20Feb

Don’t be a Do-It-Yourselfer

I frequently hear small business owners talking about how much money they’ve saved by “doing it themselves.”

The “it” may be building a website, doing electrical wiring, designing a newspaper ad, or setting up an accounting system. And in almost all cases, it’s a mistake for the business owner to do the job!

When the owner takes on an unfamiliar task, the results aren’t going to be nearly as good as results achieved by a professional. In some cases, the tasks may even require specific professional knowledge that the owner lacks. As a result:

  • The website isn’t designed to be indexed by search engines, and it’s difficult to navigate. It fails to bring in any new business.
  • The electrical wiring can’t properly handle the load. Circuit breakers trip frequently, and the wiring eventually needs to be redone by a professional.
  • The newspaper ad doesn’t reproduce well because the owner was unfamiliar with the technical requirements for submission. Moreover, the amateur design creates a “Mom and Pop” impression that is exactly the opposite of the upscale image the business owner wanted.
  • The accounting system doesn’t properly categorize information for tax purposes. At the end of the year, the business owner has to pay his accountant for many hours of extra work to reorganize the year’s receipts.

But the likelihood of poor results isn’t (or shouldn’t be) the biggest concern. The fact is that most small businesses owe the continued success to one or two key factors… things that the business needs to do very well in order to thrive. Time spent on unfamiliar tasks, including the time needed to learn the necessary skills, can be very costly when it takes away from the business owner’s main job.

In other words, if you run an auto repair shop, your time is much better spent repairing cars, or supervising and training your crew, than in building a website or setting up an accounting system.

If something needs to be done for your business, take the do-it-yourself approach only if:

  1. You already have the required skills at a professional level, or
  2. The skills you must learn will be very important to your business in the future.

But what if you can’t afford a professional to do the job?

Look at alternatives. You don’t have the skills to do the job… but do you know someone who does? Can you barter services with a qualified professional? Or, can you make trade-offs in other areas of your business (for example, foregoing a new sign in order to pay for professionally designed newspaper ads).

Above all, keep in mind the time you will spend when you take on an unfamiliar task, and think about what you else could do with that time to advance your business.

20Feb

Why You Need a Business Plan

I was going to call this column “Do You Need a Business Plan?” But in truth, every business needs a business plan. It’s a common misconception that business plans are used only for raising capital, as in “my bank wants to see a business plan before they will approve a loan,” or, “I need a business plan so I can get venture funding.”

But a business plan is really just what it sounds like: a plan for running your business. It’s an essential tool for making sure that nothing is overlooked.

The business plan will usually be divided into sections relating to the key activities of your business, such as Sales, Hiring, Manufacturing, and so on. In each section you will list the major goals and tasks to be accomplished, and the steps needed to accomplish them. The steps should be in the form of a schedule, with a clear description of when each task will be done, who will perform the task, and what resources are needed. For very small businesses you may plan a year in advance, but a more typical planning timeframe is three to five years. Obviously your plan will be more detailed for the first year, and things will change over time – I’ll discuss that a little later.

In additional to these “operations” sections, your plan will have some informational sections that will be used in setting the operational goals. For example, what is the market opportunity that your company is pursuing? How do you know that the opportunity is real… what research have you done? Who are your major competitors, and what are their strengths and weaknesses? The information sections are especially important if you are using your business plan to raise capital, but they should not be neglected even if your company is self-funded. The information you gather about the market and your competitors is literally the foundation of your business plan.

The final key piece of your business plan is the financial section. At its simplest, this is just a running budget showing your projected expenses and income on a month-by-month basis, for the next 1 to 5 years. You can create this with a spreadsheet program.

In the operations section of your plan, you included a schedule of tasks, and that schedule should match your financial plan. For example, if you said that you would start advertising in April, you would spend $1500 per month, and the result would be a 20% increase in sales, then the $1500 per month advertising expense, as well as the increased sales, should be included in your financial plan.

Banks and venture firms will require the financial plan to be in a specific format; you may need an accountant to prepare this. But even if that’s the case, start will a financial plan that you create and understand. Make sure the financial plan matches your operational plans, and be sure you understand how every number was determined!

You’ll learn a lot in creating your business plan, and avoid many mistakes. But that’s just the start. Once your business plan is complete, don’t put it away! Consult it regularly. Be sure that you are on schedule to accomplish your operational goals. Be sure your actual income and expenses match your financial plan. And if reality doesn’t match your plan, figure out why and adjust the plan accordingly.

One of my clients initially projected that 65% of her business revenue would come from services her business provided, and 35% from product sales. Six months after the business was launched, we discovered that, although total revenue was very close to the plan, the ratio of service to product revenue was exactly the reverse of what had been projected.

This raised several possibilities. Perhaps not enough effort was being spent to promote the service side of the business. Or perhaps the product portion of the business was a simply bigger opportunity than originally thought, and more emphasis should be placed there! In either case, my client needed to do some additional thinking and update the business plan based on what she had learned. She talked to clients, met with product suppliers, and eventually decided to expand this portion of her business, resulting in significantly faster growth than originally projected.

Based on experiences such as this, I recommend that small businesses review their business plan at the end of each quarter, and that they conduct a thorough update of the plan at least once a year.

Want to learn more about business plans? A great place to start is SCORE, a free resource for small businesses and a partner with the US Small Business Administration.

Learn more about Starting you Business.

20Feb

The Ratings Are Coming!

Small businesses have always known the importance of word of mouth. Many successful businesses have been built on word of mouth referrals, and many have been killed by bad word of mouth.

But now the landscape is changing, making word of mouth more important than ever – only now, that word of mouth is being communicated on the Internet.

People – your customers – are turning to the Internet as their primary source of information on products and services. Instead of opening the yellow pages of their phone book, they turn to Yahoo or Google. And in addition to websites and listings for local businesses, they are finding ratings and reviews!

Sites like Amazon.com and ePinions pioneered product rating systems. In some categories, these ratings have become essential to a product’s success: more than 60% of consumer electronics purchasers report that they consult online ratings before making a purchase decision!

Ratings have also become common is a few other business categories, such as restaurants and hotels.

But the online ratings explosion is just starting; Internet entrepreneurs are demonstrating that virtually anything can be rated online.

RateMyProfessors.com, launched in 1999, allows college students to rate – well, professors. The site has accumulated over 3 million ratings, and has spun off another site, RateMyTeachers.com, aimed at high school and elementary students.

ApartmentRatings.com has the most comprehensive database of apartment ratings, with almost 250,000 reviews. RateMDs.com was formed to allow patients to rate their doctors. ClubRatingz.com, allows patrons to rate nightclubs and bars (perhaps while recovering from hangovers?)

Rating sites are even risking the wrath of the legal profession: LawyerRatingz.com provides attorney ratings and reviews.

All of these sites feature a fair share of rants and raves. Many of the comments are semi-coherent ramblings, often typed with CAPS LOCK down. But surprisingly, over time and with enough ratings, a fairly accurate picture emerges. Some reviewers provide well-thought reviews and useful information. And the sites are being visited and read!

The ratings phenomena may not have reached your industry or your community, but it probably will. So what can you do about it?

First, be aware of ratings sites. Use a search engine to look for rating sites in your area and business. (Search for things like landscaper ratings in Pittsburgh or hair salon reviews in Sacramento.) You may find that your business is already listed on a rating site. If it is, make sure that the basic listing information (business name, location, website) is correct, and if not, contact the site operator. If your business is not listed, see if there is a way to add your listing. Do not pay for this service! Legitimate rating sites are not supported by the businesses being rated! (However, a few sites offer enhanced “listings” for a small fee. Consider paying for this if the site seems to be well run and has a lot of traffic.)

Check the rating sites regularly. You might actually get some good information on how customers see your business, and where you need to make improvements.

Encourage your patrons to rate your business. Satisfied customers will give you good ratings. (Don’t try to “flood” a rating site with bogus reviews; many of these sites use algorithms to detect the source of ratings, and may even remove businesses that try to cheat.)

If you get a bad review, there’s probably not much you can do about it. The rating and review sites are on solid legal ground, and most will not remove bad reviews. However, some sites have a mechanism for responding to a review, so be sure to ask about this. If nothing else, you can submit your own review and calmly refute the complaints of other reviewers. Be careful to stay calm and professional, and not get into online debates that can damage your credibility.

In the end, business success is still based on word of mouth – but now more people are listening.

For a great list of business and professional rating sites, visit The Ratingz Network at www.Ratingz.net

For more information about rating and review websites, visit the Rating and Review Professional Association at RARPA.org.

20Feb

Don’t be a “Bad Service” Story

I’ve recently spent quite a bit of time looking at online reviews on the many online rating sites. I’ve noticed some interesting patterns.

First, the ratings don’t follow a “normal” distribution, in which most of the ratings fall in the middle. Instead, there tend to be clusters of high ratings and low ratings… often for the same product or service. This really isn’t surprising: people are most likely to write a review if they feel very strongly about something.

The high ratings generally extol the features or services provided, often at a low price. Stepping back, it really is remarkable how good products have become. It’s clear from the reviews that most people are very happy with most of their purchases.

But things get very interesting when we read the negative reviews. Some are complaints about features or product quality… but a large number are complaints about service. If a product breaks or fails in some way, the purchaser is unhappy. But if the manufacturer or seller does not provide prompt, courteous, and satisfactory service, the buyer becomes really angry – and that’s when the very negative reviews get written.

This carries over to the offline world as well. Very few people go out of their way to tell their acquaintances about a product that wasn’t very good. But if someone has a bad experience getting the product fixed, they will go to great lengths to tell everyone they can about the terrible service they received.

The lesson here is simple: take customer service seriously! When a customer has a complaint about a product, he is already unhappy. You as a business have an opportunity to turn him into a happy (or at least satisfied) customer, or into a very angry ex-customer.

Four simple things will head off becoming a “bad service” story:

  1. Respond quickly
  2. Respond courteously
  3. Work with the customer. It’s true that customers are sometimes unreasonable, and you can’t always give the customer what he would like. But be very clear that you are willing to work with the customer to arrive at a fair solution.
  4. Follow up to be sure that customer’s problem is resolved.

Providing reasonable service is pretty simple – it’s amazing more companies don’t do it.

Learn more at the Rating and Review Professional Association.

20Feb

Insider Guides to IRS Audits

Ever wish that, as a business owner, you knew exactly what would raise “red flags” at the IRS? Or how to make an IRS audit go as smoothly and painlessly as possible?

If you’re in the right type of business, you can get that information, directly from the IRS!

Traditionally, IRS examiners have been responsible for auditing many types of businesses. An examiner might audit a grocery store one week and a construction company the next. A lot of the examiner’s time was spent learning about the business.

To improve efficiency, the IRS launched the Market Segment Specialization Program (MSSP). Examiners now focus on specific types of businesses. To help the examiners understand each type of business business, the agency has developed training guides, called “Audit Techniques Guides.” The guides explain the standard practices for the business, and tell the examiners exactly where to look for potential problems. (For example, auto repair shops sometimes don’t report the parts they have in stock as inventory.)

The IRS has developed Audit Techniques Guides for dozens of business types, ranging from pizza shops to major league sports franchises. In addition, there are guides that deal with specific business practices, such as executive compensation, shareholder loans, or stock based compensation.

You can download the guides directly from the IRS website. There are other sites that distribute the ATGs as well, and some of them seem to have guides, perhaps a little out of date, that don’t appear on the IRS websites. (The best site I’ve found is at www.unclefed.com) You can find other ATG lists as well – just search the web for IRS Audit Techniques Guides.

20Feb

Buying a Small Business

We’ve previous talked about resources for starting a business.

Most of the time when people think about starting a business, they think about starting from scratch – but that can be a long and difficult process.

Buying an existing business may be an easier way to get started. With an existing business, you immediately have a customer base, cash flow, and established business processes.

Of course, there are also risks to buying an existing business. Methods and equipment may be outdated. There may be new competitors, staff problems, or hidden liabilities.

It will be much easier to see potential problems, and also to operate the business once you purchase it, if you choose a business type you already know about, and a business that does not exceed your management abilities in terms of size, staff, or financial flow.

After determining the type of business and approximate size, you can begin looking for business opportunities.

You can look for a business by advertising in newspapers or online, and even buy approaching existing businesses that match your criteria. You may even search online for businesses for sale. At this stage, networking is important… businesses you initially contact may not be interesting in selling, but could help you find other businesses for sale.

However you find candidate business for purchase, you’ll want to assemble an evaluation team, including your accountant, a business attorney, your bank representative if you will need financing, and potential one or more business advisors with knowledge of the type of business you’re considering.

You can save a lot of time and effort by working with a business broker. In exchange for a small percentage of the purchase price, a business broker will help you find candidate businesses, conduct research and evaluate the businesses, and negotiate terms. Bear in mind that a business broker is no substitute for doing your own financial and legal review, but the broker can be very valuable in helping you obtain the information you’ll need, and raising questions and issues that you may not have considered.

Your broker can also:

  • Help to assess your background and skill to focus your business search
  • Find business opportunities and make sure they meet your criteria
  • Get answers to initial questions such as why the business is being sold, whether financing is available, and how much transitional management help the seller can provide
  • Provide a checklist for reviewing business records, physical facilities, inventory, staff, and even competitors
  • Work with your own accountant to evaluate the business and establish a business valuation
  • Facilitate the purchase by negotiating terms, and by managing paperwork to meet business and legal requirements for the transfer of the business
  • Work with you and the seller to put in place a transition plan to operate the business during and after the purchase process

The broker may also help find ways to finance the business. In addition to upfront cash and bank financing, there are many other options, including seller financing, lease-to-own, issuing stock, obtaining loans against receivables or selling business assets.

Current employees of the business may also be interested in buying shares and becoming part owners. Besides helping with financing, this can be a good way to build loyalty, provided you’ve done a good job of evaluating the employees, and determining if they are people you want to have as partners.

Buying a business is a major step, but assembling a strong team of advisors, and working with a professional business broker, can greatly increase your chances of finding the right business, and making a successful purchase.

20Feb

Starting a Small Business

You may be starting a business as a full-time livelihood. Or you may be building a hobby into a business as a way to supplement your income.

Whereever you are starting, and whatever your goals. as soon as you accept money for goods or services, you are in business.

And once you’re in business, you are subject to licensing, regulation, and taxation. You have expenses to cover, and commitments to meet.

There’s a lot to know about starting a business properly, to avoid legal problems, and hopefully to make a profit. The purpose of this article is to provide some resources you can use to get started on the right foot.

The author is not an accountant or a lawyer, and cannot provide legal or financial advice. However, the resources provided here can help you learn the basics, and save you time and money when you actually consult a lawyer or accountant.

Resources

  1. Visit SCORE (score.org), an organization of retired business people who advise and help entrepreneurs and small businesses. They have a lot of great information and resources on their website. They also have offices in most large cities, where you can get in-person advice. Note that SCORE is partially funded through the US Small Business Administration (SBA). Your tax dollars are at work, so take advantage.
  2. The SMALL BUSINESS ADMINISTRATION also operates its own website with useful info and resources for small businesses, atsba.gov
  3. Visit you local library. Libraries are often overlooked in the age of the Internet, but they have lots of information on starting a business, and especially local regulations. Ask to see the REFERENCE LIBRARIAN.
  4. Check your local COMMUNITY COLLEGES; they often have short courses on starting a business. This may seem like a big delay when you are anxious to get your business started, but some solid instruction in the basics of running a business can make the difference between success and failure. You’ll learn a lot, and also get a chance to network with other new business owners.
  5. If you need to trademark a product name, you’ll probably need professional help. To understand the basics for yourself, read theNOLO PRESS book Trademark: Legal Care for Your Business & Product Name.
  6. Another useful site with lots of great information is powerhomebiz.com
  7. You may decide to form a legal “business entity” such as a corporation, LLC, or Partnership for your business. Legal entities can provide tax benefits and liability protection. Before you talk to a lawyer, we recommend learning the basics by reading Incorporate Your Business: A Legal Guide to Forming a Corporation in Your State (book with CD-Rom)
  8. Consider joining your local CHAMBER OF COMMERCE. It’s a good way to network with other business owners and talk about common problems. And many chamber members prefer to patronize other member businesses, so it’s a good way to gain new customers.

Finally, it’s very important for most businesses to have a professional website, and to understand Internet marketing. Studies show that over two-third of consumers in the US now rely on the Internet as their first source of information when looking for local products and services.

For professional graphic design, website development, and Internet marketing, contact LunaGraphica Inc.

20Feb

You Can’t be Number One on Google!

As an Internet marketing and Search Engine Optimization (SEO) consultant, I often get requests like this:  “I need to be number one on Google, and I don’t have a lot of money to spend.  How cheaply can you do it, and how long will it take?”

Sadly, the answer to this type of request is usually, “You can’t be number one on Google.”

If you think about it, you will understand why.  Imagine for a moment that, as an SEO expert, I have a magic wand that I can wave to instantly move your website to the top of the search results for any search terms you choose.  As soon as I do that, one of your competitors will pay their SEO consultant to wave a magic wand, and move their website to first place, ahead of yours.  Then another competitor will pay another consultant, and then another, and another.

Soon there are thousands of SEO consultants waving magic wands.  But since there is only one first place, and only ten listings on the first page of search results, it’s clear that most of the competitors will not be on the first page.

Furthermore, Google, Yahoo and Bing (the big three search engine companies in North America) don’t really like SEO consultants doing things to affect search engine positioning, so they regularly “break the magic wands” by changing their algorithms.

The Internet once held the promise of leveling the playing field, so very small companies could compete with very big companies.  But as the Internet has grown, it’s become more competitive.  It’s now difficult and expensive to get good visibility in search engines.

Of course, the competition varies depending on your business.  If you are a taxidermist and you want to promote your services to people in San Diego, California, it won’t be too hard to achieve good results because there are a relatively small number of local competitors.  But if you are a mortgage company and you want to reach customers throughout the United States, it will be very hard and very expensive to achieve top placement in the major search engines.

Also, results take longer to achieve than in the past.  The major search engine companies intentionally delay changes in search engine positioning in order to thwart SEO practitioners (this is just one way in which Google “break the magic wands”).  So instead of 4-6 weeks, expect to wait 3-4 months for significant results.

What You Can Do

So how can you use the Internet to promote your business?

FIRST: understand that Internet marketing is no longer a quick and inexpensive way to bring traffic to your website, but it is actually more important than ever.  In a recent study, almost 80% of respondents stated that the Internet is now their primary source of information when choosing products and services.  In other words, having an effective web presence is now the single best way to reach your potential customers.

So you need to plan and budget for ongoing Internet marketing, just as in the past you may have paid for regular newspaper ads, radio spots, or direct mail.  Consider shifting some of your ad spending from traditional media to the Internet, or possibly even increasing your overall marketing budget in order to take advantage of Internet opportunities.  Most companies don’t yet have a good Internet marketing strategy, so there is an opportunity for you to get ahead of your competitors by establishing a strong web presence now.

NEXT:  recognize that Internet marketing is more than just search engine optimization.  Depending on your needs and your type of business, you may need to consider SEO, link building campaigns, Pay-Per-Click advertising, banner ads and sponsorships, affiliate programs, e-mail list promotions, blogging, article syndication, Internet community pages, or other techniques.  Unless you plan on becoming an expert in Internet marketing, you should find a full-service consultant who can explain the options and help you to choose the most effective programs for your business and budget.

FINALLY:  be suspicious of anyone who promises extraordinary results.  There are still a few SEO tricks that can deliver fast results, but the search engine companies actually monitor for sites using these tricks.  In most cases they will quickly lower your position in the search ranks, and in some cases even remove your site from the search results entirely.  As the old maxim says, if something sounds too good to be true, it probably isn’t true.

The author can be reached for Internet marketing assistance by contacting LunaGraphica Inc.