Session #1
The class on Monday, February 4, will be held in room 320.
Introduction
- Myself, Business Odyssey, web site
- Overview of course and reasons for format ○ Look before you leap - lots of work but doing the
- right things at this phase can save $$ and heartache later
- Motivations for going into business
○ Reasons for members of class going into own business - $$$$$ - autonomy - flexible work schedule - family involvement - “I can do it better” - to create or build something - to make and market something they have invented
What is an entrepreneur? And who can be one?
Definition: a person who organizes and manages a business undertaking, assuming the risk for the sake of the profit. The challenge is to control or manage the risk.
The Adventure
Resource assessment ○ Time: one aspect often neglected - How many hours a week do you have to spend on this project ■ research and planning phase - take your time ■ start-up phase - full time or part time? ■ up and running - What are your other obligations? ■ family ■ job, professional ■ health, medical, fitness ○ Energy: how much time can you realistically put in without getting burned out? ○ Financial: how much can you pay “out of pocket?” Calculate how much money you will need - cash flow statement very useful - to live on until the business becomes productive - for purchases of equipment needed for your business - to operate the business until it becomes profitable - for marketing and advertising
○ Plug results into the Personal Assessment Worksheet HO
● Use results of this and on-going assessments for two purposes ○ First, to help you develop your business idea ○ Second, to help you make good decisions about how you will handle the various operational aspects of your business
Developing an idea● Many sources TRANS ○ compared to managerial skills (Trans and HO)• look at all possible angles • think, read, go to conventions and meetings, travel • eliminate personal obstacles and excuses - criticism - do not fear but learn to differentiate between constructive criticism and “naysaying” - habits - pros and cons - find new ways of doing thingsThe idea is to get both the logical, the intuitive and the creative parts of your brain involved in this process. - confidence vs. egoism • ideas do not have to be original • find a problem & solve it • Loosen up - have fun - allow yourself to be creative - be wacky - make notes about your ideas - review them periodically and push them around in different combinations • invention nurseries - Battelle, SRI International, Arthur D. Little, etc. They develop ideas into products which entrepreneurs can commercialize. - they can invent and/or design a product based on your idea - costs $$$$ or a percentage of your business - works only if product can be mass produced - very few reach market - SCAM WARNING
Assignment: write a clear description of your business idea***using 4 parts as described below
PROGRESSION: idea, opportunity, business concept
Testing your idea:
1. Develop your business concept: a way to define an opportunity so that it can be tested through a process known as a feasibility analysis. • four parts - customer - value proposition What is the benefit - how do you reduce pain / increase pleasure? - product or service - distribution channel • you sell benefits not features - product definition should take heed of this, use language that is meaningful to potential customers
2. Quick test - use several • get feedback from family and friends • list pros and cons • examine your own feelings carefully - how interested are you really? - are enough potential customers interested? - are people willing to pay? • talk to people in allied or similar businesses • Ask why me? why now? - are you well prepared to execute the concept, personally and professionally? - confidence, ability? - market timing good? - can your life support launching of this kind of project?
Assignment: perform a quick test*** Want to hear experiences in 2 weeks!
Feasibility analysis
• process where you test each component of your concept and arrive at the conditions under which you are willing to proceed • not the same as a business plan altho there are some elements in common - business plan assumes that you have a feasible business concept and describes the company that you are going to create - feasibility describes concept and tests each component with decision about conditions for a feasible launch - go/no go at each step - a process of discovery where original concept is modified and refined - process acts to reduce risk and increase chances of success
Elements of feasibility study- TRANS
• Executive summary - 1 or 2 pages with proof that customers want what you have to offer
• concept - as previously described
• industry analysis - will the industry support your concept - trends, growth, competition, etc.
• market/customer analysis - define your segment and target niche. Find under served niche - easier to introduce new product. describe target customers and their needs. What distribution channels will reach these customers?
• genesis or founding team - where are you getting your specialized expertise? essential to prove capabilities to potential funders. Management competence
• product/service development - work flow, raw materials, sources, patents, manufacturing process, etc. For new products, must show that they can be mass produced so you will need to describe scale up from prototype.
• financial analysis - start-up to positive cash flow - not to profitability! know the difference? Also - where will money come from?
• feasibility decision - stop or go - go under what conditions - $$$ of funding? finding a partner?
• time line to launch - task list and due dates
Assessment used also to determine how you will handle operational aspects of business.
Things you will need to know TRANS
○ Planning -for all parts of your business - Financial planning & budgeting ■ Estimating start-up costs: include tools & equipment, etc and how much expense you will incur before you even open the doors to your business. Rent, etc. that has to be paid even before you have any cash flow. ■ Forecasting sales ■ Estimating expenses - Operations ■ Capacity vs expansion needs - equipment ■ Staffing needs ■ Space needs - Marketing ■ Developing realistic sales targets ■ Advertising plan, sales, etc.
○ Finance & accounting - Financial: how are you going to pay for start up? expansion, etc. Where will the money come from? - Accounting: what system? who will do? - Understanding and using financial statements to manage the business: Income statement, Balance sheet, Cash flow
○ Contract negotiation - Leases, purchases, etc. - Contractors, independent & professional help, labor
○ Hiring & managing employees - Screening - what is legal and what can get you into trouble - Planning for space, equipment - Training - Assigning & evaluating - Record keeping
○ Purchasing - Quantity discounts vs. space available for storage & insurance - Timing- having supplies on hand when you need them - Writing specifications
○ Distribution - How will product / service be delivered to customers - Who will do the selling & where? - Impact of internet
○ Operations - Manufacturing processes & procedures - Maintenance & replacement scheduling for equipment - Scheduling
○ Administration - Bookkeeping & record keeping - Housekeeping - Policies & procedures - Personnel legalities
○ Marketing - 200 - people need to be contacted to make 1 sale - or 200 people need to walk by your store before a sale is made - or 200 people need to have access to information about your company - Often neglected by new entrepreneurs - a big mistake - How are you going to communicate with prospects & customers - How are you going to position your product in the marketplace - Pricing, selling, image, etc, etc, etc. - Competitive analysis
○ And more
How will you do all of that? training, hiring, etc.
○ you can see from self-assessment that you already have some of the skills even if you have never been in business ○ support teams TRAN - management - professional - advisory - subcontracting - referral - employees
Next, we are going to explore where you go to get the information that you need in order to flesh out your feasibility study
- information is not only for start-up or for new products but an on-going need * to stay on top of industry trends * to stay on top of market changes in your area * to keep your skills up to date * to know what your competition is doing - get in the habit of gathering information about your specific business and about general business conditionsAs you develop your idea, research & test - thoroughly evaluate the idea ○ market size, trends, growth ○ complexities - of market entry, production, distribution ○ cost of entry
Internet - the easiest way to gather information
if you are not comfortable with computers - missing cheap and easy way to research - visit your library to learn - next week will explore - make friends with the research or reference librarian, s/he is there to help you - check out free classes for computer beginners - more advanced classes at PolarisB. primary and secondary source information, library resources, etc.
Background - what you need to know before you go looking for information (how information will be utilized)
A. Product/business lifecycle:can be for an invention or product or for an industry; usually represented on a bell curve - Birth (beginning of curve) - Adaptation: refinement of product and marketing, proprietary protection within timeframe of patents (growth side of curve) - Differentiation, competition: loss of proprietary protection, more competition which produces greater product differentiation, added value, price drops, and so forth; standards established (infant electric industry and computer industry), increase consumer expectations for performance and value (top of curve) - Shakeout: increased competition eventually forces the weak out - survival of the fittest; either they leave the market or are swallowed by those higher on the food chain (downward slope of the curve) - Maturity: a few dominant firms; “cash cows” for the survivors of shakeout (bottom of downward slope)
Industry structure and its impact on your venture
* extent to which an industry can accept more business * predictability or unpredictability of industry * number and diversity of customers, suppliers, competitors, etc. * economies of scale and capital requirements - high capital requirements mean that you are going to have to produce and sell a lot in order to break even; established companies that are operating near capacity have achieved economy of scale giving them lower fixed costs per unit of production and more leverage with suppliers * entry marketing costs - what will it take to overcome brand loyalty and buyer switching costs? will you need incentives for luring people to do things different or build new habits? what will it cost to establish name recognition in a market with well-established brands? * industry hostility and access to distribution channels can inhibit your ability to secure raw materials (competition and price advantages of quantity and established relationships) and supplies and your ability to get your product to customers; develop new channels of distribution - Leggs pantyhose example. * Government regulations - environmental, food and drug, local health codes, zoning, licensing for certain kinds of businesses and professions, etc. * proprietary protections - if you have something truly new that can be protected, it can give you time to get on your feet and garner some good profits; can also bar you from entering certain markets until protections expire. * Threats from: - substitute products also called indirect competition Elements Gallery example - buyers’ bargaining power: new entrants can’t purchase raw materials and supplies at volume rates and, therefore have to charge their customers more; need to show added value in order to do this successfully - suppliers’ bargaining power: where few suppliers or labor shortage you are in a seller’s market; real estate a common example when interest rates fluctuate - rivalry among existing firms: price wars, etc.; characteristic of shakeout phase
Other important information
* new technology and research and development spending - how rapidly do products and services become obsolete? how rapidly does business change? * are there any new players in the market and are they having any success? under what circumstances?* what are the typical performance statistics for that industry? things like gross profit margins, average cost of goods sold, etc. If profit margin is low, you have little room for error. For established businesses, knowing average performance data can tell you if your business is on track and where your strengths and weaknesses are. Benchmarking against a representative business.* Competiton: who, what are they doing, what are their policies, how are they marketing? * Direct vs indirect competition * How competitive is your marketplace? ~ are there a lot of competitors in your geographic area? ~ expanding or down-sizing, hiring or laying off ~ diversifying with related products or services or with unrelated products * What do your prospects think of the competition? *prices charged, marketing strategy, customer service policies, complaint handling, quality, etc. * easy to obtain information - buy prodicts, read advertisements, visit store, check out web pages, read local newspapers in headquarters towns, check out parking lot at night, attend association meetings, many other ways
Where and how to get information
A. Search engines - Google: several billion web pages! only 50 in 1995! B. Many internet sources NOTE: sites change often C. Trade associations
Session #2
Information Sources & Research
Information is not only for start-up or for new products but an on-going need
* to stay on top of industry trends
* to stay on top of market changes in your area
* to keep your skills up to date
* to know what your competition is doing
Get in the habit of gathering information about your specific business and about general business conditions
Background - what you need to know before you go looking for information: review HO
• Industry structure:
* Number of competitors and capacity vs demand;
* Number and capacity of suppliers vs demand;
* Capitalization;
* Monopolistic tendencies: Industry structure and its impact on your venture - - carrying capacity, uncertainty, and complexity vs where on lifecycle for class discussion
* extent to which an industry can accept more business
* predictability or unpredictability of industry
* number and diversity of customers, suppliers, competitors, etc. - threats to new entrants - many
* economies of scale and capital requirements - high capital requirements mean that you are going to have to produce and sell a lot in order to break even; established companies that are operating near capacity have achieved economy of scale giving them lower fixed costs per unit of production and more leverage with suppliers
* entry marketing costs - what will it take to overcome brand loyalty and buyer switching costs? will you need incentives for luring people to do things different or build new habits? what will it cost to establish name recognition in a market with well-established brands?
* industry hostility and access to distribution channels can inhibit your ability to secure raw materials (competition and price advantages of quantity and established relationships) and supplies and your ability to get your product to customers; develop new channels of distribution - Leggs pantyhose example.
* Government regulations - environmental, food and drug, local health codes, zoning, licensing for certain kinds of businesses and professions, etc.
* proprietary protections - if you have something truly new that can be protected, it can give you time to get on your feet and garner some good profits; can also bar you from entering certain markets until protections expire. - threats from substitute products also called indirect competition - threats from buyers’ bargaining power: new entrants can’t purchase raw materials and supplies at volume rates and, therefore have to charge their customers more; need to show added value in order to do this successfully - threat from suppliers’ bargaining power: where few suppliers or labor shortage you are in a seller’s market; real estate a common example when interest rates fluctuate - rivalry among existing firms: price wars
• Who are suppliers: size, location, reputation, contractual obligations, etc.
• Business cycles and seasonalities
• New technology, research & development spending
• New players in the market
• Typical performance statistics for that industry
• Competitive intelligence:
* Who is your competition? * How competitive is your marketplace?
* What are your competitors doing?
* What do your prospects think of the competition?
* How do competitors treat customers?
* Marketing strategy * Quality - Direct vs indirect competition - How competitive is your marketplace? ~ are there a lot of competitors in your geographic area? ~ how far do people have to travel to get this product? how far are they willing to travel? ~ how many other business offer this product or service? ~ what is your indirect competition? - What are your competitors doing? ~ expanding or down-sizing, hiring or laying off ~ relocating, restructuring ~ diversifying with related products or services or with unrelated products - What do your prospects think of the competition? ~prices charged, marketing strategy, customer service policies, complaint handling, quality, etc. ~ easy to obtain information - buy products, read advertisements, visit store, check out web pages, read local newspapers in headquarters towns, check out parking lot at night, attend association meetings, many other ways
• What is unique about your product / service? Important in selecting an entry strategy
- differentiation: customers perceive that you have something better to offer; important to develop your product definition with “unique factor in mind; need lots of good market research in order to do this effectively
- niche: find an unserved or underserved portion of the market (define niche vs segment); easiest strategy for new businesses; need discipline to state clearly what you are and stick to it in order to establish recognition; need good information about your industry and about the needs of customers in that market
- cost superiority: IF you can be more efficient than your competitors; IF you are in a new industry where competition is on a level playing field; otherwise very difficult in an established industry because you need volume to realize efficiencies of scale
• Demographics of target buyer
* Age, income, education, etc.
* Location, access to transportation
* Behaviors: leisure activities, employed, politics, etc.
• Market size and stage of development: Product/business lifecycle: can be for an invention or product or for an industry; usually represented on a bell curve - Birth (beginning of curve) - Adaptation: refinement of product and marketing, proprietary protection within timeframe of patents (growth side of curve) - Differentiation, competition: loss of proprietary protection, more competition which produces greater product differentiation, added value, price drops, and so forth; standards established (infant electric industry and computer industry), increase consumer expectations for performance and value (top of curve) - Shakeout: increased competition eventually forces the weak out - survival of the fittest; either they leave the market or are swallowed by those higher on the food chain (downward slope of the curve) - Maturity: a few dominant firms; “cash cows” for the survivors of shakeout (bottom of downward slope) etc.
• Types of information- review HO - Primary source - Secondary source
• Internet the easiest way to gather information: go over hand out: primary and secondary source information, library resources, etc.
- SIC and NAICS codes and accessing government information - also needed if you want to register as a government supplier
Useful Web Sites
Search engines
1. www.google.com: most widely used. Explore - more than the usual search engine - “business plan.” Point out paid listings and explain pay per click. Then, look under “Images” tab. Try other tabs. Try “small business” site:edu or Site:gov
2. www.facsnet.org/net: search engine especially for journalists - useful if news item about your industry and you need background.
3. http://www.prefound.com/
4. Google “invisible web” when you have a chance..
For regulations, forms & government programs:
5. www.odod.state.oh.us Ohio Dept. Development - 1ststop; for businesses and Ohio county profiles, resources including financial incentives for new businesses
6. http://www.sos.state.oh.us/ OH Sec. of State - click “business services” on left for name availability
7. http://www.cuyahogacounty.us Cuyahoga County - business then business services; http://planning.co.cuyahoga.oh.us/index.html Zoning codes, community master plans, census data, more.
8. www.irs.ustreas.gov Internal Revenue Service -business - small business - self-employment ~ record keeping
9. www.uspto.gov Patent & Trademark Office
10. www.sbaonline.sba.gov Small Business Administration
11. www.loc.gov Lib. Congress/Copyright Office
General business resources:
www.startupjournal.com Wall Street Journal Small Business web page - largely a marketplace for business services.
www.inc.com Inc Magazine Search “trade associations.” Click on article “Researching your industry . . .”
www.NASE.org National Association of Self Employed (for business services and insurance)
www.NFIB.com National Federation of Independent Businesses (for business services and insurance)
www.usps.gov United States Postal Service direct mail services on-line
www.charterone.com (example of on-line banking services)
http://biz.findlaw.com Legal services and information
www.business.gov/busadv/index.cfm Government business advice and resources
www.gpoaccess.gov Government Printing Office
www.knowx.com (access to a variety of public records for a fee)
www.searchsystems.net public records search
www.knowthis.com virtual library on marketing
www.asaenet.org See “Directories”
Statistics, demographics, etc:
Search engines: Search your state, city, county, market area, etc.
www.census.gov/main/www/access.html (Census data) Quick Facts
www.csuohio.edu Research then Resources then NODIS
www.fedstats.gov
Industry Information
Universities (Try http://www.osu.edu then Academic Depts Food Science & Tech)
Google search on trade associations (www.restaurant.org for example) Ask accountant if he/she can locate benchmark info for your business.
Libraries:
www.cuyahogalibrary.org Cuyahoga County Libraries
www.oplin.lib.oh.us Ohio Public Library Network web site
www.cpl.org Cleveland Public Library
www.lkwdpl.org Lakewood Public Library
Session #3
1. Ways to go onto business: pros & cons a. MLM: attractive residual income; ready format and procedures; usually limited initial investment; harder than they make it sound; sell, sell, sell
b. franchise: business in a box - all ready to go; training and advice; reputation and national advertising; big up front investment; little flexibility - corporate policy dictated
c. buy a going business: flexible financing often available; expertise of former owner; going concern = cash flow and customers; buying someone else’s problems; changing something is often harder than starting from scratch
d. start from scratch: new idea or already in common usage - assessment of market essential; getting everything the way that you want; start slow and gear up as you gain experience; getting financing harder with no track record; building cash flow, customers, etc. from “0"
2.. Protecting your business
A. Planning & research- anticipate problems before they arise, reduces risk
B. Insurance: (see insurance hand out) Property and casualty or P&C protects in the event of damage to property or equipment. Professional liability insurance is an umbrella policy which provides protection if you are accused of making “misleading” statements about your products or services. Errors and omissions (E & O) insurance is separate from professional liability coverage. It covers mistakes and omissions. Most of us have either a business owners policy or a home-based business policy which provides coverage for business equipment and some liability in most cases. If you have a home-based business, it is advisable to check your home policy to see what is covered. Often, home-based businesses are excluded. Terminology varies with each insurance company so it is best to consult with your agent.
Independent agent vs. one who works for a large multi-line company like State Farm or All State - some of these companies do not carry commercial insurance but might cover smaller businesses.
Workers’ compensation and unemployment insurance - required if you have employees but not for yourself. Also - health insurance, auto insurance, life insurance on key management, etc.
C. Patents & copyrights, trademarks: Patenting: first to invent has the first right to patent. Important to document process from the start - keep a journal in ink with dates of each step. Have notarized or at least witnessed. And file disclosure document right away - do not wait. You can patent a process, a machine, articles of manufacture, chemical compositions, and new and useful improvements to any of the above. This can be a complicated process and utilizing an attorney is advisable. Book gives good overall description of the process.
Copyrighting: works of authorship including literature, music, computer programs. Although computer programs copyrighting is a muddy area. Protects not the idea but the form in which it is expressed. It must be written or recorded in some tangible way in order to be protected but it dies not have to be published in order to be protected. You are not required to register with the copyright office in order to gain full protection but it does make it easier to defend against infringement and claim damages in court. Cannot copyright titles, slogans, familiar symbols or designs, etc. Nor can you copy right ideas, procedures, processes, discoveries, or standard works like calendars, weight charts, rulers, etc.
Trademark: protecting your logo. A symbol, word or design used to identify a business or product. Term of registration is 10 years but is renewable indefinitely.
• Protecting company secrets or confidential information: contracts, non-disclosure agreements. If it is an important issue within your buisness, hire a lawyer to help you. Track, in writing, conversations, offers, commitments, etc. Date and out limits on estimates.
Non-disclosure agreements - have an attorney draw up. To keep employees and others involved with your company from giving away trade secrets. I must include 1) consideration or something in exchange for confidentiality; 2) description of what is covered by confidentiality; 3) procedure describing how party will not use information. Some companies also use non-compete agreements with key employees.
Protecting your Intellectual Property
Deals with development of new technology and is a complicated area. Primarily, have patents properly filed and defended. Utilize licensing agreements which have been carefully drawn. And Be sure to document everything - procedures, materials used, modifications, experiments, etc. - and keep documentation in a safe place.
D. Contracts: Contracts are important to keeping business relationships clear and to protect yourself in the event of a disagreement. That is one reason why it is important to include an attorney on your support team. You will also want to consult with an attorney when deciding what legal form your business will take. Incorporating, limited liability companies, sole proprietorship - all have their pluses and minuses.
Several points about work related contracts:
- As a general contractor, you are responsible for the actions of your team members.
- Specify that disputes should be resolved in Ohio, especially when doing business outside of Ohio.
- Specify that the client is responsible for content and will “hold you harmless.”
- Have a contract with everyone with whom you do business - even family and friends.
- Be sure that people who you use as independent contractors are appropriately insured.
Independent contractors: being one or using one: IRS rules govern whether or not someone is an independent contractor. (Page 145 in book). You might want to use an independent contractor agreement for yourself or for others to protect the relationship. Advantages and disadvantages -
For additional information, see web site http://smallbiz.biz.findlaw.com.startup/index.html and recommend the book Business Contracts for Dummies.
E. Selecting the right legal form for your business
3.. Legal forms of business
A. Things to consider before you decide:
- exit plan: what do you want out of it when you leave - 20 years from now? Long term goals
- level of potential liability: What is the possibility of your manufacturing process or of your product injuring some one? Service business usually have little risk. Manufacturing usually have more. Restaurants should incorporate generally as should health care, other services. Consider not only possible risk to customers but also to employees.
- taxes: Quarterly estimates and filings for corporation and taxed at net profit level. S Corp distributes to shareholders - both profit and loss - before corporate tax is applied. Taxed only on non-distributed. Sole proprietorship, partnership and LLC both distributed to owners before taxed.
- management expertise: desire to bring key people in with equity consideration
- financing: Which form is most likely to allow you to attract the kind and numbers of investors you want and need. New business credibility with bankers if you want a loan. Corporation gives you credibility but S corp is limited to 75 investors. LLC format of ownership less clearly defined.
B. Legal forms of business
- Sole proprietorship: Easiest & cheapest to form, least paperwork - but little protection of personal assets. Isolate business life from your personal life to protect yourself and your home, regardless of what type of structure you choose. Can forfeit protections and tax advantages if you do not. Example- do not pay mortgage on your home with $ from corporate checking account.
- Partnership: Governed by Uniform Partnership Act . Advisable to have a partnership agreement which spells out how work, profit, loss, etc. is shared. Partnership is like a marriage. Need agreement that spells things out inluding -
- can’t just give or sell your part of the business to someone else
- who is boss
- credit problems and liability of one become the problems of the other
- what if you can’t get along
- death or illness threatens or destroys the arrangement: death should mean that partner gets to buy out other partner otherwise your partner’s spouse or other heirs could wind up being your partner. Life insurance to pay for partner’s share in the event of death.
- Limited Liability Company: is a corporate partnership. Some differences - not shareholders - members instead. Permits nonresident aliens and other legal entities to be members where an S corp does not. Also, S corp limited to one class of stock and LLC can have different classes. Good if dissimilar participants - eg. some investors and some sweat equity. Common for doctors, lawyers, real estate.
- Corporation; should have attorney set up so that you get all protections.
- Closely held corporations. If 2 people are involved, they should have a buy-sell agreement stating that, if someone dies, their shares are sold back to the corporation. Life insurance to pay for partner’s shares in the event of death.
- Initially, stock is worth what the lawyer says it is worth or $1 per share. “anything that is legal” is what you put down as the purpose of the corporation in state filing papers.
- Right of first refusal with other stock holders for selling of shares in order to provent undesirable outsider from entering business.
- When signing anything, use your corporate title to invoke the protection of the corporation. If you don’t do this, you are personally liable. Corporate officer who signs the corporate tax return is personally liable for taxes due. Important to keep track of multiple filing dates for different tax and other forms.
- You can set up your own 401K, etc. Company vehicle - if it is your only car, IRS will assume that it is for personal use and, so you should charge back 10% as income to the driver to avoid an audit flag.
- “C” corp: profits are taxed. Remaining profit distributed to shareholders then taxed again on personal income tax.
- Subchapter S corp: no corporate tax - profit distributed then taxed on shareholders personal income tax return. Note: Lakewood taxing subchapter S corp profits.
Choosing a location
Considerations:
- Accessible to your target market: transportation, parking, proximity. Drive in the country?
- Location of competition: can be good or bad - McDonald’s vs Burger King
- Access to sources of supply & delivery: distance, truck, rail, etc.
- Access to labor: source of labor might be in conflict with target market
- Cost: cheap not always best - why is property vacant? how long has it been vacant? are problems correctable? compatible with your corporate image?
- Zoning: 1) for use of property - don’t take anything for granted 2) for use of surrounding areas - compatibility 3) for future usage for your property and surrounding areas
- Expansion room
- Plans for area: additional development, road construction, etc.
Shopping mall: pros - parking, access, co-op advertising, easier to find. Cons - mall operating rules, pay % of gross as rent, pay upkeep for common areas and landscaping. Look at history of shopping center - % of vacancies, successful businesses, other merchants compatible, etc.
Business incubators: business grouped in a building for sharing of expenses, overhead. In many cases, run by university or government with advice and guidance, sometimes tax breaks.
Lease considerations
- Rent: flat monthly payment; set percentage of gross sales (no consideration of your expenses, etc.); sliding percentage of gross sales; combination.
- Term: length and option to renew
- Sublet: Do you have this right? Might be important at beginning if you have too much space or if business does not grow as quickly as you had hoped.
- Leasehold improvements: Who pays for initial improvements needed to make location work for you? Who will own the improvements if you add lighting or carpeting for example? Is building up to code? ADA compliant for public access? Electrical adequate and up to code?
- Insurance: what is covered by landlord?
- Security deposit
- Termination: for both parties. Be sure that you aren’t kicked out just as your business is getting off of the ground.
- Restrictions: do not take landlords work about zoning or other governmental restrictions. Understand all restrictions placed on you by the landlord. Be sure that you will not be hindered in conducting business.
Home-based businesses
• Advantages: Income tax deductions for home office and mileage; Convenience - save time with no commute; Lower overhead; Great way to start part-time business
• Disadvantages: Closer IRS scrutiny; red flagged for audit with home office deduction; IRS can visit home without notice to see that you are in compliance with regulations; Takes up room in your home; inventory; loss of privacy if you have clients, customers in home; Hard to leave work/household distractions; Isolation; Local community regulations: limits type of business; traffic; consideration of neighbors; Liability; Image
Overcome disadvantages and misperceptions by operating in a business-like way
- Determine business hours: tell family, friends, customers; discipline yourself to work those hours; protect your free time;
- Maintain a professional image: dress right; professionally produced materials: stationery, brochures, etc.
- Protect your work space both for IRS and business purposes: do not use computer as family computer; make it clear to family that office is “off limits” and that equipment is not for general use
- Join professional organizations to ward off isolation
The role of money in the start-up phases of your business.
Funding (at development stage)
- mostly out of your own pocket>
- hurdles: development takes time (design, prototype, scale up, etc.); need to be able to demonstrate feasibility and that the design actually can be manufactured
- some development sources available, especially if you are developing a new technology: * some are the same as for funding your business in general; * big difference is that pay back time is longer - person providing $ has greater risk; * SBA has some grant money available; also check federal departments listed in your book; * Cleveland Civic Innovation Lab; Lakewood SEED funding, http://www.jumpstartinc.org/
Revisit feasibility analysis - introduced in session #1 - foundation for your business plan & provides information you will need to determine your start up costs TRANS
- Executive summary - 1 or 2 pages with proof that customers want what you have to offer
- concept - 4 parts - product, customer, distribution, value propoition
- industry analysis - will the industry support your concept - trends, growth, competition, etc.
- market/customer analysis - define your segment and target niche. Find under served niche - easier to introduce new product. describe target customers and their needs. What distribution channels will reach these customers? Etc.
- genesis or founding team - where are you getting your specialized expertise? essential to prove capabilities to potential funders. Management competence
- product/service development - work flow, raw materials, sources, patents, manufacturing process, etc. For new products, must show that they can be mass produced so you will need to describe scale up from prototype.
- financial analysis - start-up to positive cash flow - not to profitability! know the difference? (Cash flow statement vs income or profit & loss statement) Also - where will money come from?
- feasibility decision - stop or go - go under what conditions - $$$ of funding? finding a partner?
- time line to launch - task list and due dates
Estimating start-up costs. You will want to develop a separate statement which shows your start-up costs. This is a part of your feasibility analysis and will become the foundation for the statements that you will include in your business plan. Some expenditures will be obvious - like the equipment you will need to manufacture or produce your product. In a service business you also need equipment - mine, for example, I need an office, computer, phone line, and other equipment. Be sure to include:
equipment; your initial supply of raw materials; design, development and prototyping costs; training - of yourself and key employees; installation of equipment, initial advertising and marketing costs including the design of logo, printing, signage, etc.; deposits for rent and utilities; permits and licenses, etc. etc, etc..
Also, don’t forget to PLAN for the initial losses that new businesses almost always begin with. At first, your revenues will not, most likely, cover your operating expenses. Planning for that is essential. Also, take into account how much expense you will incur before you even open the doors to your business. This can often go on through several years worth of planning and ramping up an operation until you can deliver the level of quality that is acceptable in your marketplace. Dry runs, free samples, etc.
The next step is Estimating demand so that you can begin to make an intelligent assessment of your sales potential. Book give method - get a 3-way fix by gathering information from industry experts, suppliers, etc, talking to customers, and relying on your own experience and knowledge. This is where your quality of market research really comes into play. If you are able to locate good industry benchmark data, trends, seasonalities, etc. This information will ultimately feed into your financial statement projections which are a critical part of your business plan.
