Tag Archives: starting a business

Entrepreneurship, Starting a Business

Advice for Young Entrepreneurs

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Dear Young Entrepreneur,

Do you have a dream of owning your own business?

In my role as facilitator, I help women and men into self-employment. For the most part they are 30-something and older, and I often wonder how we might encourage more young people to get interested in business.

There are many reasons why young people would opt for a job over the uncertain world of entrepreneurship. Jobs can offer a steady paycheque and security, while business is risky and anything but a slam dunk. If you’re new on the job market and thinking about starting a business, here are a few points to consider.

  1. Risk your own money to get started, even if you’re fortunate enough to have loving grandparents willing to invest in your venture. Don’t rush into debt. Debt can drain the profit from a business. It tends to up a lot of the energy you could instead be using to serve customers.
  2. Start small and learn all you can while your business is tiny. The inexpensive lessons learned during the early stages will serve you well once your enterprise starts to grow.
  3. Learn how to manage money with the smaller amounts that filter through your life while you’re young. Good personal financial habits will be an advantage as you learn to manage your business.
  4. Save 10% of all the cash that flows through your bank account. Start as soon as you read this. Even a small amount of saving will improve a negative financial situation, almost immediately.
  5. Before jumping into a partnership, get to know the person or people you are teaming up with. A great partnership can serve you well, a bad one is sure to bring the business down. Have an exit plan going in.
  6. Be cautious about deals that look too good to be true. These tend to have a flavour of “get rich quick without breaking a sweat.” If a deal looks too good to be true, there’s a good chance it’s false.
  7. A business is a lot of hard work, if anything it’s a “get rich slow” plan. There are many reasons, beyond profit, to start a business—making a difference, pride in providing a great service in your community, lifestyle, and recognition for a job well done.
  8. Most of what you need to know to run a business, you probably learned in school— treat others fairly, say please and thank you, and smile—all essential business skills.
  9. If you’re risking any more than pocket change, write a business plan. It will help you learn about your venture and the industry around it. Be a learner.

It’s the start of 2012 and there are more business opportunities than ever before. A number of trends make this an ideal time to begin dabbling in the world of business. Demographics tell us that a large percentage of our aging workforce will soon be retiring, which will open up career and business opportunities right across the marketplace. Over the past decade, technology and the Internet have propelled us into the information age. These demographic and technological changes create an ongoing flow of new business opportunities for those with the vision to recognize them and the urge to take action.

Related Articles:

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Entrepreneurship, Starting a Business, Writing a Business Plan

Setting Prices for Products and Services

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Q: How do I know what my time is worth and how do I charge accordingly?

This is question I am often asked by new and aspiring business owners as they work their way through the writing of their business plan.

The matter of determining what to charge for your time is a personal one. Start-ups sometimes make one of two mistakes in this area: charging too much or not charging enough. The antidote for undercharging is to run a complete set of financial pro formas to ensure that your rates are sufficient to pay the operating expenses and be profitable.  The way to ward off both under- and overcharging is to research your competition, with attention to the rates they charge for similar services. With this in mind, here are a few things to keep in mind when setting your hourly rates (list is adapted from the Online Business Planner’s RoadMap Step 44: Present Prices and Pricing Strategy).

  1. How price sensitive are your customers? If price is a major purchasing consideration for your customers, you’ll have to toe the line. If price is less important than other factors (quality, speed of delivery, brand, etc.), you might have more latitude as to how much you charge per hour.
  2. Do your customers decide to buy based on price or on other characteristics such as quality, location, or convenience?
  3. What is the cost of producing your products or services? Your prices must include the cost of providing the service (cost of goods sold), plus operating expenses, plus profit.
  4. What are your competitors’ prices for similar products or services? Those buying your services are continually comparing with competitors; you don’t have to undercut everyone, but you do have to be in the ballpark!
  5. How many units do you have to sell in order to break-even or earn a profit? Break-even will be revealed when you complete the pro forma financials. You will want to ensure that you break-even early enough in the year to allow time to earn profit.
  6. What are the Industry standard mark-ups or margins for your product or service? Standards or norms should be evident from your research of competitors. In some cases mark-ups or margins might be controlled or influenced by suppliers.
  7. What discount rates will you offer for bulk purchases? Be sure your regular prices are set high enough to allow for any planned discounts, deals, or costs such as affiliate marketing.
  8. How much will your customer pay for your product or service? At the end of the day, your customers will vote with their money. In the start-up stage, you can survey to determine how much they say they will pay, but once in business you will know whether or not you are making sales, and adjust accordingly. For example, you can test different rates to see if price makes a difference in your conversion rates.
  9. What is the relationship of supply to demand? For example, if you use subcontractors to provide services, their rates might determine how much your prices must be. If your subcontractor’s rates don’t leave you enough margin, you might be faced with finding new subcontractors or increasing your rates.
  10. What are the consumer buying trends? For example, an overabundance of providers might means lower prices; a shortage of providers might mean more pricing headroom, at least for a while. In almost any market, more competitors will mean you have to have a sharper pencil when it comes to pricing.
  11. What is your level of risk? Higher risk should equate to higher profit margins. Lower risk might enable
  12. What is your desired profit margin? Depending on how badly you need to work and how necessary your services are – a well qualified and credentialed consultant who doesn’t need a lot of work might command higher prices as long as they get the amount of work they want.
  13. What are your personal and corporate financial goals? Other factors come into play on pricing, such as how much money you personally wish to earn, and what financial aspirations you have set for your business.

Welcome to the tightrope we all walk as entrepreneurs and business owners. Hope this helps you find your niche.

To get started on your pricing, download the free worksheet we’ve created for you #33 Pricing. Use the worksheet to establish prices for your products and services. You will likely employ all three methods: pricing to market, pricing to cost and break-even pricing.

View a complete list of all 66 RiskBuster Business Planning Worksheets here.

 

 

Writing a Business Plan

Nine Tips for Preparing Your Business Plan to Put Before a Money Lender

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By Dan Boudreau

There are many reasons to prepare a business plan, but the most popular is to get money to advance your business goals. At some point, most businesses will need to borrow money in order to grow. When that time comes, you’ll want to arm yourself with a bulletproof business plan.

Here are nine things you won’t want to miss as you ready your business plan to romance your lender.

  1. Describe Your Business. State your business vision and mission, and clarify how the business is structured, what you sell, and how it works. Weave these things together to create a snapshot of your current situation and be sure to tell why you need money and how much you need.
  2. Write Your Business Goals. Set goals for the term of the loan, including: sales targets, net profits, the number of units to be sold, new products or services, how you’ll diversify your business, and how many new clients you’ll add.
  3. List Your Customers. Describe your customers and the problem your business solves for them. Clarify who they are, what they want, and their main buying motives. A lender will want to know that you understand who you’re selling to.
  4. Describe Your Competitors. List your competitors and compare them according to the products or services they sell, how their facilities are arranged, how many workers they employ, and how long they have been in business. Explain how your business differs from the competition, and clarify why customers buy from you.
  5. Beef Up Your Biography. Provide a summary of your credentials and experience, including relevant academic, work, and business achievements. Feel free to toot your own horn by listing your strengths and successes—highlight your history of following through on your business plans and commitments.
  6. Plan Your Cash Flow. Cash flow is most easily created using a spreadsheet program. Determine the flow of cash into and out of your business—monthly for the term of the loan you hope to borrow, at a minimum for the first year. Key to your business plan, a cash flow forecast will clarify how much money you need to operate each month, as well as showing how you will pay back the borrowed funds.
  7. Project Your Income. While a cash flow projection shows how much money will be in the bank at the end of each month, pro forma income statements show whether or not your business is expected to be profitable in the future.
  8. Explain What You Need The Money For. In your business plan, show how you will use the borrowed funds. If you’re buying equipment, list the items and support your request with quotes. If you need an operating loan, your cash flow should show how much you need and when.
  9. Offer Security. Most small business owners will only be able to borrow against what they already own or can offer as security for the loan. Most often this means providing a personal guarantee and offering equity as security in the event you fail to make loan payments.

Finally, be prepared to invest a minimum of 20 to 50% of your own funds or equity into any venture or project for which you wish to borrow money. Lenders will want you to have enough skin in the game to ensure that you’re motivated to make payments and follow through on the promises made in your business plan.

Ready to get started on your business plan? We have free business planning and tools and resources for you. Visit our Tools page

Entrepreneurship, Self-Employment, Starting a Business

Keep Business and Personal Lives Apart

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personal_business_livesWhen it comes to owning a business, newbies often make the mistake of combining their business and personal affairs. As a business owner, it’s healthy to separate yourself from your business and treat your business as a separate entity.

A little investment of energy early on can bring huge dividends later in the life of your business. For example, set up a business bank account, rather than mixing your business and personal expenses – your accountant and bookkeeper will both be thankful. You will also enjoy the benefits: less confusion and lower accounting and bookkeeping costs, particularly when your friendly neighbourhood tax auditor comes knocking.

New owners have a tendency to dovetail their personal and business lives, usually in an effort to save a few dollars. I have done this in the past and it only leads to difficulty. Any savings quickly evaporated when it came to sorting out the mess later.

Think of your new business as a separate entity, like having a baby, building a house, or hatching an egg.

Here are some ways to separate your business from your personal life.

  1. Separate your personal time from your business time.
  2. Coach your customers to contact you during your business hours.
  3. Train your friends to contact you during personal hours.
  4. Consider yourself to be an employee of your business and pay yourself a wage.
  5. Open a business bank account, pay business expenses from that account and pay your personal expenses with your wages.
  6. Establish separate telephone and fax numbers for the business.
  7. Create a separate Internet and email presence for the business.
  8. If you’re home-based, create a separate space for the business and if possible, have a separate entrance for customers.
  9. Even if your business is a proprietorship for which the tax authorities view you and your business as the same entity, set-up your business with its own bookkeeping and accounting systems.

There are some great payoffs for separating your personal and business affairs. You will:

√      Know your personal and business expenses

√      Be more effective at calculating costs and setting prices

√      Find it easier to deal with auditors

√      Lower your bookkeeping and accounting costs

√      Be better prepared if you decide to sell the business or bring in a partner

√      Have more peace of mind

With much to gain and little to lose, I urge you to consider your business to be a separate entity from yourself.

Related Articles:

Reality Check: A Pre-Business Physical for Business Planners

Isolation Not Always the Entrepreneur’s Best Friend

Myths About Owning Your Own Business

Pros and Cons of Being Self Employed