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Business Fundamentals for Entrepreneurs

Having a great idea and the motivation to strike-out on your own is a good first step in pursing the feasibility of a business. However, it takes more than motivation and a great idea to get things started. This article will reveal some of the simplest considerations that most would-be business-owners overlook.

The very first thing that should not fall under consideration is venturing out on your own without the proper tools beyond the scope of a great idea. According to statistics provided by the Small Business Administration, over 90% of small businesses fail due to a lack of planning. How many times have you heard or witnessed individuals that sat up over a weekend and wrote a stellar business plan then headed out on Monday morning to seek funding or investors? Impatience is the second thing that needs management. So often “I am tired of working for someone else” is the premise for people to start a business. This frame of mind will almost ensure failure because this approach to business involves looking backwards at getting out of a bad situation.

There is a prevailing philosophy that has to evolve, “Not all people are cut-out to become business-owners”. This is a harsh reality to face in a country such as the United States that prides itself on autonomy and ownership. Starting a business requires a commitment that may or may not pay dividends quickly. The key threat to small businesses is the initial funding or start-up cost and therefore many under-capitalized ventures hit the markets and get that rude awakening.

Before spending your first dollar a best practice is to do your “free research” on the Internet and in public libraries. Read recently published academic studies on the industry in which you plan to pursue. It takes more than just knowing a certain aspect of the business being that your competition may be more well-versed about the industry as a whole. You may want to ask questions such as “What are the regulatory requirements to do business within that particular industry?” You may want to research about “systemic exposure” or how the rest of the economy could or would impact that industry during troubled financial times. It is also a good practice to review some of the strategies of other potential competitors during The Great Recession of 2008. How did the industry leaders survive jn respect to operational changes and sacrifices. It is understandable that this may take several days or even weeks to accomplish, but by applying the best practices initially you will have a clear understanding of what to expect during certain economic times.

It is essential to understand who are the industry leaders within your business channel and what makes them unique. There should be an emphasis on this because your branding and marketing could benefit from such a consideration. A distinguishing characteristic may be customer service, quality assurance, product branding, or even presentation. These may sound trivial, but think about if you were a retailer for mens apparel and you specifically wanted to appeal to young urban males under the age of thirty. Labels equals status in many of these communities so a nice logo on the item that is visible may assist in the popularity and purchase of your garments. Even though this may have more to do with marketing and brand positioning, this is a must have against the competition.

However, before we get to marketing and branding there are other things needing consideration such as your mind-set, ego, time-line, available start-up capital, and feasibility. After you have trolled through the data and information from your research, the next step is the feasibility study. It is suggested that you do this prior to writing a business plan. In this way you can quickly determine whether or not you can enter the particular market or not and if so, at what level. A common mistake for new business people is to envision competing with the industry leaders. This is an ideal way to go broke quickly. In stead, set more realistic goals for yourself and get the notion out of your head that the Internet is going to make your business global. Facebook and the other social networks became popular because they were free to the end-user first and while trying to figure out a way to capitalize or convert those users into revenue. This would be a bad business-model to follow. Think about your region and the local competition first to see how much it would cost for you company to operate for the first 3 to 5 years without constant revenue.

Again this will require more local research this time on your specific region and take not of the deviations between your first broader macro research and the more localized micro research. The deviation between those two areas may actually become the niche that needs filling. In this way you can actually have a specialized niche within the region and a hybrid on a larger scale. Now, you may ask yourself “Why?” Simply put, the goal is to avoid what others are already doing in the sense that giving a “Thankyou” to a customer in a better way that the competitor is not enough. Another temptation to avoid is the centric mind-set that the business and industry has to behave according to your own belief or philosophy. This strategy rarely works out in a positive way. You have seen these business owners that rarely listens to their customers and as a result they have a revolving door of both customers and employees and the business stagnates and does not grow.

Growth must have a major role in the definition of your business because that is the incentive to attract customers, employees, and even investors. As a potential business-owner you will have to cleanse your mind of working for a company and view your company as your tangible boss. This may sound counter intuitive, but the cascade is like this, the economy drives the consumer or businesses that drive behavior which drives your company which eventually drives you to make the right decisions to meet the demand.

So far you have done your research, and you know how much it will cost you to compete in your local market. The next thing is to consider your liabilities as it relates to the company. You may use this also to determine what form of business ownership will work for you. It is a good business practice to incorporate whenever possible and in some states there are differences in levels according to projected revenues. Incorporating also gives you more protection than a DBA or partnerships. At this point you will learn another strategy that many successful business-owners do, delegate tasks that require professional expertise to professionals with their fields. A good business attorney, accountant, and business consultant are essential for start-ups. This is a gap that many would-be business people fall through the cracks. Another benefits is that these professionals may also assist in giving information that may be crucial in developing a comprehensive business proposal. They can help with the work you have done to reflect the requirements needed.

In review, you have your research, feasibility study, chosen your business ownership type, adjusted your expectations, hired professionals that know the laws and regulations better than yourself and you are ready to get started on the business proposal. Not so fast, “Where are your customers?” You guessed it, marketing research needs to take place for the particular individuals or companies that will use your products and or services within your area or online. One question to ask yourself, “How much will it cost me to contact a potential customer before a sale is completed?” And secondly, you need to discover the best way to contact these people or businesses. The prevailing statistics are that radio advertising a person is a passive-listener and only hears about every fourth word, direct mail only about 9% responds. Signs and other ad-hoc methods vary and television may be expensive depending on stations and providers. This means that a considerable budget may need to exist in order to solicit business. Again, this is another area where many would-be business people fall off the wagon and failure is waiting to catch them.

There is not an exact science to forecasting revenues so the goal is to have a very plausible theory and approach to this process. Avoid the temptation of raising expectations too high as some did in the dot com era for instance and went broke. The increases in expected revenue should be modest and function on the Standard Rule of 10, meaning that expenses should never go over 10% of revenue. Now, there are some businesses with a lower profit margin at 50%, but that is akin to paying US$10 for every US$20 received in revenue. As you can see pricing strategies for your products and or services are important and trying to make profits off of volume only works for those entities with high capacity transactions. This is the reason why 99 Cent Stores do so well low inventory cost and high turn-over of products. As a foot-note the difficulty with starting a business with very low prices is that it usually attracts the cost-conscious customer who is rarely brand-loyal and will use a comparable competitor. You see this behavior in customer that may shop at Wal-Mart, but purchase other specific items at the 99 Cent Stores. The danger in depending on these cost-conscious customers is that when prices rise they usually leave. Therefore, your pricing model needs to be established as feasible to sustain the business based on the value-added customer that you can possibly up-sell items or services. This is essential to your company’s growth and expansion.

3 Reason You Should Use A Credit Union For Your Business Loan Needs

Most of the time, when business owners (new entrepreneurs or experienced proprietors) think about financing their businesses, they think about their local banks – which they should. After all, they drive by these organizations everyday and might even have an account or two with them.

But, there are times when these banks might not be the best options for landing a needed business loan – either because the bank does not offer the loan product your company needs or because (like most of us these days) you just do not qualify under their heighten standards.

However, that does not mean that you still cannot get the financing your business wants – from start up funding to growing an established business – from a local financial institution other than your bank.

Did you know that some local credit unions also offer business loans? And, do you know that if they don’t, they do offer other financing products that you can use to start or grow your business?

Credit Unions For Business Financing

If you can get a loan from your bank – great. You should start there. But, if you can’t, simply drive right over to your local credit union and see what loan programs they offer.

Not only do you stand a good chance of getting the capital you need but you might be able to do it cheaper and with a lot less hassle.

Let me explain: First let’s call these CU for simplicity.

CUs, when it comes to business financing, offer the following benefits:

1) Business Loans – Some CUs do provide true business loans – the same products that your local bank offers. And, there are more of them doing this then you think.

Further, in many cases, if the CU does make business loans they usually don’t have such high credit standards that other lenders do. CUs tend to focus more on how your business and their loan impact the community at large – not just their bottom line. Most CUs have lower credit score requirements, better debt ratio limits, lower overall collateral value levels and usually spend less effort on scrutinizing income and tax return information. Simply put, their business loans (the same products that banks and other business lenders offer) are easier to qualify for.

According to State Employees’ CU in Raleigh, NC, when talking about how they underwrite their loan products:

Our focus is not on profits, but on fair, quality service.

So, not only are there underwriting criteria easier to pass, but since they make their loan decisions locally, they tend to take more of your story into account – which only benefits you and your ability to get approved.

2) Personal Loans – while banks also offer personal loans, again, CUs have easier approval standards. And, they are more flexible in the products they offer – making their loans fit you and not the other way around.

Now, you might think that you don’t want a personal loan for your business. But, I am here to tell you that all loans, business, personal or otherwise, from banks, CU, or private lenders, are in fact all personal loans.

Here’s why. You apply for a business loan – the type of lender does not matter – and you jump through all the hoops required to qualify. They look at your revenue or income, they look at your current debt, they look at and valuate your collateral and in the end, they approve your request.

They tell you what your monthly payment will be, they tell you how they are going to attach a claim to your assets and then – here is the kicker – they make you sign a personal guarantee – even on a business loan.

And, it is this personal guarantee that washes away all that other stuff about business credit facilities. Because, if you or your business do not pay as agreed, that personal guarantee allows that lender – bank, CU, private lender – to come after your personal income and assets to make that loan whole – which is the very definition of a personal loan. The one single item that you are looking to avoid by getting a business loan – avoiding personal risk – is also the one single item you cannot avoid, no matter what type of loan you are requesting.

However, there is nothing that states that you cannot use the proceeds from a personal loan in or for your business.

Bottom line here for you is this: If you can’t get a business loan, look to the personal or consumer products CUs offers. Money is just money after all and CUs make getting your hands on that needed money (personal or business) easier.

3) Cheaper All The Way Around – As CUs are non-profit, they have lower application, origination and processing fees on their loan products. They have lower annual fees if any (say on lines of credit). And, they usually charge lower interest rates.

All items that do nothing but benefit you and your business. Why over pay when you don’t have too?

From MyCreditUnion.gov credit unions offer:

Fees and loan rates at credit unions are generally lower, while interest rates returned (dividends paid on deposits) are generally higher, than banks and other for-profit institutions. Credit unions are democratically operated by members, allowing account holders an equal say in how the credit union is operated, regardless of how much they have invested in the credit union.

Conclusion

As I have hoped to point out here, if you already have a relationship with a local bank, then by all means approach that bank for your business loan needs. But, if you don’t or if they turn you down, there is no reason that you cannot just drive right over to one of your local credit unions and see if they will say yes to your same request.

Credit unions offer a lot of benefits when it comes to business financing, namely being easier to qualify for. So, in the end, does it really matter where or what form your business loan come in? Money is just money after all.

How To Keep Your Business Startup Out Of The Red

According to Statistic Brain, 46% of businesses that fail do so because of the following reasons:

• Emotional pricing

• Living too high for the business

• Non payment of taxes

• No knowledge of pricing

• No experience of financing

• No experience of record-keeping.

All these factors have a huge bearing on a business’ cashflow. As a start-up, you must guard your cashflow jealously because it will determine if the business will sink or float. Here are some tips to help you manage your cashflow even better:

Limit Your Expenses

All things seem important when starting a business. It’s just like shopping for your first baby. You assume you will need everything that is sold at the baby store – including the battery-operated mixing spoon (which you may never use). The startup stage is when you need to count your pennies to ensure you have enough cash to keep you afloat. Limit your expenses and only buy what is needful. Do not splash out, anticipating the customers you will get along the way. You may also have to defer your salary for a few months until your business starts to generate a healthy profit.

Find a Bridge

There is nothing wrong in keeping your day job or finding a part time role when you start your business. Having a separate source of income in the initial start-up stage will take pressure off your business and eliminate the desperation. When business owners become desperate, they tend to cut corners, charge inappropriately and probably lose customers too. Avoid the feeling of helplessness in your business by ensuring you have funds available to take care of the first few months. When you start to generate a steady income for your business, you can quit the job and focus on your business on a full-time basis.

Be Realistic

You need to be realistic about your business goals. We all start with a high dose of hope that our businesses will do well. Many businesses do succeed, yours can too as long as you put hard work and effort into making it a success. When you enter the market, do remember that the other brands are not going to lie down and play dead. Your product might become the best seller in a few months – but plan your cash flow to take account of when the money has not started rolling in.

Keep Good Records

Be conversant of what goes in and out of your business bank account if you have one. If you do not have one, do get a bank account for business use. It is much easier to manage your business transactions if all your income and expenses are from a single-use account. Do not mix your home expenses with your business ones – it can be chaotic when you need to reconcile your accounts at year-end.

Credit Control

Manage your invoices effectively. Clearly specify your payment terms to your clients. If you sell products that are paid for before checkout, that is great. But if you provide services or supply on credit, you need to keep an eye on your invoices and outstanding payments. Follow up on late payers and ensure you step in early enough to recover your payments.

Plan Ahead

Before you subscribe to a monthly program, service and special offers be aware of your cash flow. Subscription fees are deducted on a monthly basis, whilst some are quarterly. Keep records of the payment dates and try to avoid the deductions coinciding with salaries or big expenses days.

No one knows your business as much as you do, so you know where adjustments are required to ensure it stays sustainable. Staying on top of your cash flow and business expenses will help you create a business that is viable and successfully for years to come.