle, a marketing calendar will assist you in preparation of your marketing budget and provide a visual aide in determining a sustained presence.

We provide some guidance for helping you to determine the pricing of your products and services. We provide some discussion of determining the location of your business. We provide some special considerations for home businesses and small office businesses. We conclude the chapter by providing a glossary of marketing terms.

But your work is just beginning. Before establishing your marketing plan you will have to do the proper market research to determine your customers and their buying habits so that you will be able to target your market. You will have to do a competitive analysis to determine your market niche and ensure that the pricing of your product or service is competitive. Finally, you will have to develop a marking and advertising plan for reaching your segment of the market.

One last piece of wisdom for you to consider: Customers are your business. They are your most important asset and should be guarded jealously. It is customer service that will separate your business from your competition.

FOUR “P’s” OF MARKETING

In the process of taking a product or service from the idea phase to the marketplace you will find that effective marketing encompasses four elements: the Product (or Service), Price, Place, and Promotion. These are the four “P’s” of marketing and the successful mix of these components will result in profitable sales to the business by providing your customer/client base with products or services they need or desire at a price they are willing to pay.

Product/Service         During the market research process you will describe your product or service, determine who the potential customers are and what they want or need and you will examine the competition for their strengths and weaknesses. To say this in another way, you are describing the customer in terms of demographic or psychographic (lifestyle/buying habits) characteristics and you are describing your product/service in terms of the benefits offered. You will be deciding whether to exploit the weaknesses of your competition or to battle with their strengths.

Price                            The proper price needs to cover the cost of doing business and to provide a profit. It may not, however, exceed what the consumer is willing to pay.

Place                           This has to do with making the product or service conveniently accessible to the customer whether this be in a brick and mortar building, over the internet, through the mail, at the customer’s residence or place of business or wherever.

Promotion                  This is the mechanism by which you communicate your product or service benefits to your potential customers. The means you use…media advertising, direct mail, email,      newsletters, networking and so forth…will be dependent upon where your customers are located as determined in your research on demographic and/or psychographic characteristics.

Marketing Summary

  • Focus on the customer
  • Research your market and competitors
  • Identify/evaluate your niche.
  • Develop a marketing plan, marketing budget, and calendar

PRODUCT (OR SERVICE)

In this section you will answer questions regarding your concept, who your customer is and what your competition has to offer, or doesn’t have to offer. You will determine where you wish to position yourself in the market, decide what your market niche is.

  • Describe your product or service – This is more than simply listing the products or services you have to offer. Think in terms of the benefits you are selling. These might range from saving time, money or energy to personal enhancements such as appearance improvement or finding love and romance. Example: Answer the question “What does Starbucks sell?” Did you reply “coffee?” Most people do. But the real answer is a special and focused ambience of a front porch atmosphere, a neighborhood hangout.
  • Describe your customer – You can do this by defining your customer in terms of his/her demographic characteristics such as age, gender, income, ethnicity, family size, profession, and geographic location. Or, you might take a psychographic or lifestyle approach. In other words, what are the common characteristics of your potential customers? Are they all accountants? Or do they all surfboard? Or are they all students? You might even combine demographics and psychographics to describe your customer.
  • Describe your competition – Here you are looking for both the strengths and the weaknesses of your competitors. You need to know both. Look at location, website, pricing, quality and value, services provided and so forth.
  • Answer the question: What makes me so unique customers/clients will shop with me instead of my competitors? – At this point you will have also developed a list of benefits that will form the basis of any promotional activity you engage in.

One important decision you must make in the operation of your business is the determination of the price you set for your product or service. You will want your price to cover all the expenses of the business and provide a profit. However, the price you select may not exceed what the customer is willing to pay, i.e., what the market will bear. Examine carefully the benefits you are offering. Each has a value that you may be able to factor into your pricing.

Pricing a Product

Consider all the expenses your price must include:

  • Cost of Goods to be Sold – Purchase price (including shipping/handling costs) or cost of manufacturing (materials + labor + mfg. overhead).
  • Other Direct (variable) Expenses – These are expenses directly related to your product or service. They generally occur only if something is sold. These are expenses such as freight and delivery expenses, production salaries, commissions, etc.
  • Indirect (fixed) Expenses – These are expenses that occur whether something is sold or not. They are generally viewed as normal overhead. (Licenses and permits, office supplies, rent, utilities, phone, etc.)
  • Other Expenses – These are expenses such as interest on loans, and taxes.

REMINDER: The selling price of your product or service is determined by what the market will bear. If you must reduce your selling price to meet the competition you have several options for doing so:

(1) Increase the number of units to be produced per year to lower the cost per unit

(2) Decrease the cost of labor per unit by increasing efficiency and productivity

(3) Decrease the cost of materials per unit by purchasing in bulk

(4) Lower fixed expenses by systematically reviewing each expense category and/or

(5) Decrease desired annual profit

Pricing a Service

Remember, whatever method you choose to develop a price to charge for your service, the same restraints described above apply. That is, your price will be limited by what the market will bear. Here are three ways you might consider when determining how to price your service:

  1. If you are performing what might be a staff job in a corporate setting first determine what the hourly pay such an individual would command. Try researching this in a good business library. Multiply the rate by three to cover all costs and to provide a profit (after paying yourself the salary) of at least 20%. Validate the price by researching the charges your competitors make.

(2) As a service provider it is common to be able to bill only 50-75% of your time. The rest of your time is spent on administrative matters such as marketing, billing and record keeping. Thus, you will want to determine your billable hours for the year. You will then want to determine your annual overhead that you will divide by your billable hours to determine your hourly costs. Now add the

  • hourly overhead
  • your hourly pay
  • the profit you intend to maketo determine the hourly rate you will charge your customers. Again, validate this rate against the rates charged by your competitors.

(3) Many times you will need to bid a job in total. Still, this bid should be based on your hourly rate. You will need to project the number of hours needed to complete the job and to multiply them by your hourly rate. In the beginning, you are certain to make errors in your projections and they will usually not be in your favor. Thus it is important that you keep detailed records of the actual time (and expenses) you spend on any given job. This will aid you in making more realistic job bids in the future. How you collect your fees is another issue. If you are contracting to do a project you might collect 30-50% of your fee up front and/or you might develop a payment schedule with your client. Formalize your agreement with a Letter of Agreement or other contract arrangement.

How you collect your fees is another issue. If you are contracting to do a project you might collect 30-50% of your fee up front and/or you might develop a payment schedule with your client. Formalize your agreement with a Letter of Agreement or other contract arrangement.

Pricing Summary:

  • If the cost of conducting your business makes it feasible to sell a reasonable number of units of your product or service at a selling price that the market will bear and results in an acceptable profit, the price is reasonable.
  • If the price will not yield the desired profit, you will have to return to the “drawing board.”
  • If you cannot raise the price your options are to increase your revenues (volume), reduce your costs, be willing to accept a smaller profit, or give up or postpone starting the business.

CHOOSING A LOCATION

Basically, there are three types of locations where one might locate a business. They are traffic locations, destination locations and virtual locations.

A traffic location is for businesses that rely primarily on foot traffic to supply their flow of customers. Both traffic count and the customer quality as measured by the

demographics/psychographics are important considerations. Generally speaking, operations such as women’s, children’s and men’s clothing, shoe stores and similar types of businesses are located in these types of locations.

A destination location is for businesses that rely primarily on their own unique draw to supply their flow of customers. One usually finds service businesses in these sorts of locations. Examples of such businesses might be banks, shoe repair, restaurants, dry cleaners, video rental, attorney, dentist, manufacturing operations and similar.

A virtual location might apply to an Internet based business or even a home based business. There are many web hosting services where one’s website may reside. Some services, such as eBay, Amazon, Overstock.com, MSN and others will provide space for item selling, auction formats, credit card processing, search engine help and other services to aid a start-up.

You need to weigh the various factors in order to determining the best location for you. Here are some factors to consider:

  • With respect to your image, how will your target market perceive the location?
  • Is the location in close proximity to other businesses with complementary services that will also allow you to attract their customers (i.e., a shoe store located near a dress store; an attorney service located in a building with other professional services)?
  • If walk-in traffic is important to your business, does your location attract such customers as in a strip center or shopping mall?
  • Where are your competitors located and why?
  • Is zoning compatible with your business?
  • Does the location afford easy access/close proximity to your distribution and receiving channels?
  • Is there ample parking for your customers?
  • Observe the vehicular and pedestrian traffic at various hours of the day to see if they are compatible with the days and hours of your business.
  • What is the trade-off of rent vs. advertising costs? Low rent and high advertising costs tend to go together.
  • Is the place safe, well lighted and clean?
  • Have an expert review your lease before you sign it.
  • See if information on the primary location characteristics can be obtained from a trade association.
  • Consult with a counselor with experience in your business or a closely related business.

Do choose from a variety of locations and take the time to assess the advantages and

disadvantages of each.

It is always wise before settling on a location to consult with experts knowledgeable about your market as well as a commercial property expert and obtain their input on your choices. These experts might be realtors, attorneys, accountants, vendors, and SCORE counselors.

Location Choice Summary:

  • Determine the type of location that would be most suitable for your business.
  • Review each location under consideration with respect to the various determining factors.
  • Gain input from experts before making your decision.

This is part 1 of a 3 part series and was extracted from East Bay SCORE’s "How to Start and Manage Your Small Business." The full reference manual can be downloaded by clicking here.

East Bay SCORE, a resource partner of the U.S. Small Business Administration, provides free business counseling and low-cost workshops at multiple locations in Alameda, Contra Costa and Solano Counties.  For more information, and to use our services, see our website (www.eastbayscore.org), email us at This email address is being protected from spambots. You need JavaScript enabled to view it., or call our office at 510-273-6611.            

*This blog is intended to provide information to support startups and existing small businesses.  A sincere effort is made to ensure accuracy, but no warranty, express or implied, is provided in that regard and East Bay SCORE and the author will not be liable for any errors or omissions in this blog.

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Sunday, 21 May 2017 09:15

Legal Matters (Blog 7)

Blog 7 image Legal Matters

 

*The following information was taken from East Bay SCORE’s manual, “How to Start and Manage Your Small Business”. All references lead to the full copy of the guide which is free to download.

Legal Matters

Overview

In choosing the legal structure you should be aware of the alternatives and their attributes. You should seek the simplest, least complicated, tax efficient, most direct and cheapest form appropriate to your goals. While this initial process may be done by yourself with some research (the State has a good website and there are many books and programs available), you should consider using an attorney, especially for larger or more complicated enterprises.

If it is a small business that you will personally run, then a Sole Proprietorship may be attractive. If two or more people will own it, then a Partnership may be appropriate. Should there be significant assets and potential liabilities to make the costs and trouble warranted, then a Limited Partnership or some Corporate form should be adopted. Advantages and disadvantages are summarized in the table following the explanation of these entities.

Sole Proprietorship

A sole proprietor is an individual who owns and operates a business where there is no separate legal entity to distinguish the proprietor from the business. Personal cash and checking accounts can be common (but should be kept separate). The Federal Form 1040, Schedule C will take care of your tax reporting. Aside from printing a business card and some government registrations, such as a possible Business Name, and getting a sales tax number - if you are going to sell taxable items - you are in business. Importantly, however, your business creditors can reach all your personal assets if their legal claims are not otherwise satisfied.

General Partnership

Where two or more people get together to operate a business for a profit they are a

partnership (unless they create an entity as discussed below). A formal partnership agreement should be prepared to make clear what the arrangement consists of, basically to settle matters between the partners. A separate bank account would normally be necessary and the partnership can sign leases and other contracts in its name. People who interact with your business need not know what the arrangement is and are basically not bound by it. They are entitled to assume that each of the general partners granted the others full power to bind the business by his or her actions and accordingly can assert business claims against each partner to the extent of all the assets. This broad exposure to potential liability may be the biggest reason to avoid a general partnership. All the profits and losses are reflected in a partnership income tax return, but the partnership pays no taxes itself: instead its results are picked up by each partner on IRS Form 1040 according to the partnership agreement.

Limited Partnership

If some partners do not want to expose all their personal assets to the business risks and a centralized management is desired, a Limited Partnership should be considered. The

partnership agreement must be registered with the State to put others on notice that this entity has limitations on the powers and liabilities of the partners as specified. There must be at least one General Partner who has the most power and who remains at risk for all his or her personal assets. But the limited partners only risk the assets they invest in the business. Outsiders cannot execute judgments against the partnership and touch their personal property.

Subchapter “C” Corporation

A corporate entity can be created under state laws; it can operate a business apart from

the owners. It can raise money from shareholders and lenders without subjecting them to business risks beyond what they choose to invest in the business. The Directors and Officers run the business. Its earnings are its own; it pays income taxes on the earnings and preserves tax losses for use against income in future years. It can choose to pay a dividend to the shareholders, who may then be subject to personal income tax on that income. Incorporations are handled by the Secretary of State’s office.

Subchapter “S” Corporation

Where the advantages of a Subchapter C Corporation are needed but the separate taxable entity consequences are undesirable, a Subchapter S election can be filed with the IRS to have the shareholders agree to be taxed directly on the profits instead of the corporation. A tax return is prepared but all losses or profits are “distributed” to the shareholders according to their relative interests.

Limited Liability Company (LLC)

This may be the preferred choice for a smaller or new enterprise where a shield from personal liability is desired but the tax disadvantages and complications of corporations are to be avoided. If there is more than one “member” an operating agreement should be executed to define the relationship in order to avoid the default provisions that may be otherwise applicable.

Limited Liability Partnership (LLP)

This is the type of partnership, recognized in a majority of states, which protects a partner from personal liability for negligent acts committed by other partners or by employees not under his or her direct control. Many states restrict this type partnership to professionals, such as lawyers, accountants, architects and healthcare providers.

Entity Advantages Disadvantages
Sole Proprietorship

Easy to establish

All profits retained by owner

Low start-up costs

Tax efficiency

Easy to terminate

Unlimited liability

Difficult to raise capital

Limited continuity dependent on owner’s health

General Partnership

Easy to establish

Larger pool of expertise and funds

Tax efficiency

Unlimited liability for all general partners

Divided authority

Difficult to dispose of ownership

Limited life

Limited Partnership

Easier to establish than Corporation

Can raise funds easier from partners

Tax efficiency

General partner’s assets exposed

Difficult ownership transferability

Limited life

Subchapter “C” Corporation

Limited Liability

Often easier to raise capital

Transferable Ownership

Unlimited Life

Greater government regulation

More record keeping and filings

More organizational expense

Double taxation of profits

No flow-through of losses to shareholders

Subchapter “S” Corporation

Limited Liability

Avoids double taxation

Losses are available to shareholders

Greater government regulation

More record keeping and filings

Some restrictions (Number of Shareholders, US residency, other ownership restrictions)

Some taxable fringe benefits

Limited Liability Company (LLC)

Limited Liability

Tax flow-through

Less start-up costs

Less formal

No restrictions on memberships

Ownership transfer more difficult

Each state may have own style

Limited Liability Partnership

Limited Liability, also for negligent acts of partners or employees

Tax flow-through

Restricted to Professionals (lawyers, accountants, architects in CA – check with Secretary of State for other States’ limitations)


Nonprofit Corporation

Where the purpose of the activity is to operate for the benefit of the public good, and not to make a profit to be distributed to shareholders, a nonprofit corporation is probably the best form. This field is heavily regulated by the State as well as the Internal Revenue Service and nonprofits are somewhat difficult to establish.

Copyright

If you have an original work of authorship including literary dramatic, musical, artistic, and certain other intellectual works, you can register it with The U.S. Copyright Office. You can then assert in court your exclusive rights to the material against the unauthorized use by others.

For general information contact the U.S. Copyright Office - www.copyright.gov.

Trademark

The U.S. Patent and Trademark Office defines it as follows:

“A trademark is a word, name symbol or device that is used in trade with goods to indicate the source of the goods and to distinguish them from the goods of others. A service mark is the same as a trademark except that it identifies and distinguishes the source of a service rather than a product.

To register a trademark contact the U.S. Patent and Trademark Office – www.uspto.gov.

Patent

If you have a new and unique idea for a product or process you may want to consider getting it patented.

A patent for an invention is the grant of property right to the inventor, issued by the United States Patent and Trademark Office. Generally the term of a new patent is 20 years from the date on which the application for the patent was filed in the United States, or in special cases, from the date an earlier application was filed. To obtain similar rights elsewhere you would have to file in foreign jurisdictions. While it may be attractive to get a patent you should realize it is usually a drawn out and expensive process. Further the rights you own are only as valuable as your willingness and ability to fund an infringement lawsuit. Yet, in addition to marketing benefits, having a patent may make your business more valuable to banks and possible acquirers

For a patent, contact the U.S. Patent and Trademark Office – uspto.gov.

Resources and links

Organization Website Comments
Your local Bar Association Referral to Lawyers with specific expertise
FindLaw Findlaw.com Legal information, free lawyer profiles, Legal Forms $$
The Advice Company Freeadvice.com Find an attorney, post your case, ask a question, get legal forms and documents ($$)

NOLO Press

950 Parker St.

Berkeley, CA 94710

Nolo.com

Tel. 1-800-728-3555

Free information about legal matters of small businesses, Self-help books
Your State’s Secretary of State (or appl. Dept.) Registering a separate legal entity, Filing requirements, name availability, status requests, copies, certificates
The Company Corp. Corporate.com Forms new corporations, LLCs, serves as registered agent, offers corporate kits $$
MyCorporation Mycorporation.com On-line incorporations, LLCs, Trademark searches $$


This was extracted from East Bay SCORE’s "How to Start and Manage Your Small Business." The full reference manual can be
downloaded by clicking here.

East Bay SCORE, a resource partner of the U.S. Small Business Administration, provides free business counseling and low-cost workshops at multiple locations in Alameda, Contra Costa and Solano Counties.  For more information, and to use our services, see our website (www.eastbayscore.org), email us at This email address is being protected from spambots. You need JavaScript enabled to view it., or call our office at 510-273-6611.               

*This blog is intended to provide information to support startups and existing small businesses.  A sincere effort is made to ensure accuracy, but no warranty, express or implied, is provided in that regard and East Bay SCORE and the author will not be liable for any errors or omissions in this blog.

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Sunday, 14 May 2017 09:06

Business Personnel (Blog 6)

Blog 6 image Business Personnel FreeBookButton 

*The following information was taken from East Bay SCORE’s manual, “How to Start and Manage Your Small Business”. All references lead to the full copy of the guide which is free to download.

Business Personnel

Overview

In almost all businesses, people (including you) will be a key factor in the success of the business. Not only will people do the work of organizing and operating the business, people will normally interface, or set up the interface, with your customers. It will be the customers and their level of satisfaction, which will determine the success of the business.

At start-up, you may be the only person actually in your business, but you will be dealing with many people to get it started – Regulators, Planners, Accountants, perhaps Lawyers, and of course, customers.

As you progress, your business may need more people. In this Chapter, we will deal with obtaining more good people involved in your business, in these categories:

  • Employees
  • Independent Contractors
  • Outside Advisors

Employees

Finding and keeping excellent employees is one of the most important things an owner must do. This involves:

  • Attracting qualified applicants – After specifying the qualifications, skills, and experience of the employee you seek, you need to attract a group of qualified candidates. This might include bulletin board postings, newspaper & magazine classified advertisements, and Internet help-wanted postings.
  • Interviewing and hiring the best candidate – It takes time and effort to screen and interview the qualified candidates and select the best one. Some employers use a 30- to 90-day probationary period during which the employee can be discharged for any reason. After the probationary period the employee can still be terminated “at will” in most States, but good practices normally call for warnings and other remedial steps prior to termination.
  • Orienting and training the new employee – Once selected, the new employee should be familiarized with the company, the workplace, the employees, and the job expectations. This can include classroom instruction and a period of on-the-job training.
  • Selecting the optimum compensation package – This includes determination of whether the employee is paid on an hourly or salaried basis, the pay rate, the pay period, and what fringe benefits apply. Data is available from Trade Associations and on the Internet to give you competitive area averages. Payrolls are often outsourced to banks or other payroll service providers for reliability, accuracy, and to free up the entrepreneur’s time and resources.
  • Maintaining good personnel practices – Writing a Personnel Manual is recommended to specify all the elements of good Personnel Practice, such as probationary period rules, work hours, overtime policy, severance pay, performance reviews, benefit programs, holidays, vacation policy, personal time policy, disability policy, discipline policy, grievance procedures, personal use of company property, safety rules, coffee breaks, retirement, expense reimbursement, and many other topics. Publishers such as Nolo Press offer self-help books, which can help you write a Personnel Manual.
  • Evaluating performance, promoting the good, and terminating the bad employees – A systematic procedure to evaluate work performance is important. Input from several persons and use of a written evaluation reduces charges of favoritism. Good evaluations normally result in pay increases, while bad evaluations result in verbal and written warnings, and terminations.
  • Complying with current employment law – All of these personnel actions should be done in conformance with current employment law and State and Federal Employment Regulations to lessen the risk of employee lawsuits. Retaining an employment lawyer might be helpful.

Doing all these things well is difficult, if not impossible, for a small business. Some of these steps require the services of a trained HR specialist. So many risks exist of becoming a defendant in a lawsuit that knowledge of employment law is also desirable. For these reasons, small and newly started businesses can evaluate several other ways of employing persons:

  • Using a Temporary Employment Agency (Temp Agency) is one alternative. These companies (like ManpowerGroup, Kelly Services, etc.) do the screening, recruiting, and employment of qualified employees and rent them out at an hourly rate, usually billed weekly or monthly. The small business pays a higher hourly rate but saves the employment costs, and can terminate a “temp” on short notice without risk of unlawful activity. If the business wants to hire a “temp” permanently, a fee is paid to the Agency. Some companies use temp agencies as a “recruiting department”, obtaining employees, evaluating them for a “probationary” period, and then hiring or terminating them.
  • Using a Professional Employer Organization (PEO) is another option for a small business. The PEO acts like an outsourced Human Resources Department. The business does the screening, recruiting, and then has the PEO place the selected employee on its payroll at a pay rate and fringe package to be agreed on. The PEO bills the business for cost plus profit. This method can be used for all levels of employees, including management. To find a PEO, visit the website of the Trade Organization: www.napeo.org.

Independent Contractors

If the law allows, a small business can obtain its people by using Independent Contractors (IC’s). Using IC’s allows the business owner to avoid the time and money spent complying with labor laws.

It is important for the business owner to correctly categorize the person. If a person who has been providing services as an IC is later ruled to be an Employee, the business owner may be liable for back taxes, benefits, costs, and penalties.

Several Government Agencies have an interest in determining whether a person is an employee or an IC, especially the IRS, EDD, US Labor Dept, and the Workers Compensation Commission. Although no exact laws exist, IRS has developed Common Law Rules (Refer to IRS Publ. 15-A, rev. January, 2005) to determine if a person is truly an IC. The following comparison should help you make the distinction:

Item Employees Independent Contractors
Behavioral Control
1 Get detailed instructions on how to do the work Get specifications on the required outcome
2 Are told when and where to work Set their own schedule and location
3 Are provided tools and equipment and told what to use Use their own tools and equipment at their discretion
4 Are told what workers to hire or assist with the work Choose their workers, hire, and fire them as they see fit.
5 Are told where to purchase supplies and services Select their sources as they see fit
6 Are told what work it to be done by a specific individual Handle their own work assignments, can delegate to others
7 Are told what order or sequence to follow Set their own order or sequence
8 Are controlled in the performance of their work Their actual outcome is controlled
9 Are trained to perform services in a particular manner Use their own methods of training

 

Item Employees Independent Contractors
Financial Control
10 Are generally reimbursed for their expenses Are responsible for their own expenses
11 Are not investing in their business operation Have a significant investment in their business operation
12 Have a fixed relationship with generally one employer Seek out business opportunities, advertise, available to work for others in the relevant market
13 Are paid a regular wage for hourly, weekly, monthly, or other time period Are paid a fixed amount by the job or contract; some professions may be paid by the hour (lawyers, consultants)
14 Are not subject to profit and loss Can make a profit or loss

 

Item Employees Independent Contractors
Type of Relationship
15 Have agreements defining hours of work, duties, reporting relationships, etc. Have contracts defining the required outcome
16 Are provided employee-type benefits, e.g. vacation pay, sick pay, insurance, pension plan Do not have such benefits
17 Are hired for indefinite period of time Are retained for a specific job or period of time
18 Perform key aspects of the regular business activity, with direction and control by the company Are retained for aspects of the business not performed routinely by other employees of the company


Outside Advisors

Other people that will influence the success of a business are the outside advisors that the business owner uses. These might include:

  • Accountants – It is important to file accurate tax and legal returns, and to have good accounting data monthly or quarterly on which to run the company. Depending on the accounting expertise of the owner, it might be wise to retain an accountant to set up the accounting system and prepare periodic reports, with the owner doing the day-today bookkeeping.
  • Lawyers – To protect the business against future legal problems, it is wise to set up a legally correct enterprise and have a lawyer review important working forms and contracts. A shortcut to save cost would be to use the self-help books from publishers like Nolo Press, but there will be a risk that the legal framework is not as good as it can be when faced with a suit.
  • Engineers – Consulting engineers and architects may be needed to build or improve facilities and equipment layouts in the most efficient way possible.
  • Insurance Brokers – To cover the business against major risk, it is important to find a Business Insurance Broker. The company risk profile can be developed with the Broker, who then puts the proposal out to bid among several insurance companies, and presents the business owner with recommendations.
  • Sources of Funds / Bankers / Lenders – If the business needs outside capital, it is important to find and nurture sources of invested or loaned funds.
  • SCORE Counselors – SCORE provides a source of expert advice from experienced volunteer business persons at no cost.
  • Consultants – There are a wide variety of consultants available in almost any area of expertise, including Marketing, Supply Chain, Finance, Human Resources, Purchasing, Organizational Development, Strategic Planning, etc.
  • Advisory Boards – To provide experienced advice and counsel on general business matters, it is often wise to recruit and establish an Advisory Board, which meets quarterly to evaluate and plan company operations.

It takes time and effort to choose the persons who will become your outside advisors. Here are some generalizations that might be helpful in the process of choosing:

  • Determine which skills you need, put your requirements in writing, and review several candidates
  • Make sure the advisor is familiar with your industry and business, or at least with operating a business like yours 
  • Look at the depth of experience
  • After preparation, interview the candidate to see if the fit will be right
  • Obtain and check references
  • Make sure you are comfortable with the candidate
  • Discuss the fee structure. (Advisory Board Members may appreciate some recognition)
  • Once selected, keep them informed periodically and prepare for all meetings.
  • Evaluate performance quarterly and replace those who are not productive.

Resources and links:

Subject Organization Website/Tel. Comments
HR Insperity (formerly Administaff) Insperity.com Extensive HR Power Tools Library $$
Professional Employer Services National Association of Professional Employer Organizations Napeo.org Find local PEOs
Job Postings Monster Worldwide, Inc. Monster.com Job Postings, Job searches, $$ for higher service level
Craig Newmark Craigslist.com Job Postings ($$), otherwise free community information
Personnel Manual

Nolo Press

950 Parker St.

Berkeley, CA 94710

Nolo.com

Tel. 800-728-3555

Self-help books, free information about legal matters of small businesses
Your State’s EDD


This was extracted from East Bay SCORE’s "How to Start and Manage Your Small Business." The full reference manual can be 
downloaded by clicking here.

East Bay SCORE, a resource partner of the U.S. Small Business Administration, provides free business counseling and low-cost workshops at multiple locations in Alameda, Contra Costa and Solano Counties.  For more information, and to use our services, see our website (www.eastbayscore.org), email us at This email address is being protected from spambots. You need JavaScript enabled to view it., or call our office at 510-273-6611.               

*This blog is intended to provide information to support startups and existing small businesses.  A sincere effort is made to ensure accuracy, but no warranty, express or implied, is provided in that regard and East Bay SCORE and the author will not be liable for any errors or omissions in this blog.

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Blog 5 image Regulation Requirements at the Local State and Federal Levels

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*The following information was taken from East Bay SCORE’s manual, “How to Start and Manage Your Small Business”. All references lead to the full copy of the guide which is free to download.

Regulation Requirements at the Local, State, and Federal Levels

Overview

There are numerous federal, state and local regulations that affect every business. Up front and before you do anything else, take time to research the applicable regulations and build your business so that it will be in compliance from Day One. Below is a checklist of the most common requirements that affect small business, but it is by no means all-inclusive. Bear in mind that regulations vary by industry. If you are in the food business, you will have to deal with the health department. If you use chemical solvents, you will have environmental compliances to meet, and so on. Being out of compliance in any aspect of your business:

  • Could leave you unprotected legally
  • Might lead to expensive penalties
  • May jeopardize your business

Business Formation

One of the first decisions you have to make is the legal structure of your business. The choice is influenced by the type of your business, tax considerations, state regulations, sharing of ownership, and your need to limit your liability as a business owner. For more information please refer to Chapter 5 – Legal Aspects.

Here is a list of the most common legal structures of business organizations:

  • Sole Proprietorship
  • General Partnership
  • Limited Partnership
  • Limited Liability Partnership – LLP
  • Limited Liability Company – LLC
  • Subchapter “S” Corporation
  • Subchapter “C” Corporation

Business Licenses

To operate a business you will require various types of licenses and permits from the City/Town and/or the County the business is going to be located in, as well as State, Federal and Professional licenses.

You can also contact your City’s Finance or Planning Department, or, if you are locating in an unincorporated area, your county’s Treasurer or Business License office. Most communities have their application forms and license fees available from their websites.

Fictitious Business Name

If you plan to conduct your business under a fictitious name, you must file a DBA (doing

business as) or Fictitious Name Statement with the County Clerk/Recorder in the county in which your business is going to be located. A fictitious name is any business name that does not contain your full legal name. Some counties require filing a DBA even if you are using your legal name. The purpose of this filing is to avoid confusion with other business names and to let the public know who is behind a business. The County will require that the proposed name be published in four consecutive issues of a newspaper in the county where your business will be located. During this time anyone can challenge your right to do business under that name. There is a publication fee collected by the county at time of filing. If no objections are raised you will be notified and can use your DBA.

Building Codes, Permits & Zoning

When choosing a site for your business, it is essential to check out the zoning regulations for that location. For example, you may not be allowed to conduct certain types of businesses out of your home or engage in certain industrial activities in a retail district. Contact the planning department in the town/city in which the business is going to be located.

Workers Compensation & Disability Insurance

You are required to carry Worker’s Compensation insurance if you have employees. If an

employee is injured on the job, this insurance will cover his or her medical bills and any

potential disability compensation, for which you would otherwise be liable. You can obtain a policy from many private insurance companies as well as the California Department of Industrial Relations – Division of Worker’s Compensation. For more information, refer to Chapter 8 – Risk Management.

Federal Taxes – For more information, refer to Chapter 11 – Business Taxes.

  • Federal Income Tax

To report the income from your business you must file once a year with the Internal

Revenue Service an Income Tax Return. If your annual tax is estimated to be $1000 and up you also have to make estimated tax payments every quarter.

  • Federal Self-Employment Tax

Self-employment tax (SE) is the Social Security and Medicare tax for individuals who

work for themselves.

  • Employer Identification Number

If you have employees, you must obtain a federal Employer (Taxpayer) Identification Number (EIN), from the IRS.

  • Federal Employment Tax

Federal law requires you, as an employer, to withhold, report, and pay over to the

federal government certain deductions from your employees’ wages.

You must also report, and pay as an employer, a matching contribution to Social

Security and Medicare Tax (FICA).

  • Federal Unemployment Tax (FUTA)

This tax is used to administer your state’s unemployment programs.

State Taxes – For more information, refer to Chapter 11 – Business Taxes

  • State Income Tax

If your business is based in a state which has an income tax you must report the income from your business on the state income tax return to the appropriate state offices and pay the applicable tax.

  • State Employment Tax

In most states, if you have employees, you have to register with the Employment

Development Department (EDD).

You must withhold, report and pay applicable employment taxes to the EDD, e.g.

  • State Disability Insurance
  • State Personal Income Tax

You must also report and pay other employment taxes, where applicable, to the EDD, e.g.

  • Unemployment Insurance
  • State Sales Tax

If your business is based in a state which has a sales tax you need to get a sellers permit from the appropriate State Board and collect the sales tax due on all taxable items. You must report to the state the amount of taxes due on the sales recorded (regardless of whether you collected them or not) and submit payments. The seller’s permit allows you to purchase inventory for resale from suppliers without paying sales tax.

U.S. Citizenship and Immigration Services (USCIS)

The Federal Immigration Reform and Control Act of 1986 requires that all employers determine the employment eligibility of new employees (citizens and non-citizens). The law obligates an employer to process Employment Eligibility Verification Form I-9. The employer must keep the completed forms for three years after the date of hire or one year after the employee is terminated, whichever is later, and have it available for inspection. For details visit uscis.gov.

Workplace Program

The Americans with Disabilities Act (ADA) is a Federal civil rights law that prohibits

discrimination against people with disabilities. Your business must comply with the ADA

requirements. Contact the U.S. Department of Justice for ADA information –

usdoj.gov/crt/ada/adahom1.htm.

Safety & Health Regulations

All Businesses are required to comply with state and federal regulations regarding the

protection of employees. The Occupational Safety and Health Administration (OSHA) outlines specific health and safety standards adopted by the U.S. Department of Labor. Contact OSHA for specifics – osha.gov.

Hazardous Substance Compliance

If your business uses hazardous substances, you must determine the local regulations and make certain that you comply to avoid heavy fines.

Bar Coding

Many stores require bar coding on the packaged goods they sell. The Uniform Code Council Inc. (not a government agency) assigns a manufacturer’s ID code for the purposes of bar coding. For additional information contact the Uniform Code Council Inc. – uc-council.org.

Use this schedule to record all the licenses, permits and all regulatory requirements for your business for the location you are planning to start in and your cost for the plan years.

Do not include taxes covered in chapter 11.

Organization Type of Cost Amounts due in
Pre-startup Year 1 Year 2 Year 3
Overall Total

Fictitious Business Name Filing

Most state laws require that every person, partnership, corporation, or other association, who regularly transacts business in the State for profit under a fictitious business name, shall file a statement with the County Clerk. Corporate entities are required to file if the name they use is different from the one registered with the State.

Before settling on the name for your business check with your county clerk and your secretary of state to make sure it is not already in use by another entity.

County Address Contact Information

This was extracted from East Bay SCORE’s "How to Start and Manage Your Small Business." The full reference manual can be downloaded by clicking here.

East Bay SCORE, a resource partner of the U.S. Small Business Administration, provides free business counseling and low-cost workshops at multiple locations in Alameda, Contra Costa and Solano Counties.  For more information, and to use our services, see our website (www.eastbayscore.org), email us at This email address is being protected from spambots. You need JavaScript enabled to view it., or call our office at 510-273-6611.

               

*This blog is intended to provide information to support startups and existing small businesses.  A sincere effort is made to ensure accuracy, but no warranty, express or implied, is provided in that regard and East Bay SCORE and the author will not be liable for any errors or omissions in this blog.

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Tuesday, 02 May 2017 08:20

Completing a Self-Assessment (Blog 4)

 

Blog 4 image Completing a Self Assessment

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*The following information was taken from East Bay SCORE’s manual, “How to Start and Manage Your Small Business”. All references lead to the full copy of the guide which is free to download.

Completing a Self-Assessment

Overview

Each year there are more than 800,000 small business start-ups in the United States and only 40% will survive their first six years*.

With more and more workers being impacted by downsizing and outsourcing of jobs in large businesses, people desiring more independence and a more flexible workplace and environment, self-employment has become increasingly attractive as an alternative to traditional employment. As most experts will tell you, it is the primary option of choice for risk takers.

Because owning and operating a small business is risky, those who are not prepared for the demands on time, effort, and skill that are inherent in operating a business are likely to be facing an almost impossible task.

You also need to understand the difference between an idea and a business opportunity. An idea is a concept that may not have a market. A business opportunity is a market-driven, profitable venture.

We begin this workbook at exactly the same point you should begin the process of exploring self-employment by determining if you have what it takes to successfully start and operate a business of your own.

Self-Assessment Test

Starting a business is risky at best, but your chances of making it will be better if you first understand whether you have what it takes. Below are some questions to help you evaluate whether you do.

Questions to Ask Yourself

1. Are you a self-starter?

____ I do things on my own. No one has to tell me to get going.

____ If someone gets me started, I keep going all right.

____ Easy does it. I don't put myself out until I have to.

2. How do you feel about other people?

____ I like people and can get along with just about anyone.

____ I have plenty of friends and don't need anyone else.

____ Most people irritate me.

3. Can you lead others?

____ I can get most people to go along when I start something.

____ I can give the orders if someone tells me what we should do.

____ I let someone else get things moving; then I go along if I feel like it.

4. Can you take responsibility?

____ I like to take charge of things and see them through.

____ I'll take over if I have to, but I would rather let someone else be responsible.

____ There is always some eager beaver around wanting to show how smart he/she is. I say let 'em.

5. How good an organizer are you?

____ I like to have a plan before I start. I am usually the one to get things lined up.

____ I do all right unless things get too confused; then I quit.

____ I get all set and then something comes along and presents too many problems. So I just take things as they come.

6. How good a worker are you?

____ I can keep going as long as I need to. I don't mind working hard for something I want.

____ I will work hard for a while, but when I have had enough, that's it.

____ I can't see that hard work gets you anywhere.

7. Can you make decisions?

____ I can make up my mind in a hurry if I have to. It usually turns out okay too.

____ I can if I have plenty of time. If I have to make up my mind fast, I think later that I should have decided the other way.

____ I don't like to be the one to decide things.

8. Can people trust what you say?

____ You bet they can. I don't say things I don't mean.

____ I try to be on the level most of the time, but sometimes I say what is easiest.

____ Why bother if other people don't know the difference?

9. Can you stick with it?

____ If I make up my mind to do something, I don't let anything stop me.

____ I usually finish what I start - if it goes well.

____ If it doesn't go right immediately, I quit. Why beat my brains out?

10. How good is your health?

____ I never run down!

____ I have enough energy for most things I want to do.

____ I run out of energy sooner than most of my friends.

Now total the number of checks you have next to the first, second and third answers. If most of your checks are beside the first answers, you probably have what it takes to run a business. If not, you're likely to have more trouble than you can handle by yourself. Better find a partner who is strong on your weak points. If most of your checks are next to the third answers, even a good partner will not be able to shore you up.

Characteristics and Skills Necessary to Successfully Operate Your Business

The information in this section will provide you with an overview of those management aspects of a business in which you must achieve competency. The following are the business skills essential to successfully operate a business.

Personal Characteristics of a Successful Entrepreneur

• Has commitment, drive, energy to complete tasks

• Totally self-confident

• Reasonable risk taker

• Highly involved and innovative

• A goal setter

• Very competitive

• A money maker

• Has the ability to compete against self-imposed standards

• Has job and management skills or is willing to learn

• Can manage resources, finances, materials, people, technology

Analysis of Personal Situation

• Condition of health

• Currently employed or self-employed

• Source(s) of current income or cash flow

• Other potential source(s) of income

• Future job or employment prospects vs. own business

• Support of family

Analysis of Financial Situation

· Nature and extent of personal assets

· Business or personal debts

· Possible outside assets/funds for a loan retirement

· How much is needed to cover personal needs

· Has a personal budget been developed

· Determination of net worth

The following are the basic business skills considered to be essential to successfully operate and manage a business.

I. Managing Money

A. Ability to borrow money

B. Record keeping

C. Purchasing

D. Handling credit

E. Budgeting

II. Managing People

A. Hiring employees

B. Supervising employees

C. Training employees

D. Evaluating employees

E. Motivating employees

F. Terminating employees

III. Directing Business Operations

A. Buying supplies, equipment, and merchandise

B. Managing inventory

C. Filling orders for products/services

D. Managing the facilities

E. Directing sales operation

1. Obtaining necessary sales to cover costs

2. Teaching others how to sell

3. Identifying customer/client needs

F. Marketing

1. Analyzing potential customers/clients

2. Establishing pricing for products/services

3. Advertising

4. Budgeting

IV. Setting Up the Business

A. Choosing location or site

B. Obtaining required licensing and permits

C. Determining initial inventory

D. Obtaining financing

E. Planning short- and long-term cash flow

F. Choosing type of ownership

G. Building a support system

1. Attorney

2. Accountant and/or bookkeeper

3. Lender (bank, financial institution, credit union, private investor, etc.)

4. Insurance broker

5. Industry or business association(s)
6. Networking group(s)

7. Counselor/consultant (SCORE, Marketing Consultant)

8. Business coach or mentor

This was extracted from East Bay SCORE’s "How to Start and Manage Your Small Business." The full reference manual can be downloaded by clicking here.

East Bay SCORE, a resource partner of the U.S. Small Business Administration, provides free business counseling and low-cost workshops at multiple locations in Alameda, Contra Costa and Solano Counties. For more information, and to use our services, see our website (www.eastbayscore.org), email us at This email address is being protected from spambots. You need JavaScript enabled to view it., or call our office at 510-273-6611.

*This blog is intended to provide information to support startups and existing small businesses. A sincere effort is made to ensure accuracy, but no warranty, express or implied, is provided in that regard and East Bay SCORE and the author will not be liable for any errors or omissions in this blog.

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Saturday, 11 March 2017 10:03

Writing the Business Plan (Part 2)

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Writing the Business Plan – Continued (Part 2)

*The following information was taken from East Bay SCORE’s manual, “How to Start and Manage Your Small Business”. All references lead to the full copy of the guide which is free to download.

Your Sales Forecast

Prepare a detailed sales forecast for three years. The first year should be by month, and subsequent years can be by quarter or year. If you have various products with varying margins, you need to show this breakdown. The SCORE templates listed under Resources below include a Sales Forecast schedule in the Financial Planning set of linked spreadsheets. Refer to chapter 10, Financial Statements, of this manual for a sample template.

You will be making assumptions as the sales forecast is probably the hardest part of the plan to prepare on a credible basis, and it will be tested by anyone who reads the plan. Showing a modest market share is one way. Knowing a lot about your market and its demographics is another. If you don’t force the sales number too high, you can be pleasantly surprised (and the lender too) when you exceed the forecast. Your growth from year to year should seem reasonable to you, and based on the fact that your advertising, promotion, and reputation are beginning to take hold.

Caution: Many new ventures tend to overestimate their sales volumes. You can make a lot of adjustments along the way in order to become profitable, but the least logical is to assume you can increase sales without either reducing margins or increasing expenses related to the promotion. Be very careful to make reasonable and verifiable sales assumptions as they are the lynchpin of your profit plan. The seven factors that can influence your sales numbers (both up and down):

  1. The characteristics of the product.
  2. Pricing (is the customer getting the value he expects?)
  3. Presentation (which includes your place of business, packaging, your service, and how you and your people are perceived by the marketplace) In essence, how satisfying the customer found the experience of dealing with your company to be.
  4. Suppliers (availability of product, cost, quality, reliability).
  5. Competition (including pricing, terms, discounts, giveaways, promotions, warranties, service levels, quality, special strengths, etc.)
  6. Seasonality
  7. External Issues (rise in interest rates, fires, floods, quakes, severe weather, power outages, etc).

Refer to chapter 6 – Marketing and Advertising - of the manual for additional help.

6. Operational Plan

At this point, you will discuss your business strategy which addresses “how you are going to do it”. You should include in this section the following:

  • A description of the operation you need to put in place, including all the resources required to fulfill the sales forecasted in the previous chapter, including facility, equipment, manpower, technology, etc. and the cost of each.
  • An outline of your record keeping system. How are you planning to keep track of important business elements, such as sales, cash, payroll, purchases, expenditures, costs, inventories, taxes, etc. Your system will provide the data required for the monthly operating statements and data any lender will require.

7. Management and Organization

Describe your management team in detail.

This is the “who is going to do it” portion of the plan, and since experience is a prerequisite of most lenders and investors, be sure to emphasize the credibility of your team to handle the tasks ahead. You can include a brief profile of each of your staff, and put their detailed resumes in the Appendix at the end of the plan. If you are hiring some expertise in the form of consulting, mention that.

If you intend to have a board of directors, advisors, an accountant, tax advisor, consultants, etc. mention why they will be important to the plan.

Prepare an organization chart for your business, and display it in this space. Show who reports to whom, and who has responsibility for attaining specific portions of the planned objectives:

8. Financial Plan

This is the scorecard that measures the attainment of the financial projections contained in the plan. Clearly, you must be able to measure the results on an ongoing basis if comparisons are to be made. The Financial Plan contains the following components:

  • Income Statement (P& L) - for three years (Refer to chapter 10 for templates) A summarized version shows the following:

Every management decision you make (other than where to play golf, or how much to
contribute to a fund raiser or charity) will show up in either Sales, COGS or Operating
Expenses.

Examples:

  • If you raise prices, your sales volume will go up, and your margin % will go up.
  • If you reduce your inventory, sales can go down.
  • If inventory is sold at a discount, margins will go down, but fixed expenses can go down too if the cash was used to pay down a loan.
  • If you lower prices, sales will go down, as will margins.

Typical variable costs are: Prices paid for goods and services that go into your product, labor that goes into the product, commissions paid for attaining sales, inbound or outbound freight that you pay for, inventory shrinkage, scrap produced, waste or any outside service performed on the product (packaging, painting, etc).

Typical Fixed costs are: rent, utilities, insurance, advertising, promotional expenses, salaries, interest, supplies, phone, copier, fax, accounting services, professional fees and dues and subscriptions.

Break Even Analysis (Refer to chapter 10 for template)

It is crucial that you understand when your business will break even and not until then can you begin reducing debt. Only after that point will you begin to show profitability and any return on capital invested.

Break even is where your Gross Profit Dollars exactly cover your fixed costs. The
formula is:

Total Fixed Costs (in $$)
((100 – Total Variable Costs%)/100)

In the prior example, the fixed costs were $16,500 and the margin was 35%. The division would result in a break-even of $47,143.00. The company actually did $50,000 so it was able to make a profit. Sales over break even were $2,857.00; the margin over break even at 35% yielded the $1000.00 shown as profit before tax.)

In the prior example, the fixed costs were $16,500 and the margin was 35%. The division would result in a break-even of $47,143.00. The company actually did $50,000 so it was able to make a profit. Sales over break even were $2,857.00; the margin over break even at 35% yielded the $1000.00 shown as profit before tax.)

Show the break-even point for the following company: Larry’s Sign Shop

The projected Sales for the year are $240,000.00, Sign materials are $60,000.00, the hired man who builds signs makes $24,000.00, Rent is $21,600.00, Insurance, utilities and professional fees are $18,000.00, Freight to get sign material in and to ship it out are $9,600.00, Advertising and promotional costs are $26,400.00, the bookkeeper gets $24,000.00, the sales agent gets 5% commission on sales he brings in, which are half of the total.

Answer: The break even point is $153,840.00 in Sales. His sales above break even are $86,160.00 multiplied by a margin of 58.5% gives you a profit before tax of $50,400.00.

Cash flow analysis (Refer to chapter 10 for templates) will show you at any given time the cash available from which to run the business. It will help you explore whether your business idea is viable, and how much cash you might need from outsiders to sustain your business until you break even. While revenue generated is the greatest source for cash in an operating business, you can affect this number by closely controlling fixed expenditures, margins, getting paid on time by your customers, closely controlling your inventory, and getting favorable terms from suppliers.

Monthly cash flow is a function of beginning cash, plus cash in, minus cash out. Expenditures usually go toward variable cost of sales, fixed expenses, and any equipment, furniture, fixtures, or improvements you might need.

Cash, and the availability of cash are the life blood of your business. This scarce resource needs to be managed with great care.

Balance Sheet (refer to chapter 10 for template) will provide you with the worth of the business at a specific point in time. The “balance” occurs when you match assets (current assets, such as cash, receivables and inventory along with fixed assets, such as furniture, fixtures, equipment, leasehold improvements), against current liabilities (accounts payable, taxes payable) and long term liabilities (such as loans payable) and owners equity (paid in by owners, and retained earnings which are liabilities for the company as they are owed to others). You can determine the amount of equity you have in the business by constructing your balance sheet.

Start-up Expenses and Capitalization This listing should spell out what the funds you contribute and those from outside will be used for. If you are going to a bank for a loan, or to any other financing source, you will need to know exactly the amount you need, and what it will be used for. Each expenditure must be identified, and they must all relate to an enhancement of the business, such as inventories, advertising, management information systems, rolling stock, etc. You don’t want to leave the impression that you are going to recover the money you have already invested, or pay yourself for time expended on behalf of the company. You are off to a fresh start with a lender and the objective is to make the new venture profitable and meet loan commitments.

9. Appendices

Should contain those documents that will add credibility to yourself, your management team, and consequently to the enterprise as a whole. These items can be Resumes, Credit Reports, Tax Returns, Personal Financial Statements, Copies of licenses and legal documents, Letters of Intent from customers or suppliers, Research or back up data. Let your judgment be your guide. What you include can speak favorably on your behalf.

In closing, your plan need not be excessively long – perhaps 10 to 15 pages. The plan is your company’s representative. It can be customized for different audiences. Continue to re-write it as conditions change. Make it look professional, check spelling and grammar. Promote your people and their skills. Sell your idea and the value proposition in your product or service. Remember that a market “niche” that sets you apart from the competition has great appeal. Be logical, honest, and make sure that your “numbers” are consistent throughout and that there are no contradictions.

This is part 2 of a 2 part series and was extracted from East Bay SCORE’s "How to Start and Manage Your Small Business." The full reference manual can be downloaded by clicking here.

East Bay SCORE, a resource partner of the U.S. Small Business Administration, provides free business counseling and low-cost workshops at multiple locations in Alameda, Contra Costa and Solano Counties. For more information, and to use our services, see our website (www.eastbayscore.org), email us at This email address is being protected from spambots. You need JavaScript enabled to view it., or call our office at 510-273-6611.

*This blog is intended to provide information to support startups and existing small businesses. A sincere effort is made to ensure accuracy, but no warranty, express or implied, is provided in that regard and East Bay SCORE and the author will not be liable for any errors or omissions in this blog.

Monday, 06 March 2017 17:07

Writing the Business Plan (Part 1)

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Writing the Business Plan (Part 1)

*The following information was taken from East Bay SCORE’s manual, “How to Start and Manage Your Small Business”. All references lead to the full copy of the guide which is free to download.

The usual components of a business plan are:

1. Table of Contents

2. Executive Summary

This might be the most important part of your plan. It must grab the readers’ attention, and hold it so he/she will review the balance of the plan. The Executive Summary can be as short as one type written page, giving a good sense of what you intend to accomplish. It will identify the principals and key team members, as well as some of your strategies. To help in the preparation of the Executive Summary, (and it shouldn’t be finalized until the rest of the plan is) you should complete the following exercises:

Prepare a Mission Statement for your enterprise.

This will be a clear and concise representation of the enterprises purpose for existence. One or at the most two sentences are sufficient. It should be a building block for an overall corporate strategy and a guide in decision making. An example of a mission statement for a small sign company: “We will sell signing to small businesses and individuals; we will produce quality signs at a price lower than larger firms, and complete these signs in 24 hours or less, from a storefront location in a high traffic area”. The mission statement of Wal-Mart is “to give ordinary people the chance to buy the same things as rich people.” A small airline goes as follows: “AirCo will offer young businessmen cost-effective transportation services within our geographical area, focusing on courteous and on time service.”

Do a SWOT analysis around your business idea early in the planning process:

  • S for Strengths of the business,
  • W for Weakness inherent in the business (both controllable by management),
  • O for Opportunities you can identify,
  • T for Threats that you might foresee (both are external to direct control by management).

This will help you think through your strategies for attaining the profitability you want. It is good to address problems and seek solutions before they actually occur. Some, but not all of the analysis may go into the Executive Summary, but the thought process will reinforce strategies you express throughout the plan.

SWOT Examples:

  • Strengths: Technical competence, knowledgeable staff, financial resources, good knowledge of the market, excellent vendor relationships established, proximity to the market place, minimal competition in my market.
  • Weakness: Lack of management skills; no track record in this business; heavily dependent on one person; heavily dependent on one vendor; the best location for space was not available; market is very seasonal.
  • Opportunities: Growing market for the type of product I will provide; availability of skilled/knowledgeable workforce; large disposable income in proposed market; sales trend for my products has been increasing; possible availability to me of more desirable space in the near future; probable availability of a unique product that will increase revenue beyond that projected.
  • Threats: Economic downturn, new well financed competition, inflation, increasing cost of materials and labor, competition volume purchasing allows them lower costs; price cutting normal in this business; availability of growth capital; earth quakes.

Your Executive Summary will be a work in progress. You will find yourself revising it many times, or until it tells the story of your business in a way that will compel the reader to delve further into the business plan. You want to share the enthusiasm that you and your team have for the business.

3. General Company Description

Start with:

  • the Name of your business
  • the Mission Statement which you have already prepared and which says “what you want to do”.
  • the Location and physical plant, where your business will be located and why. There is nothing wrong with certain types of home-based businesses, but yours might require a special location. If it is retail, location can be the most important consideration of many. How will you determine the best location for you, and what effect will it have on the business, including costs and customers? Describe the area if it is important to the plan.
  • Determine and state your legal structure. Get advice from a lawyer, or a counselor. These decisions are usually based on personal vs. corporate liability,  and tax issues. Refer to Chapter 5, Legal Aspects, of this manual for more information.
  • Note in your plan that business name application, business licenses, resale permits, federal tax ID, import permits, where required, and any other requirements to “do business” have been, or are being addressed. Make sure that they will be in place at the proper time relative to your starting the business.

4. Products and Services

Describe here in more detail, and in a structured format, what you are offering and how you will provide it. Sourcing encompasses all issues relating to how you will attain the product or service you intend to sell. However be mindful that what any customer seeks from a vendor such as reliability, availability, on time service, rapid response times, high levels of quality and predictable costs can also apply to a service you are offering.

When outsourcing products, remember how important the relationship with your vendors can be. They can hurt you if quality or delivery times deteriorate, prices increase, or if they aren’t concerned with providing you competitive advantages. You should be able to look to your suppliers for new product ideas, for marketing help and perhaps advertising allowances, and maybe even help, if cash gets tight, by virtue of extending terms.

In your plan list sources for your primary products, and append copies of price quotations, if available. You need to seek a protected market to avoid that the same product does not appear within your marketing area through another channel. In the event some outside force affects your vendor, or your own relationship breaks down, what are your plans for a secondary source? You don’t want to promote and advertise a product that you can’t get. Try to reach an agreement on future price increases where timing can be important.

Go out of your way to establish a trusting and cordial relationship with all of your vendors. It will pay off for you in many ways.

5. Marketing Plan

This will normally be the largest section in you plan. Marketing is all business activity involved in the movement of product or services to the customer, and includes advertising, packaging, promotion, selling and pricing. You should include factual information about the following:

The Market

  • A detailed description of the product or service being offered (this should be easy for you because you know it better than anyone else). How does this satisfy a customers needs?
  • Who buys the product or service, and why do they need it?
  • What is the size of the market for your products? How did you determine market size? (Explore demographic data for your market, check competitive web sites, suppliers, trade shows, consumers, competitors, Census data, etc.). What is your target market (? What market growth is expected, and why?
  • What share of the market, as you have surveyed it, are you planning to attain in year 1, 2 and 3 (Lenders scowl at too much share, too soon)? Your share, even if static, will generate more revenue in a growth market.

Competition

Discuss the competition in some detail. If there is a compelling reason why you will not be adversely affected by competition (market exclusive, for example) discuss it here. Research the competition through the yellow pages, websites, Chambers of Commerce, Catalogues, Trade Shows, surveys, suppliers, and visit their locations.

Your competitive edge

  • Do you have a competitive edge, and are able to create demand for the product from you rather than a competitor who might have the same or similar product?
  • What are the unique aspects of your product that will create a market “niche” for you? Is there any reason why these advantages will not continue?
  • If there are any intellectual property or patent/copyright issues, discuss them.
  • If you are aware of pending improvements in your products (relating to cost, availability, marketability, or profitability), recognize them and when they might become available.

Your marketing and sales strategy

  • What is your pricing philosophy? How will it affect sales volume and margins? Explain, if you can, what the competitions’ pricing philosophy is. Provide good logic as to how you arrived at your selling prices.
  • Promotion relates to various activities and actions that will attract customers and consequently improve sales volume. You might attract them because of location, or pricing, or uniqueness of product, but beyond that you need to get to them so they will get to you. There are various means such as flyers, ads, websites, banners, mailings, sponsorships (ball teams), press write ups about the uniqueness of your business, etc. You should describe what your promotional plans are, and account for their costs in your budgeting. Explain how they will help your business, and why you have chosen one over another.
  • Location has been covered to some extent under the section on “The Company”, but if it will have a major effect on your marketing strategy, address it here in the context of marketing.
  • Selling is the art of converting a “looker” into a “buyer”. The promotion gets them to you, and then you have to sell them on the product or service. If there are any unusual aspects regarding your “selling” or sales philosophy, discuss them in the plan.

This is part 1 of a 2 part series and was extracted from East Bay SCORE’s "How to Start and Manage Your Small Business." The full reference manual can be downloaded by clicking here.

East Bay SCORE, a resource partner of the U.S. Small Business Administration, provides free business counseling and low-cost workshops at multiple locations in Alameda, Contra Costa and Solano Counties.  For more information, and to use our services, see our website (www.eastbayscore.org), email us at This email address is being protected from spambots. You need JavaScript enabled to view it., or call our office at 510-273-6611.            

*This blog is intended to provide information to support startups and existing small businesses.  A sincere effort is made to ensure accuracy, but no warranty, express or implied, is provided in that regard and East Bay SCORE and the author will not be liable for any errors or omissions in this blog.

 

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