How to Choose the Right Business For You

Business IdeasIf you want to work for yourself, but don’t have a particular business in mind, you’re probably wondering what kind of business you should start. Fortunately, the answer is always the same: Start a venture you know intimately.

Know the ins and outs of the business

Don’t fall into the trap of starting a particular business just because someone tells you, “It’s a sure thing.” Potential customers will part with their hard-earned money only if you convince them that they’re getting their money’s worth, so you’ll need to know what you’re doing, no matter what the task.

Choosing a business you know

Starting a business in which you already have experience has many advantages. You can use your knowledge about the industry, your training and skills, and your network of contacts, who might help you find financing, suppliers and customers.

If you’re interested in turning something you know and love into a business, talk to people you have worked with about what it takes to run that kind of business. Learn all you can about start-up costs, overhead and expenses and how much revenue you can expect to make.  If you have several interests but aren’t sure which would make the best business, consider how you can translate your strengths, education and skills into business opportunities, and research the marketplace to see which types of business are presently needed in your area.

Starting a business in an unfamiliar industry

Unfortunately, the lure of quick profits convinces many people to start businesses in areas they know little or nothing about. This is a sure recipe for failure.  If you don’t know much about the business you want to start, but are set on it, be prepared to spend enough time learning it before you begin.

Research and Evaluate Your Business Idea

Here’s a step-by-step guide to evaluating whether you and your chosen business are a good fit.

  1. Try it out. Before you start a business of your own, get some experience in the industry or profession that interests you—even if you work for free. Learn everything you can about every aspect of the business. For example, if you want to start a pasta shop, but don’t know ravioli from cannelloni, go out and get a job with a pasta maker. After a few months, you should be an expert in every aspect of pasta prep, from mixing eggs and flour to flattening the dough and slicing it into strips.
  2. Talk to entrepreneurs in the same field. If you’re not familiar with the business you want to start and you’re unable to find work in the field, talk with others who provide the product or service that interests you. To increase your chances of getting interviews and reliable answers to your questions, it’s best to do this in a different locale from the one in which you plan to locate. Small business owners are often quite willing to share their knowledge once they are sure you will not compete with them.
  3. Evaluate whether you enjoy the work and excel at it. If not, find a new venture. It’s a lot harder to make a success of a business you don’t like, and it’s unlikely you’ll like something you’re not good at. If you enjoyed the work and determined you were skilled enough to base your own business on it, go on to the next step.
  4. Judge your ability and desire to handle every aspect of the business. If you don’t want to or can’t pitch in wherever and whenever something needs to be done—whether it involves manufacturing a product, dealing with customers or keeping the books—you should think twice about starting that kind of business.
  5. Determine whether the business has a solid chance of turning a profit. After working in the field for a few months, you should have a good idea of whether the business is a potential moneymaker. To be sure, you should analyze your market and conduct a break-even analysis, a preliminary financial projection that shows you the amount of revenue you’ll need to bring in to cover your expenses (this amount is called your break-even point). If you’re able to bring in more revenues than your break-even point, you’ll be in the black (that is, you’ll make a profit).
  6. Evaluate the risk this particular business requires. Even the best-laid plans can sour if you pick an unusually risky business. For instance, the following businesses have higher than average failure rates:
    • computer stores
    • laundries and dry cleaners
    • florists
    • used car dealerships
    • gas stations
    • trucking firms
    • restaurants
    • infant clothing stores
    • bakeries, and
    • grocery and meat stores

If your business idea is on this list, don’t despair—it doesn’t mean you should automatically abandon it. However, you’ll need to be more critical and careful with the numbers when preparing your business plan

SHOULD YOU HAVE A NONCOMPETE AGREEMENT?

To answer that question, a small business owner must ask three other questions first.

 

non-competitionNoncompete agreements—and lawsuits resulting from breaches of them—are becoming more prevalent in the workplace, according to The Wall Street Journal.

For employees looking to leave a corporation and launch their own business, these noncompete agreements can have a stifling effect on entrepreneurial spirit. But for small business owners who have already begun such endeavors, should they have noncompete agreements for their employees?

The agreements should put small business owners at ease knowing intimate knowledge of the business is safe from competitors, says business consultant and speaker Ron Hequet in Weatherford, Texas. To help determine if the need is there, ask yourself:

Will you be making a proprietary investment in your employees?

If you will be providing specialized training or confidential information that is not publicly available and is unique to your business, and if your business would suffer economically if a competitor used that training or information, consider a noncompete agreement, says Weatherford.  

Do your employees have access to proprietary information that could harm your business in the hands of a competitor?

Proprietary information—which is the property of the holder and is not public knowledge—could include historic/current financial data, sales records, operating data, budgetary profit and expense information, business plans, products, processes, technical documents, purchasing procedures, vendor information, pricing policies, employee pay rates, monetary bonus systems, existing/prospective customer lists and marketing strategies.

Do your employees establish close customer relationships?

If an employee has the ability to bring clients with him or her to a new company, consider a noncompete agreement, says lawyer Dianne G. Moretzsohn, who counsels small and midsize businesses on employment law and litigation.

Nina B. Ries, principal of Ries Law Group in Santa Monica, Calif., who has represented many small and midsize businesses in a variety of industries, recommends considering any potential pitfalls before making a final decision: state laws affecting enforceability, what you’ll do if an employee refuses to sign, whether a nondisclosure agreement might better suit your needs, and the potential effect on staff production, support, loyalty and morale.

10 Tactics for Dealing with Slow-Paying Accounts

past-dueTired of waiting for checks from certain customers? Some accounts seem to take eons to pay their bills. For small-business owners who rely on cash flow, this can be a real problem.

Here are 10 tactics for getting slow-paying clients from “billed” to “paid” more rapidly:

1. Put everything in writing. You can’t hold customers accountable to payment terms that you haven’t put in writing. If you are requesting payment within two weeks, clearly say so in the contract.

2. Watch out for purchase orders. Many larger organizations require a purchase order request from the person placing an order before the accounts payable department will pay the invoice. When you receive an order from a new customer, ask whether the company requires a PO. If so, the person placing the order should provide you with a copy or, at the very least, a PO number. Include this number on your invoice. This will ensure that accounts payable can match your invoice with the corresponding purchase order — and authorize payment in a timely manner.

3. Ask whether other forms are required. Even if a customer doesn’t send you a 1099 form in January, you may be asked to fill out and submit a W-9 [PDF]. If this is your first time working together, ask what paperwork is required to set you up as a vendor in their company’s system. Be proactive about this.

4. Send invoices right away. As soon as a job is complete or products are delivered, submit your invoice. Whether it takes the company 14 or 60 days to pay, the clock doesn’t start until your client receives your bill.

5. Itemize. Make your invoice as detailed as possible. Itemize all of the work done or products sold. Keep in mind that there’s a difference between detailed and confusing, so be clear. The latter may bring the payment process to a halt.

6. State payment terms. Yes, you explained your payment terms on the initial contract. Do so again on your invoice and any statements you send.

7. Practice situation invoicing. As a small business, you can be more flexible than a large company. Some companies may be more likely to pay several small invoices faster than one large invoice.  Invoice these clients often. For customers who require a purchase order, try to invoice everything on the PO at once, if possible.  Many companies like to pay purchase orders with one check.

8. Build relationships. Get to know the people in charge of paying the bills. If you can’t meet them in person, meet them over the phone. Learn their names. Moreover, don’t forget these people during the holiday season when you are sending thank-you cards. People who know you as a person will do their best to make sure you are paid. Especially if they know you as a nice person.

9. Use the phone. Don’t send email messages about late payments. Make personal phone calls. Be friendly and open the conversation by verifying that they received your invoice and have all paperwork required for payment (see #3). At the end of the conversation, ask when you can expect to see the payment.

10. Avoid threats. Sure, you have a late-fee policy, but how important is your customer? Imposing a late fee or taking other negative actions may just make the customer mad. Be patient. Only charge a fee if the payment is extremely overdue. After all, which is worse, a late payment or a lost customer?

About Tim Parker

Tim Parker is the owner of ECS, LLC, a company specializing in financial and small business content. His writing has appeared in many of the top financial blogs including Investopedia, Yahoo! Finance, Benzinga, Business Insider, and Forbes. Find him on Twitter @expositioncreat and Breaking Finance News.com View all posts by Tim Parker          Read more: http://blog.intuit.com/money/10-tactics-for-dealing-with-slow-paying-accounts/#ixzz2xegmics6

Are You Guilty of These 15 Social Media Mistakes in Business?

social-media-mistakesEvery small business knows that they need to utilize social media as part of their marketing plan. But in the process, they are making a lot of mistakes. Here are the most common social media mistakes and what to do about them:

Don’t Make These Social Media Mistakes in Business…

Only Selling Your “Stuff”

You communicate only your product offers on social media. You are constantly asking people to buy instead of establishing a relationship with them first.

Talking at People, Not With Them

You are not having two way conversations with people, but only broadcasting your message. A good indication that this is happening is no one ever responds to what you post.

Talking to the Wrong People

You have no strategy for your social media. You talk to anyone that will talk to you. This is because you may have outsourced it to any GenY-er you can find, instead of someone with specific experience.

Asking Others to Retweet / Share Your Content, But Never Talking to Them Otherwise

The only time you communicate with potential partners is to ask them to share your stuff. You should always ask how you can help them before asking for a favor.

Broadcasting the Same Message Across All Channels

You need to tailor your message for each specific social media channel. For example, the form of a marketing message needs to be different on Facebook vs. Twitter.

Focusing on Numbers Not Quality

You are obsessed with the number of followers instead of the quality of their interaction with your company.

Posting Infrequently or Irregularly

No one knows when you will show up on social media. You need to have a regular schedule to show dependability and consistency of your message.

Not Posting the Same Things Multiple Times During the Day or Week

Most social media posts have a short shelf life (Twitter -15 minutes, Facebook- 60 minutes). Everyone is not always on social media so things need to be posted multiple times.

Not Monitoring What People are Saying

Reputation is your biggest marketing weapon. Customers now place more trust in online reviews than advertisements. You need to know what everyone is saying about you!

Having No Company Social Media Policy

Can employees check their social media accounts at work? Can they post on behalf of the company? There is no right or wrong answer, but there should be a specific policy.

Using a Photo that Does Not Reflect Your Brand

Many companies just use their logo, but what could be a better representation of your brand?

Deleting Negative Comments

On social media, this is a big mistake. Instead, respond with empathy and provide a solution.

Sending Automated Direct Messages to Followers

Another big mistake since most social media users consider this spam. Only send direct messages that are customized for the person you are connecting with.

Using Too Many Hashtags

This is a good tool to become part of a conversation, but not every tweet or Facebook post needs to have a #newhashtag on it. #OMGSocialMediaMistakes!

Not Leaving Enough Space for Other People to Retweet You

Make it easy for people to retweet you by leaving room for their Twitter handle and the letters RT. Don’t use the full 140 characters in your original tweet since this will force them to delete some of your message.

The Annual Pay Raise Is Dead. Here’s Why I’m Not Mourning

CompensationLet’s say good riddance to the annual pay bump. Raises and bonuses shouldn’t be just a means to placate employees.

Pay is a crucial part of every company’s employee motivation and retention. And the reality is, how we structure compensation is as important as how much we pay–if not more so.

Here are some basic principles I have learned along the way that have helped me garner the maximum amount of staff engagement, while also managing employee expectations in a clear manner.

Wages must be based only on productivity.

Every position at every company has a specific value. This value is composed of what the position does for a company in and of itself (regardless of who occupies the position) and also what the person hired for that job brings to it. Seniority, cost of living, or social constraints should never be a part of the equation. Output is what matters.

Before I hire, I determine what each position is worth in terms of its importance to the success of my company. Setting this guideline helps to insure that all compensation is fair. Tying changes in compensation to contributions above and beyond the job description then becomes easy–both for employees to accept and for management to enact.

Commission guarantees investment.

Every member of my staff has a commission component to her salary. For account executives, the commission is simple and comes directly from the sales made. For other positions, this “commission” can relate to a bonus paid on the number of orders shipped, a quarterly distribution tied to the company’s overall growth, or even a rolling reward based on positive feedback or perfect rates of task completion.

Choosing to base a portion of an employee’s salary on performance is paramount to getting employees invested in the company’s mission. Including a commission component in compensation also gives the company a cushion to help mitigate missed financial objectives or goals, whereas a straight salary system does not.

Long-term rewards alone don’t work.

Employees need to be able to feel on a continual basis that their efforts are being noticed and appreciated. A single year-end bonus is a carrot dangled so far in the distance that it creates little attraction–even for top-flight employees–to remain engaged.

I have found that a mix of both long-term and short-term rewards motivates employees to stretch beyond a comfort zone, but also to understand the real value of their contributions on every paycheck. If an employee has the ability to self-monitor her progress on a continual rather than a punctual basis, on-target performance is evident, and shortcomings become clear early on as well.

Short- and long-term benchmarks also mitigate the risk for misunderstandings, because there’s no longer a surprise (good or bad) when it comes time for reviews, but a traceable performance history instead.

Compensation changes should be possible at any time.

All employees need to feel valued. As a business owner, it’s imperative that I be aware of the efforts of my staff, so that I can reward them as soon as there’s reason to do so.

Waiting for an annual review, or until an employee asks for additional compensation, is not only frustrating and de-motivating for the employee but also dangerous for the employer, because it gives the employee time to think that her contributions are going unnoticed or that she might be better treated elsewhere.

The time to change compensation is immediately after an employee does something great–not months later because the calendar says that’s the time. Building in both the mechanism to monitor employee contributions and the financial possibility to compensate them when appropriate is integral to employee retention.

Compensation is not only the greatest motivator, but also the most appropriate measure in the relationship between an employer and an employee. Setting compensation correctly should never be about placating, but rather about establishing a balance between output and earnings.

About the Author:  Vanessa Merit Nornberg opened Metal Mafia, a wholesale body and costume jewelry company that sells to more than 5,000 specialty shops and retail chains in 23 countries. Metal Mafia was an Inc. 500 company in 2009.

Five Ways to Make an Impact and Grow Your Business

Business-GrowthDo you have a hard time remembering the name of someone you just met? Don’t worry, you’re not alone. People forget who you are too. And when you’re trying to grow your business, being forgotten can be bad news. So, what can you do to be more memorable and make a big impact on others? Sure, you could dress unusually or give yourself a funny nick name – that might work, at least initially. But, for long-term success, you’ll be much more memorable if you simply make positive impressions on others and add value to their lives.

Here are five techniques you can use to make an impact on your customers, acquaintances and business partners:

Mail Them a Handwritten Note

We seldom receive handwritten mailings anymore – this is what makes them so special. The next time you mail something to someone you know, send it in a hand addressed envelope with a handwritten note. Your envelope will be the first one they open and the most memorable piece of mail they receive all week (or month).

Send Them Some Useful News and Information

Next time you read a magazine or newspaper, think about who you know. Chances are, someone on your contact list would be interested in reading that article too. Clip it and send it – along with a handwritten message. You can also email web articles, send suggestions on a great book you’ve just read, or give them a heads up about an upcoming networking event. You’re not selling a thing – just offering value.

Talk About What Interests Them

A big part of being memorable is being likable. It’s hard to like someone who only talks about themselves or their services. It’s like listening to an infomercial – boring! Figure out what your customers like to do when they’re not at work. Do they like to cook, love the Washington Redskins, fly fish, or have 17 grandchildren? These things are important to them. If you encourage them to talk about their interests, you will be VERY memorable.

Buy them a Cup of Coffee

It can be hard to build connections during short phone calls or emails. If you want to get to know someone better – invite them out for a cup of coffee. You’ll have some extra time to get to know them, and they won’t feel like they’re giving up hours of their time. Think about some subjects you can talk about prior to your meeting. Keep the conversation light, but make the most of your time. Don’t just sit there, sipping away those precious minutes together.

Introduce Them to Someone you Know

I’ll bet that many of the people you know could benefit from meeting each other. Maybe a friend of yours writes a blog or is President of an organization that could help one of your contacts. Or, maybe they’re both looking for an early morning running partner. Think about your network of friends and associates and find creative ways to help them to connect. You’ll help build their network and yours as well.

Making a big impact isn’t easy and it doesn’t happen overnight. It takes time and persistence. But, if it was easy, everyone would be doing it, right? So, starting today, think about what you can do to be more memorable. If you do it right, I guarantee you won’t be forgotten.

What is An Employee Identification Number and Why Do I Need One?

ImageCongratulations!  You are opening a new bank account or getting ready to work for a new client when you are asked for an EIN for your business.

More than likely, as a start-up business, you have set up your business as a sole proprietor.  You remember being told that as a sole proprietor you will be reporting your business income on your personal tax return.  Therefore, you can use your social security number, right?

The EIN is your employer identification number for your business.  Theft of taxpayer’s identities has become a growing, widespread problem.  Identity thieves steal taxpayer’s Social Security numbers and use them to file fraudulent tax returns and obtain tax refunds. For this reason, it’s wise to keep your personal Social Security number as private as possible. Also, if you perform personal services as an independent contractor, you must provide an EIN or Social Security number to your clients, or the client will be required to withhold 28% of your payments. Obtaining an EIN allows you to avoid having to provide your Social Security number to clients and other members of the public.

A free service offered by the Internal Revenue Service, tax payers can apply for an EIN online at www.irs.gov and search for form SS-4, Application for Employer Identification Number.  You can also apply for an EIN by fax, mail or telephone.

SBA Implements Stricter Requirements for Size Certifications

small-biz1The Small Business Administration is updating the regulations that govern how small federal contractors work with agencies.

final rule published in Monday’s Federal Register changes the Federal Acquisition Regulations to address the requirements detailed in the Small Business Jobs Act of 2010. Congress passed and President Barack Obama signed the bill into law in September 2010.

The new rule, effective Aug. 27, will ensure vendors that claim to be small businesses, are, in fact,small.

The final rule stated small businesses that fail to update their size or status annually no longer will be identified as “small” until they update their listing in the System for Award Management (SAM).

In addition to requiring small business to update their size or status online, the new rule requires an authorized official to assert the company’s size or status certification by signing the certification page for a contract or grant as well as documentation in SAM.

The final rule would apply to the roughly 348,000 companies that are listed as small businesses in the Dynamic Small Business Search (DSBS) database.

If a small business falsely portrays itself as a small business in order to claim a small business contract, the rule mandates the contractor pays the government the value of the contract as punishment.

In fiscal 2010, SBA found 200 firms ineligible for small business contracts. Not all of these concerns, however, intentionally misrepresented their size or status, according to the SBA.

5 Way To Increase the Value Of Your Company—Before You Sell It

ForSaleEvery small business owner wants to get top dollar for the company he or she started and raised. But too many start thinking about the sales process too late to get the most value.

“Most business owners wait to sell their company until they’re mentally frustrated or worn out,” says Greg Caruso, principal at Harvest Associates LLC, a transaction advisory firm in Baltimore.

To get the highest selling price for your business, start planning early. And do these five things:

1. Strive to increase profits and cash flow. 
The person or company buying your business will probably need a loan for the purchase—and they’ll be using the business’ profits to make their monthly payments. That’s why maximum profitability, as well as healthy cash flow, is so important to the value of your business.

Think you’re doing the best you can? Think again, says Caruso. He suggests hiring a part-time CFO or CPA—someone from the outside—to scour your books and operations for inefficiencies. “A lot of business owners don’t understand how to assess where they are, and it can make a huge difference in profitability,” he says.

2. Grow sales. Period.
Why would you want to spend long hours boosting the revenue of a company you’re about to sell? Because you’ll get more money in the sale. Caruso says if a business’ revenue is consistently growing for two to three years, the buyer is willing to pay a higher price because sales are an indication that they’ll be making more money down the road.

Also, buyers are more enthusiastic about purchasing a growing business. “When things are expanding and improving, people get emotionally excited. And ultimately, emotions drive a purchase,” he says.

3. Get systems in place to put your business on autopilot.
From a buyer’s point of view, a business is a series of processes and systems that develops a service or product, which is then sold in exchange for money to generate a profit. It is not a hobby or a way of life, as you might see it. It must be a well-oiled machine that can operate on its own.

The price of your business will go up if you can prove you’ve mastered these processes. What have you done over time to increase their efficiency? Do employees follow the processes? Buyers place higher value on companies that can run themselves.

4. Remove yourself from the business.
By the time you put your business on the market, you should be as hands-off as possible. This demonstrates that your top managers and employees can handle running—and continue growing—the business without you. Because eventually, they will have to. “If every decision stops with you, what is a buyer going to buy?” Caruso says.

5. Get the details, like debts and leases, in order.
Your business will sell at a higher price if the details of your business are in order. If you own a convenience store, for example, and its success hinges upon its prime location, you better have a long-term lease sewn down. But if you own an engineering firm that is outgrowing its small office space, a short-term lease is better. “Contracts like these should be in a prime spot to increase the value of your business,” says Caruso.

Debts and other obligations should also have nailed-down arrangements. Uncertainty is not friendly to the valuation of a business, says Caruso.