How to Help Employees Establish Better Habits at Work
Habits can be maximized every day by using targeted micro-activities: simple actions that take only a few minutes and prime people to engage in positive behaviors for the rest of the day.
By Adam Fridman, Founder and President, ProHabits.com
Habits are capable of addressing far-reaching issues, from customer service to engagement, and even purpose. Leaders across industry lines have caught on, and habits are quickly becoming the way business leaders approach human capital management (HCM). As the science of habits continues to advance, effective strategies are emerging that provide proven means to effect organizational change.
The advantage of habits extends beyond their effectiveness for organizations—they provide a means to create a scalable and cost-effective HCM strategy. Unlike other approaches, targeting habits doesn’t require large lumped expenditure on consultants or coaches. Habits can be maximized every day by using targeted micro-activities: simple actions that take only a few minutes and prime people to engage in positive behaviors for the rest of the day.
Micro-activities are ultimately the key to a business’ habits strategy, but first I should address what business leaders are always asking me: “How do habits change?” Because, while the use of habits is growing quickly with business leaders, most don’t understand how to make use of habits in their organization—or even what habits to target. What changing habits ultimately comes down to is a two- step process:
2. Making it stick
Easier said than done, right?
Fortunately, both of these steps can be broken down into smaller bites to tackle separately.
The first move to change behavior in an organization is almost always met with resistance, and, in fact, is shown to be the biggest reason for failure. So, the first step is really about “breaking the ice” with your team to get them on board and excited for change. Doing this means offering your team a vision for what your organization is to become and what their place in the new order will be.
Research has shown that when you make a public commitment to change your behavior, and thus feel accountable, you are more likely to actually stick to change. So, in any change initiative, this should be your first step—have your team publicly commit to new behaviors and each personally take accountability for them.
One problem I see time and again at organizations is that they think they can spur on habit change with the equivalent of a carrot on a stick: a bonus here or there, or perhaps some kind of benefit. These approaches are ultimately ineffective, because they encourage people to do just enough to merit a reward—encouraging the bare minimum.
Leveraging intrinsic reward is more effective—and cheaper. Intrinsic reward is all about what is rewarding by itself without any added incentives—something that if done for its own sake would be worth it. In the context of work, this means aligning new behaviors to the bigger organizational purpose. The more your team sees themselves thriving in a new system, the more ready they’ll be.
Making It Stick
People are creatures of habit, so it’s more comfortable for your employees to just keep on going with their old bad habits than to create new ones. Rather than faulting them for this, take possible resistance into mind when crafting your strategy for change.
When new habits have been thrown into the mix, people become uncomfortable—not just because they aren’t used to new things being done, but because it requires a focused effort to keep up with them. Aside from sheer force of will, there are two essentials for keeping new habits fresh:
2. Changing norm
When attempting to change behavior, organizations tend to follow a similar arc. First, everyone is motivated and on board with the new initiative and can’t wait to start fresh. But as time goes on, motivation wanes and people begin to neglect or simply forget to engage in the new habits. This is where behavioral cues come in.
Behavioral cues are little daily reminders that re-motivate people to continue with their new habits. They offer a gentle nudge that doesn’t feel accusatory and keep them connected to the reason they committed to change in the first place.
In the long run, if habits are going to stick, organizational culture needs to change. This is why whenever you’re changing organizational habits, you need to plan to change the norms, as well. Additionally, this helps establish a standard of accountability to refer to when ambiguity arises.
Changing your team’s habits is all about the little things they do every day at the moment they’re doing them. You can sit in meetings and strategize about new initiatives all day and think about them endlessly, but if you aren’t inspiring them daily, it’s not going to work. This is why micro-actions are the key to initiating the model of change outlined above.
Micro-actions are little prompts for your team that can be engaged daily and take only a short time to complete but can reframe their entire day. Like dominos, by inspiring one targeted behavior, you position your team to engage in other positive behaviors throughout the day. Research in the science of positive psychology has demonstrated that these little actions can have a big impact in organizations.
Here are some examples to take with you and share with your team:
- Engage in interpersonal focus. For this, you plan to focus specifically on other people during your day, giving those you interact with your undivided attention.
- Set mini-milestones. Take apart a big task you have for the day and break it into smaller segments. After you complete each segment, give yourself a little reward.
- Just breathe. Take a few moments out of your day to practice mindfulness and focus on controlling your breathing.
Habits are the little actions we do all day every day, and they define our organizations. Through small scientifically established steps, we can harness habits and transform our organization for the better. By utilizing small daily actions that target specific behaviors, we can keep new habits strong and settle in for long-term positive change.
Adam Fridman is a best-selling author and the founder and president of ProHabits.com, a platform that integrates the science of human psychology with corporate philosophies and technology, allowing leaders to nurture their employees’ personal growth while developing positive behaviors.
Training Magazine (2019). How to Help Employees Establish Better Habits at Work. Retrieved from https://trainingmag.com/how-help-employees-establish-better-habits-work/.
The Power of Positive
The latest research shows how critical it is for organizations to have managers who are prepared to be positive leaders—managers who actively encourage productivity, engagement, commitment, and performance.
By Scott Blanchard, Principal and Executive Vice President, The Ken Blanchard Companies
My father, management expert Ken Blanchard, recently celebrated his 80th birthday and released the newly revised third edition of the bestselling “Leading at a Higher Level.” As a part of the review and revision process, we checked in on some of the assumptions we have been making about good leadership to see if they still hold true.
We were pleased to find out that the core leadership principles that leadership, learning, and talent development professionals have always known—and the philosophies my father has written and talked about for years—are still true. More important, we now know why and how they are true.
The latest research shows how critical it is for organizations to have managers who are prepared to be positive leaders—managers who actively encourage productivity, engagement, commitment, and performance. This kind of manager helps motivate people to want to stay with the organization.
Self-Focused Versus Others-Focused Leaders
We know from our own research on employee work passion that you can’t expect people to have positive behaviors— such as willingness to cooperate, to work across boundaries, to endorse the company and its leadership, and those sorts of things—unless they have a leader who they perceive has their best interests at heart.
One of the things we’ve identified more recently is that there are two distinct types of leaders as perceived by workers. The first is an others-focused leader—someone people see as being there to support them and being trustworthy. In different contexts, this kind of leader is referred to as a servant leader, situational leader, or purpose-driven leader.
On the other side is a self-focused leader—someone people see as being focused only on themselves. Under this kind of a leader—also referred to as a self-serving leader—people feel less valued and less important, as if they are interchangeable. They feel a distance between themselves and their manager.
When people perceive their manager as having their back and being focused on catching them doing things right, they want to work harder on behalf of the company, be a good team player, and apply discretionary effort. But when people perceive their leader as engaging in self-serving behaviors, it’s discouraging to them and contributes to a negative workplace environment.
Dr. Drea Zigarmi, our longtime director of Research and one of the founding associates of our company, has spent decades studying leader behaviors that impact employee performance. He recently published research that looked at behaviors associated with self-focused leaders versus others-focused leaders. When he broke those behaviors down into specific dimensions, he found that self-focused leaders tend to be more controlling, where others-focused leaders are more facilitating and enabling.
The research looked at the effectiveness of athletic coaches who used a controlling versus a facilitating approach. Some of the selectable controlling behaviors in the survey, which was given to players who worked with these coaches, included:
- My coach tries to motivate me by promising to reward me if I do well.
- My coach only rewards me to make me train harder.
- My coach only uses rewards and praise so I can stay focused on the tasks during training.
Other behaviors in the survey were categorized as “negative conditional regard,” such as:
- My coach is less friendly with me if I don’t make the effort to see things his or her way.
- My coach is less supportive of me when I’m not training and competing well.
Intimidation was a third dimension that was explored:
- My coach shouts at me in front of others.
- My coach threatens to punish me.
- My coach intimidates me into doing things he or she wants me to do.
- My coach embarrasses me when I don’t do things he or she wants.
Finally, under the category of excessive personal control:
- My coach expects my whole life to center around my work.
- My coach tries to control what I do during my free time.
- My coach tries to interfere with the aspects of my life outside of my work.
Even though these questions are about coaches, I think you can imagine other kinds of leaders using some of these same negative behaviors. These types of leaders crush people’s positive intentions—the ones great organizations strive for.
Research into Hiring Success Factors
We’ve also been studying a fascinating concept called locus of control. A locus of control can be thought of as a sense of accountability. It’s the extent to which people believe they have control over their own outcomes. About half of people believe they have an internal locus of control, and the other half see themselves as having an external locus of control.
If you have an internal locus of control, you believe that through your efforts, thoughts, determination, and creativity, you can achieve success in getting the kind of outcomes you’re looking for at work.
An external locus of control is when you believe outcomes are contingent upon things in your external environment such as financial rewards, pleasing your manager, or being given permission to do something or not.
In working with consulting firm Hireology, we’ve found that a candidate with an internal locus of control has a 40 percent greater likelihood of success in a new role.
A second predictor is a positive work attitude—a predisposition of satisfaction toward one’s work that persists across job experiences. It’s about the need, desire, and motivation to work.
A third predictor is prior related job success—if goals for past jobs were similar to those for the job at hand.
A fourth predictor is culture fit—the degree to which the candidate shares similar values with the organization and demonstrates an authentic interest in the job at hand. This is a question of values.
Impact on Reinforcing Behavior
Not only are these attitudes important in terms of hiring, they’re also important to maintain when reinforcing someone’s behavior at work.
Others-oriented managers support hard work. They encourage a sense of personal accountability and culture fit through positive behaviors. They help people create results—job success based on intrinsic rather than extrinsic motivation. It is imperative that these four qualities are allowed to be demonstrated and not quashed.
Frankly, self-focused managers kill performance. They destroy people’s initiative and discourage loyalty, accountability, and motivation. Conversely, managers whose people perceive them as others-focused reinforce the four job success predictors and create positive intentions.
We’ve always known that a manager is important to employees in terms of helping them achieve their work goals, as well as helping create high levels of performance and work passion. Now we know that the way a manager operates can actually influence a person’s fundamental outlook on his or her job and life, either negatively or positively.
For example, a manager who is overly controlling can negatively alter the way his or her team members think and act and what they believe about themselves. This kind of manager may cause people to develop an external locus of control and force them down a path where they become compliant—or worse, unmotivated—where they stop caring, and lose their intention to perform at a high level. This manager ends up with robotic employees who do only what they’re told to do or what they’re rewarded to do.
On the other hand, a good manager who is empowering and supportive can positively shift the way his or her team members think, act, and view themselves. This kind of manager will encourage people to develop an internal locus of control—a huge predictor of individual success. This manager ends up with high-achieving employees who are passionate about their work.
If you want your people to take ownership of their jobs, produce better results, and provide legendary service, elevate and train your managers to be others-oriented. It’s a proven model that has worked well for more than 40 years.
Scott Blanchard is a principal and executive vice president of The Ken Blanchard Companies. For more information, visit: www.kenblanchard.com
Training Magazine (2019). The Power of Positive. Retrieved from https://trainingmag.com/trgmag-article/power-positive/.
DO EMPLOYEES REALLY WANT TO BE CHALLENGED?
By Margery Weinstein, Training Magazine
I was thinking about corporate culture last week because I’m currently in a great culture—not because I have bosses who are especially sensitive or interested in my development, but because every Friday a movie that recently appeared in a movie house is shown on a wall-length screen in our employee lounge area, and we get an unlimited amount of gourmet coffee from our own coffee bar, staffed by a professional barista. I’m not kidding! At one time, I would have just been excited to have an employee lounge area, let alone movies on Fridays and all the gourmet coffee I could want.
Is this exciting level of indulgence “corporate culture,” or is it something else? I researched it, and found “The 2019 Digest of the Most Valuable Company Culture Statistics,” written by Jeff Previte. An array of statistics are covered about the employee experience, and what a modern-day workforce expects, but what got me was this statistic: Some 30 percent of people told the Employer Brand Research Report that they leave a company because of “lack of challenging work.”
When I think of why I would leave a company, “lack of challenging work” doesn’t make it into the top 10 reasons, or even the top 100, as I look at challenging work in the light of overwhelming projects, crazy deadlines, and overcomplicated processes. I Googled “Do people truly like to be challenged?” and couldn’t find anyone who had answered that simple question. However, I found many pages on how to challenge yourself further, how to manage challenges, and even what to do if—gasp! Say it isn’t so!—you work with people who don’t like challenges. My suspicion is the vast majority of people don’t like challenges—at least the way I’m defining them here.
I believe many people leave companies because the work is too challenging, meaning processes are not streamlined enough, and the workload is overwhelming. The pay and benefits don’t warrant the level of work-life difficulty the job requires.
Instead of racking your brain for ways to create challenges for employees, leadership development and manager training should focus on just the opposite—“work smarter, not harder” strategies. The mark of great managers is they can take a huge task, and find ways to organize it and space out due dates, so it becomes manageable and less challenging. If challenge was so beloved, ineffective managers would be beloved. After all, there’s nothing easier for a manager, and more challenging for employees, than to have a big mess of a project dumped on their laps and be told to figure it out and finish it within a week; challenging, but not fun to most people.
Streamlining and simplifying assignments for employees could be a whole course or series of learning modules unto itself. Streamlining and simplification go against some people’s natural inclinations. Not mine, as I am always looking for ways to eliminate challenge and unnecessary complexity. As I’ve written previously, a person who works over me reflexively adds difficulty to any problem he is asked to solve. Inevitably, his “solutions” add process and work. When extra steps and tasks are added, the solution often isn’t viable because it isn’t livable. It’s like a doctor or nutritionist imposing an unrealistic dietary regimen that’s so challenging and unpleasant, it makes failure a certainty.
In addition to teaching managers and executives to develop business solutions that streamline and simplify workflow, are there other ways a company can make employees’ lives less challenging?
Born-to-wealth bon vivants and fabulously wealthy entrepreneurs are looking for ways to fly hot-air balloons around the world, climb Mount Everest, or pay hundreds of thousands of dollars to experience zero gravity on the “vomit comet.” For most of the rest of us, getting out of bed early and going to an office to do work you’re not in the mood to do is challenge enough.
Do you have any tips for training bosses to keep work output productive while making employee work lives easier?
Training Magazine (2019). Do employees really want to be challenged? Retrieved from https://trainingmag.com/do-employees-really-want-be-challenged/ .
The SBA helps women entrepreneurs launch new businesses and compete in the marketplace. Connect with the training and funding opportunities specifically for women.
Office of Women’s Business Ownership (OWBO)
The Office of Women’s Business Ownership helps women entrepreneurs through programs coordinated by SBA district offices. Programs include business training, counseling, federal contracts, and access to credit and capital.
The OWBO oversees Women’s Business Centers (WBCs). These centers seek to level the playing field for all women entrepreneurs, who still face unique obstacles in the business world.
Businesses receiving assistance from WBCs see a significantly better success rate than those without similar support.
Funding for women-owned small businesses
The 8(a) Business Development program helps small, disadvantaged businesses compete in the marketplace. Check with WBCs and local assistance resources for guidance, and SBA’s Lender Match tool for finding capital.
Women-owned small businesses can also take advantage of SBA loan programs. Their partners offer advice and counseling to help choose the right path for your company.
Women-Owned Small Businesses (WOSB) Federal Contracting program
This program helps women-owned small businesses compete for federal contracts. Understand the eligibility requirements before applying.
The SBA also works with federal agencies to increase contracting opportunities and achieve the government’s five-percent contracting goal for women-owned small businesses. Keep an eye out for matchmaking events targeting both the federal and private procurement.
Other resources for women-owned businesses
National Women’s Business Council (NWBC)
The National Women’s Business Council is a non-partisan federal advisory council serving as an independent source of advice and counsel to the President, Congress, and the U.S. Small Business Administration. The Council is the government’s only independent voice for women entrepreneurs, tackling important and relevant economic issues.
Get training online with DreamBuilder
DreamBuilder introduces participants to all areas of business ownership through a carefully crafted and engaging curriculum, featured in English and Spanish. At the conclusion of the program, women leave with a business plan to start their own business or develop an existing one.
Scan below for more partner resources on women-owned small business.
- Association for Enterprise Opportunity (AEO)
- Association of Women’s Business Centers (AWBC)
- National Association of Women in Construction
- National Association of Women in Real Estate Businesses (NAWRB)
- National Association of Women’s Business Owners (NAWBO)
- U.S. Women’s Chamber of Commerce (USWCC)
- Women’s Business Enterprise National Council (WBENC)
- Women Impacting Public Policy (WIPP)
- Women’s Presidents’ Organization (WPO)
U.S. Small Business Administration (2019). Women-owned businesses. Retrieved from https://www.sba.gov/business-guide/grow-your-business/women-owned-businesses.
Calculate Your Startup Costs
How much money will it take to start your small business? Calculate the startup costs for your small business so you can request funding, attract investors, and estimate when you’ll turn a profit.
Calculate your business startup costs before you launch
The key to a successful business is preparation. Before your business opens its doors, you’ll have bills to pay. Understanding your expenses will help you launch successfully.
Calculating startup costs helps you:
- Estimate profits
- Do a breakeven analysis
- Secure loans
- Attract investors
- Save money with tax deductions
Identify your startup expenses
Most businesses fall into one of three categories: brick-and-mortar businesses, online businesses, and service providers. You’ll face different startup expenses depending on your business type.
There are common startup costs you’re likely to have no matter what. Look through this list, and make sure to add any other expenses that are unique to your business.
- Office space
- Equipment and supplies
- Licenses and permits
- Lawyer and accountant
- Employee salaries
- Advertising and marketing
- Market research
- Printed marketing materials
- Making a website
Estimate how much your expenses will cost
Once you have your list of expenses, you can estimate how much they’ll actually cost. This process will be different for each expense you have.
Some expenses will have well-defined costs — permits and licenses tend to have clear, published costs. You might have to estimate other costs that are less certain, like employee salaries. Look online and talk directly to mentors, vendors, and service providers to see what similar companies pay for expenses.
Add up your expenses for a full financial picture
Once you’ve identified your business expenses and how much they’ll cost, you should organize your expenses into one-time expenses and monthly expenses.
One-time expenses are the initial costs needed to start the business. Buying major equipment, hiring a logo designer, and paying for permits, licenses, and fees are generally considered to be one-time expenses. You can typically deduct one-time expenses for tax purposes, which can save you money on the amount of taxes you’ll owe. Make sure to keep track of your expenses and talk to your accountant when it’s time to file your taxes.
Monthly expenses typically include things like salaries, rent, and utility bills. You’ll want to count at least one year of monthly expenses, but counting five years is ideal.
Add up your one-time and monthly expenses to get a good picture of how much capital you’ll need and when you’ll need it.
Use your startup cost calculations to get startup funding
It’s a good idea to create a formal report of your expected startup costs.
You want it in a format that’s clear and easy to understand. Investors and lenders compare expected costs to projected revenue and determine the potential for your business to profit.
U.S. Small Business Administration (2019). Calculate your startup cost. Retrieved from https://www.sba.gov/business-guide/plan-your-business/calculate-your-startup-costs.
HOW TO HANDLE CUSTOMER COMPLAINTS
5 strategies that can help resolve a customer complaint in a smooth and professional manner
By Amanda Herder, Account Manager, Signature Worldwide
Complaints happen every day. When a customer complains, it is usually for a good reason or genuine concern. They usually have made a purchase that did not meet their expectation—a product, service, or maybe a combination of the two. In the customer service industry, we cannot avoid complaints. We must take care of the customer by listening to the complaint, and resolving it, to ensure a happy customer.
Fewer than half of unhappy customers will bring a complaint to your attention. Those who never say anything will tell an average of 11 other people about their bad experience. It is important that we recognize complaints as opportunities, so we can sway these averages, one resolved complaint at a time.
Customers want to know someone is listening and they are understood, and they are hoping you are willing to take care of the problem to their satisfaction. No matter what the situation is, when a customer brings a complaint to your attention—even if they do it in a less-than-desirable way—be thankful. As the old saying goes, “We can’t fix it, if we don’t know it’s broken.” Moreover, we must realize that improper handling of a customer complaint can be costly to the business.
Here are five strategies that will help you handle a customer complaint in a smooth and professional manner:
- Stay calm. When a customer presents you with a complaint, keep in mind that the issue is not personal; he or she is not attacking you directly but rather the situation at hand. “Winning” the confrontation accomplishes nothing. A person who remains in control of his or her emotions deals from a position of strength. While it is perfectly natural to get defensive when attacked, choose to be the “professional” and keep your cool.
- Listen well. Let the irate customer blow off steam. Respond with phrases such as, “Hmm,” “I see,” and “Tell me more.” Do not interrupt. As the customer vents and sees you are not reacting, he or she will begin to calm down. The customer needs to get into a calm frame of mind before he or she can hear your solution—or anything you say, for that matter.
- Acknowledge the problem. Let the customer know you hear what he or she is saying. If you or your company made a mistake, admit it. If you did not make a mistake and it is a misunderstanding, simply explain it to the customer: “I can see how that would be incredibly frustrating for you.” You are not necessarily agreeing with what the customer is saying, but respecting how he or she perceives and feels about the situation. An excellent phrase for opening up this particular conversation would be, “So, if I understand you correctly…” After the customer responds, follow up with, “So, if I understand you correctly, we were to resolve the problem by noon today. I can see how that must be frustrating for you.” Then be quiet. Usually, the customer will respond with “That’s right” or “Exactly.” By repeating to the customer what you think you heard, you lower his or her defenses, and win the right to be heard.
- Get the facts. After listening, take the initiative in the conversation. Now that the customer has calmed down and feels you have heard his or her side, begin asking questions. Be careful not to speak scripted replies, but use this as an opportunity to start a genuine conversation, building a trusting relationship with your customer. To help you understand the situation, get as many details as possible.
- Offer a solution. This happens only after you have sufficient details. One thing to keep in mind: Know what you can and cannot do within your company’s guidelines. Making a promise you cannot commit to will only set you back. Remember, when offering a solution, be courteous and respectful. Let the customer know you are willing to take ownership of the issue, even if it was out of your control. Take charge of the situation and let the customer know what you are going to do to solve the problem.
A quick follow-up phone call a few days later to make sure everything is OK is icing on the cake. Even a small gesture of apology can turn this interaction from disaster to legendary. The cost could be minimal—maybe a simple upgrade on the customer’s next purchase or a small gift certificate. A simple gesture like this could result in a future referral or a positive word-of-mouth marketing recommendation.
When you resolve customer complaints successfully, you will better understand their needs, retain them as loyal customers, and enhance your business.
Amanda Herder is an account manager for Signature Worldwide, a Dublin, OH-based company offering sales and customer service training, marketing, and mystery shopping services for a variety of service-based industries. For more information, call 800.398.0518 or visit www.signatureworldwide.com. You also can connect with Signature on Twitter @SignatureWorld and on Facebook.
Expand to New Locations
Once you’re ready to expand, update the marketing plan and confirm that your business is financially prepared. Then, make sure to comply with all laws, rules, and regulations in the new business locations.
Prepare for a new market
First, update your marketing plan with your new location in mind. Think about your target customer, sales plan, and competitive advantage. Add up any additional marketing and sales costs. Make sure your updated marketing plan is just as thorough as your initial plan.
Compare your business to the competition, learn about the local market, and get a sense of the advertising market with SizeUp, a helpful business analysis tool provided by SBA.
Next, review your business finances. Build a forecast that projects estimated costs and estimated revenue for your new location. Take a close look at your balance sheet to make sure you can cover the costs of expanding. If you don’t have enough capital, you can try to get more funding.
Legal steps to expand your business
Expanding your business to a new state, county, or city isn’t very different from opening a new business there. You’ll want to make sure you register your business with the right agencies and pay the appropriate taxes.
License, permit, and zoning rules
These rules vary across states and localities. Getting licenses and permits in new locations is similar to getting them in your home state.
If you already have a permit or license from a federal agency, check with the issuing agency to confirm you can legally operate in a new state. Also, see whether your new state, county, and city governments require a new license or permit. Start by visiting your state’s website.
If you plan to expand your business to a new state, you might need to file for foreign qualification in that state. This process notifies the new state that your business is active there.
To foreign qualify, file a Certificate of Authority. Many states also require a Certificate of Good Standing from your state of formation. Each state charges a filing fee, but the amount varies by location and business structure.
Check with state offices to find out foreign qualification requirements and fees.
Pay taxes in new states and localities
If you do business in a new state as a foreign qualified business, you’ll typically need to pay taxes and annual report fees in the new state as well as your home state. The process for foreign qualified businesses to pay taxes is similar to any other business that needs to pay taxes in the state.
Keep in mind that not every state and locality has a sales tax. In addition, most states have tax exemptions on certain items, such as food or clothing. If you charge sales tax, you need to be familiar with applicable rates.
Pay taxes for online sales
If your business has a physical presence in a state — such as a store, office, or warehouse — you must collect applicable state and local sales tax from your customers in that state. If you don’t have a physical presence in a particular state, you’re not required to collect sales taxes.
Determining which sales tax to charge can be a challenge. Many retailers use online shopping cart software that automatically calculates sales tax rates. Make sure your sales plan accounts for the various state rates.
There are two primary ways you could expand your business with franchising.
The first is to buy a franchise, which is similar to buying an existing business. This option tends to cost more upfront, but can be less risky than trying to start from scratch.
The second way is to build your own franchise. Businesses that are good candidates for franchising have a few traits in common.
- Product or service is superior and appeals to potential business owners
- Concept and operations are easy to teach
- Business is easy to duplicate in new markets
The federal government and many states have requirements that must be met in order for you to sell franchises, so you may want to hire an attorney. Once you’ve begun franchising, some states remain active in the relationship between you and your franchisees by monitoring territorial rights or limiting the transfer and renewal of your franchises.
Franchising has more costs than many other types of businesses. You’ll probably need to pay lawyers, accountants, and advertising staff. Don’t forget about training the employees and building systems you’ll need to run the franchise.
U.S. Small Business Administration (2019). Expand to new locations. Retrieved from https://www.sba.gov/business-guide/grow-your-business/expand-new-locations.
Choose Your Business Name
You can find the right business name with creativity and market research. Once you’ve picked your name, you should protect it by registering it with the right agencies.
Register your business name to protect it
You’ll want to choose a business name that reflects your brand identity and doesn’t clash with the types of goods and services you offer.
Once you settle on a name you like, you need to protect it. There are four different ways to register your business name. Each way of registering your name serves a different purpose, and some may be legally required depending on your business structure and location.
- Entity name protects you at state level
- Trademark protects you at a federal level
- Doing Business As (DBA) doesn’t give legal protection, but might be legally required
- Domain name protects your business website address
Each of these name registrations are legally independent. Most small businesses try to use the same name for each kind of registration, but you’re not normally required to.
4 different ways to register your business name
An entity name can protect the name of your business at a state level. Depending on your business structure and location, the state may require you to register a legal entity name.
Your entity name is how the state identifies your business. Each state may have different rules about what your entity name can be and usage of company suffixes. Most states don’t allow you to register a name that’s already been registered by someone else, and some states require your entity name to reflect the kind of business it represents.
In most cases, your entity name registration protects your business and prevents anyone else in the state from operating under the same entity name. However, there are exceptions pertaining to state and business structure.
Check with your state for rules about how to register your business name.
A trademark can protect the name of your business, goods, and services at a national level. Trademarks prevent others in the same (or similar) industry in the U.S. from using your trademarked names.
For example, if you were an electronics company and wanted to call your business Springfield Electronic Accessories and one of your products Screen Cover 5000, trademarking those names would prevent other electronics businesses or similar products from using those same names.
Businesses in every state are subject to trademark infringement lawsuits, which can prove costly. That’s why you should check your prospective business, product, and service names against the official trademark database, maintained by the United States Patent and Trademark Office.
Doing Business As (DBA) name
You might need to register your DBA — also known as a trade name, fictitious name, or assumed name — with the state, county, or city your business is located in. Registering your DBA name doesn’t provide legal protection by itself, but most states require you to register your DBA if you use one. Some business structures require you to use a DBA.
Even if you’re not required to register a DBA, you might want to anyway. A DBA lets you conduct business under a different identity from your own personal name or your formal business entity name. As an added bonus, getting a DBA and federal tax ID number (EIN) allows you to open a business bank account.
Multiple businesses can go by the same DBA in one state, so you’re less restricted in what you can choose. There’s also more leeway in the clarity of business function. For example, a small business owner could use Springfield Electronic Accessories for their entity name but use TechBuddy for their DBA. Just remember that trademark infringement laws will still apply.
Determine your DBA requirements based on your specific location. Requirements vary by business structure as well as by state, county, and municipality, so check with local government offices and websites.
If you want an online presence for your business, start by registering a domain name — also known as your website address, or URL.
Once you register your domain name, no one else can use it for as long as you continue to own it. It’s a good way to protect your brand presence online.
If someone else has already registered the domain you wanted to use, that’s okay. Your domain name doesn’t actually need to be the same as your legal business name, trademark, or DBA. For example, Springfield Electronic Accessories could register the domain name techbuddyspringfield.com.
You’ll register your domain name through a registrar service. Consult a directory of accredited registrars to determine which ones are safe to use, and then pick one that offers you the best combination of price and customer service. You’ll need to renew your domain registration on a regular basis.
U.S. Small Business Administration (2019). Choose your business name. Retrieved from https://www.sba.gov/business-guide/launch-your-business/choose-your-business-name.
Market Research and Competitive Analysis
Market research helps you find customers for your business. Competitive analysis helps you make your business unique. Combine them to find a competitive advantage for your small business.
Use market research to find customers
Market research blends consumer behavior and economic trends to confirm and improve your business idea.
It’s crucial to understand your consumer base from the outset. Market research lets you reduce risks even while your business is still just a gleam in your eye.
Gather demographic information to better understand opportunities and limitations for gaining customers. This could include population data on age, wealth, family, interests, or anything else that’s relevant for your business.
Then answer these questions to get a good sense of your market.
- Demand: Is there a desire for your product or service?
- Market size: How many people would be interested in your offering?
- Economic indicators: What is the income range and employment rate?
- Location: Where do your customers live and where can your business reach?
- Market saturation: How many similar options are already available to consumers?
- Pricing: What do potential customers pay for these alternatives?
You’ll also want to keep up with the latest small business trends. It’s important to gain a sense of the specific market share that will impact your profits.
You can do market research using existing sources, or you can do the research yourself and go direct to consumers.
Existing sources can save you a lot of time and energy, but the information might not be as specific to your audience as you’d like. Use it to answer questions that are both general and quantifiable, like industry trends, demographics, and household incomes. Check online or start with our list of market research resources listed below.
Asking consumers yourself can give you a nuanced understanding of your specific target audience. But, direct research can be time consuming and expensive. Use it to answer questions about your specific business or customers, like reactions to your logo, improvements you could make to buying experience and where customers might go instead of your business.
Here are a few methods you can use to do direct research:
- Focus groups
- In-depth interviews
For guidance on deciding which methods are worthwhile for your small business, the Small Business Administration provides counseling services through our resource partner network.
Use competitive analysis to find a market advantage
Competitive analysis helps you learn from businesses competing for your potential customers. This is key to defining a competitive edge that creates sustainable revenue.
Your competitive analysis should identify your competition by product line or service and market segment. Assess the following characteristics of the competitive landscape:
- Market share
- Strengths and weaknesses
- Your window of opportunity to enter the market
- The importance of your target market to your competitors
- Any barriers that may hinder you as you enter the market
- Indirect or secondary competitors who may impact your success
The SizeUp tool at sba.gov helps small business owners discover how their business stacks up against competitors by city and industry. It’s a market analysis tool you can use to:
- Create benchmarks against existing businesses
- Map where competitors, customers, and suppliers are located
- Find the best places to advertise
Several industries might be competing to serve the same market you’re targeting. That’s why you should make sure to differentiate your competitive analysis by industry. There are many methods for doing this, including Porter’s Five Forces analysis (competitive rivalry, bargaining power of suppliers and bargaining power of customers, threat of new entrants, and threat of substitute products or services). Important industry factors to consider include level of competition, threat of new competitors or services, and the effect of suppliers and customers on price.
Free small business data and trends
There are many reliable sources that provide customer and market information at no cost. Free statistics are readily available to help prospective small business owners.
Consider these types of business statistics in your market research and competitive analysis:
General business statistics
Find statistics on industries, business conditions
Gain info on potential customers, consumer markets
Segment the population for targeting customers
Know unemployment rates, loans granted and more
Dig deeper into employment trends for your market
Pay your employees fair rates based on earnings data
Money and interest rates
Keep money by mastering exchange and interest rates
Production and sales statistics
Understand demand, costs and consumer spending
Track indicators of sales and market performance
Statistics of specific industries
Use a wealth of federal agency data on industries
U.S. Small Business Administration (2019). Market research and competitive analysis. Retrieved from https://www.sba.gov/business-guide/plan-your-business/market-research-competitive-analysis#section-header-5.
10 Steps to Creating a Legendary Total Customer Service Experience
By Merry Gagg, Training Account Manager, Signature Worldwide
Customer service is a buzz phrase we’ve heard for years. What does it really mean? In my trainings, I talk about it meaning, “Being of Service to the Customer.” Being of service creates an experience for the customer! Since the “experience” is really what we sell, we need to target a successful, memorable, even legendary outcome.
The customer experience begins the minute they look at your Web page, talk to a friend, or pick up the phone to call you.
Here are 10 simple steps that can assist you in creating a legendary total customer experience:
- Understand your customer. Who are you targeting, how do you reach them? Does your product interest them? Times change and interests change, are you changing with them? Does your Website present an accurate picture of who you are today—or is it like one of those dating Websites, full of photos of what you looked like 10 years ago?
- Know that first impressions are real and lasting. This is a fact that will never change. What does your first impression say about you and your company? Although all customers are important, winning that new customer is vital. If someone calls your business, what will his or her first impression be?
- Do what you say you are going to do. This is a good practice in all things and certainly in customer service. When you do what you said you would do, it creates trust in the minds of your customers. Trust is the cornerstone of a lasting relationship with your customer, and customer loyalty is always the goal.
- Even better, under promise and OVER deliver. When it comes to customer service, you always want to appear to be the hero. Giving a customer more than what you promise gives you that edge in the customer’s eyes.
- Listen to your customer. For some reason, this seems to be the hardest skill to master in any service industry. Listening and understanding your customer’s wants and needs will enable you to customize your product to deliver on the customer’s expectations. Don’t assume you know because you have been working in this industry for years—remember that times change, as do customer needs. Ask and listen.
- Follow up with your customer. This one area can make a big difference in customer satisfaction. Following up with your customer greatly improves your chances of a return customer. This is effective because it gives you an opportunity to check in with your customer for their satisfaction and also gives you a chance to ask if they need further assistance.
- Know that you are subjectively communicating with your customer every moment of every day. Everything you present to the customer is sending a message to them. From your Website, the signage hanging on your entry doors, and the condition of your parking lot to the body language of your employees, it all matters.
- Let your customer know you truly appreciate their business. Never underestimate the power of thanking your customer for their business. They do have other choices and easily could choose your competitor. Be gracious when showing your appreciation.
- The little things matter. It has always surprised me how simple it is in most cases to make a difference in the customer experience. Most of the time, it is the small things that matter, often requiring little to no effort on your part.
- If something happens, make it right. Let’s face it, things happen. Often when customers complain, the reason for their dissatisfaction is more about how it was handled versus what happened to cause the complaint. Most of making it right is handling it right.
We all sell experiences. What is your customer experiencing today? Is it worthy of great praise or lacking luster? Take some time to observe your customers: What are they looking at first? What are they hearing? How does the experience seem to be making them feel?
Can you walk through your business as if you were visiting for the first time? It’s hard to do, to notice the things that you have seen every day with a fresh perspective. The more you know your customers and how each of their interactions with you is experienced, the better you can enhance their total experience to make it legendary.
Merry Gagg is a Training account manager at Signature Worldwide, a Dublin, OH-based company offering sales and customer service training, marketing, and mystery shopping services for a variety of service-based industries. For more information, call 800.398.0518 or visit www.signatureworldwide.com. You also can connect with Signature on Twitter @SignatureWorld and on Facebook.
Retrieved from https://trainingmag.com/10-steps-creating-legendary-total-customer-service-experience/
Get More Funding
If your business is up and running but needs more capital, you can rely on familiar options. However, funding an existing business still requires slightly different preparation.
Prepare to request more funding
Anyone who gives you funds wants to feel confident that their investment will pay off. Prepare a business case and financial statements to convince lenders, crowdfunders, or investors to fund your small business.
Make your business case
You’ll need to make a solid business case for more funding. Produce a short statement with the total requested amount and specific reasons for it.
Maybe your business is cyclical — like construction or education — and could use funding to get through expected slow periods. Or maybe it needs capital to invest in new machinery or launch a product line. Whatever the reason, update your business plan to include this stage of funding.
A business case should give assurances that new funds won’t be mismanaged. Include descriptions of your management team to highlight their skills and expertise.
Prepare financial statements
Display that your business is doing well with financial history statements. Show how your business has grown by reporting revenue, expenses, and profit over time. If you don’t have a history of positive growth, explain why more funding will allow you turn it around.
Prove you’re financially responsible with a business credit report. If you’ve already applied for a DUNS number, you can get a business credit report from Dun & Bradstreet. Review your business credit file to make sure it’s accurate before sharing it.
Determine how much your company is worth today by performing a business valuation. This is the same process you’d go through if you were planning to sell your business. Valuation methods vary, but you can do a self-evaluation or seek out a qualified business appraiser.
Show how your business will grow in the future with a forecast. Your business forecast can be based on intuitive judgement, quantitative analysis, or both. Show your projected revenue and expenses, and clearly explain how you arrived at those estimations.
Connect with a local SBA resource center
Meet with local experts, counselors, and business mentors at a local SBA resource center if you need help preparing your business to get more funding.
Choose your Funding Source
Get loans, credit, or crowdfunding
Additional funding options for existing business are similar to funding options for a new business. You’ll have the same general set of options, which include small business loans, credit cards, and crowdfunding.
Existing businesses have the advantage of an established financial history with credit reports, business bank accounts, and internal financial reports. Lenders, investors, and even crowdfunders can use that information when they decide whether to fund your business.
Sell ownership in your company
If you decide to sell an ownership stake of your company, your business structure will determine your options. Remember, whenever you sell ownership in your company, you dilute the ownership of current owners.
An LLC or a partnership can accept new members and give them a percentage of ownership in exchange for a capital investment. Just make sure you comply with your articles of organization and operating or partnership agreements. Then notify your state as necessary. Some states may require your LLC to be dissolved and re-formed with new membership.
Corporations can sell shares of the company, so long as it’s done in compliance with your articles of incorporation and bylaws. Again, notify your state if necessary.
Use Lender Match to find lenders who offer SBA-guaranteed loans
If you have trouble getting a traditional business loan, look into SBA-guaranteed loans. When a bank thinks your business is too risky to lend money, the SBA may guarantee your loan — that way the bank has less risk and could be more willing.
The SBA offers support for veterans as they enter the world of business ownership. Look for funding programs, training, and federal contracting opportunities.
Office of Veterans Business Development (OVBD)
Devoted exclusively to promoting veteran entrepreneurship, the OVBD facilitates the use of all SBA programs by veterans, service-disabled veterans, reservists, active-duty service members, transitioning service members, and their dependents or survivors.
SBA programs provide access to capital and preparation for small business opportunities. They can also connect veteran small business owners with federal procurement and commercial supply chains.
The Veterans Business Outreach Program is an OVBD initiative that oversees Veterans Business Outreach Centers (VBOC) across the country. This small business program features a number of success stories and offers business plan workshops, concept assessments, mentorship, and training for eligible veterans.
To find the center nearest you visit https://www.sba.gov/tools/local-assistance/vboc.
Funding for Veteran-Owned Small Businesses
You can use SBA tools like Lender Match to connect with lenders. In addition, the SBA makes special consideration for veterans through several programs.
- SBA Veterans Advantage offers guarantees on loans approved to businesses that are at least 51-percent owned by veterans or military spouses.
- The Military Reservist Economic Injury Disaster Loan Program (MREIDL) provides loans of up to $2 million to cover operating costs that cannot be met due to the loss of an essential employee called to active duty in the Reserves or National Guard.
Veteran Entrepreneurship Training Programs
SBA programs feature customized curriculums, in-person classes, and online courses to give veterans the training to succeed. These programs teach the fundamentals of business ownership, SBA resources, and small business experts.
- Boots to Business: An entrepreneurial program offered on military installations around the world and a training track of the Department of Defense (DOD) Transition Assistance Program (TAP). Boots to Business Reboot extends the entrepreneurship training offered in TAP to veterans of all eras in their communities.
- Women Veteran Entrepreneurship Training Program (WVETP): Provides entrepreneurial training to women veterans, women service members, and women spouses of service members and veterans as they start or grow a business. SBA funds these entrepreneurship training programs available exclusively for women veterans through grantees:
- Service Disabled Veteran Entrepreneurship Training Program (SDVETP): Provides entrepreneurship training program(s) to service-disabled veteran entrepreneurs who aspire to be small business owners or currently own a small business. SBA funds entrepreneurship training programs for service-disabled veterans through grantees:
- IVMF – Entrepreneurship Bootcamp for Veterans with Disabilities (EBV)
- Veterans Entrepreneurship Program (VEP) – Riata Center for Entrepreneurship, Spears School of Business at Oklahoma State University
- Veteran Entrepreneurship Jumpstart Program – St. Joseph’s University
- Dog Tag Inc.
- Veteran Federal Procurement Entrepreneurship Training Program (VFPETP): Delivers entrepreneurship training to veteran-owned and service-disabled veteran-owned businesses nationwide interested in pursuing, or are already engaged in federal procurement.
The Service-Disabled Veteran-Owned Small Business Concern program (SDVOSBC) gives procuring agencies the authority to set acquisitions aside for exclusive competition among service-disabled, veteran-owned small businesses. Sole source awards will be delivered if certain conditions are met.
Merge and Acquire Businesses
You can grow your business by buying or merging with a smaller business. The process is similar to starting a new business, but you need to take extra steps to protect your existing business.
Differences between mergers and acquisitions
Mergers and acquisitions are similar but have a few major differences.
Mergers combine two separate businesses into a single new legal entity. True mergers are uncommon because it’s rare for two equal companies to mutually benefit from combining resources and staff, including their CEOs.
Unlike mergers, acquisitions do not result in the formation of a new company. Instead, the purchased company gets fully absorbed by the acquiring company. Sometimes this means the acquired company gets liquidated. Acquiring a business is similar to buying an existing business or franchise.
Calculate how much the other business is worth
Conduct a business valuation to determine the value of the other business before you agree to a sale. This is essentially the same process you’d go through to figure out how much your own business is worth before closing or selling your business.
There are several ways to value a business, so do extensive research on methods if you choose to do it on your own. You might want to hire a qualified business appraiser. Once you know how much the other business is worth, you’ll know whether you can afford it outright or if you need to get more funding.
Make a merger or acquisition agreement
You must prepare a sales agreement to move forward with the sale or merger. This document allows for the purchase of assets or stock of a corporation. An attorney should review it to make sure it’s accurate and comprehensive.
List all inventory in the sale along with names of the businesses and owners. Fill in the relevant background details. Determine how the business will be run prior to close and the level of access each company will have to financial information. Note all adjustments, broker fees, and any other aspects relevant to the terms of agreement.
Don’t leave out any assets and liabilities, or this can create problems even after the sale has been finalized.
Transfer business ownership
The terms of your agreement will dictate which steps you must take to transfer ownership, and what that ownership will look like. It’s widely recommended to have an attorney help with this step.
After you’ve completed the acquisition or merger, you’ll need to register these changes with the state, depending on state law and business structure.
If the merger requires you to dissolve your original company and create a new one, you might also need to open new business bank accounts, get new state and federal tax IDs, re-apply for licenses and permits, and take steps to legally close your old business.
Export goods to increase your profits, reduce market dependence, and stabilize seasonal sales
Benefits of Exporting
Nearly 96 percent of consumers live outside the U.S., and two-thirds of the world’s purchasing power is in foreign countries. If you’re a small business owner, here’s how to work with the Small Business Administration for your trade needs.
- Get counseling
- Find buyers
- Get funding
Get Counseling and Training
It may be easier to expand your market than you think. Even small businesses can get into exporting with the help of mentors and modern technology.
U.S. Export Assistance Centers (USEACs)
USEACs help you explore the process of exporting at centers across the country. Each one is staffed by professionals from public and private organizations with experience in export assistance for small and medium-sized businesses.
Small Business Development Centers (SBDCs)
Small Business Development Centers (SBDCs) can also help. SBDCs are hosted by leading universities and state economic development agencies, and are partially funded through a partnership with SBA. Their advisors offer free business consulting and low-cost training services.
The SBA’s Office of International Trade can help any small business that faces barriers in accessing international markets. The office publicizes the small business benefits of U.S. trade agreements and helps protect the rights of small businesses under these agreements.
Find International Buyers
Many small business owners don’t realize foreign sales opportunities are well within reach. To reach them, all you need to do is take advantage of federal programs designed to build the bridge to new markets.
State Trade Expansion Program (STEP)
STEP provides financial awards to state and territory governments to help small businesses with exporting their products.
STEP helps small businesses:
- Learn how to export
- Participate in foreign trade missions and trade shows
- Obtain services to support foreign market entry
- Develop websites to attract foreign buyers
- Design international marketing products or campaigns
Most states receive STEP support. Find out if your state does, then contact your local office to see how they can help you export your products and services.
Exporting Finance Programs
Most U.S. banks view loans for exporters as risky. This makes it harder for you to get loans for things like day-to-day operations, advance orders with suppliers, and refinancing existing debts. That’s why the SBA created programs to provide lenders with up to a 90 percent guaranty on export loans.
To learn more about SBA export loan programs, contact your local SBA International Trade Finance Specialist or the SBA’s Office of International Trade.
Export Express Loan
Export Express lenders can directly underwrite a loan without getting prior approval from the SBA, which allows you to get capital quickly. Loans are typically approved within 36 hours, and can be up to $500,000.
Export Working Capital Loan
Export Working Capital loans allow small business owners to apply for loans in advance of finalizing an export sale or contract, giving exporters greater flexibility in negotiating export payment terms. These loans can be up to $5 million, and the turnaround time is usually five to 10 business days.
International Trade Loan
International Trade loans help small businesses enter international markets and make investments to compete with other importers. These loans offer a combination of fixed asset, working capital financing, and debt refinancing with the SBA’s maximum guaranty of 90 percent on the total loan amount. The maximum loan is $5 million in total financing.
Additional Trade Resources
- SBA Office of International Trade
- Full list of government trade agencies at https://ustr.gov/about-us/trade-toolbox/us-government-trade-agencies
- U.S. Customs and Border Protection
- Getting to Global’s Export Accelerator
Choose a Business Structure
The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.
Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability.
You’ll need to choose a business structure before you register your business with the state. Most businesses will also need to get a tax ID number and file for the appropriate licenses and permits.
Choose carefully. While you may convert to a different business structure in the future, there may be restrictions based on your location. This could also result in tax consequences and unintended dissolution, among other complications.
Consulting with business counselors, attorneys, and accountants can prove helpful.
Review Common Business Structures
A sole proprietorship is easy to form and gives you complete control of your business. You’re automatically considered to be a sole proprietorship if you do business activities but don’t register as any other kind of business.
Sole proprietorships do not produce a separate business entity. This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business. Sole proprietors are still able to get a trade name. It can also be hard to raise money because you can’t sell stock, and banks are hesitant to lend to sole proprietorships.
Sole proprietorships can be a good choice for low-risk businesses and owners who want to test their business idea before forming a more formal business.
Partnerships are the simplest structure for two or more people to own a business together. There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP).
Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. The partners with limited liability also tend to have limited control over the company, which is documented in a partnership agreement. Profits are passed through to personal tax returns, and the general partner — the partner without limited liability — must also pay self-employment taxes.
Limited liability partnerships are similar to limited partnerships, but give limited liability to every owner. An LLP protects each partner from debts against the partnership; they won’t be responsible for the actions of other partners.
Partnerships can be a good choice for businesses with multiple owners, professional groups (like attorneys), and groups who want to test their business idea before forming a more formal business.
Limited Liability Company (LLC)
An LLC lets you take advantage of the benefits of both the corporation and partnership business structures.
LLCs protect you from personal liability in most instances, your personal assets — like your vehicle, house, and savings accounts — won’t be at risk in case your LLC faces bankruptcy or lawsuits.
Profits and losses can get passed through to your personal income without facing corporate taxes. However, members of an LLC are considered self-employed and must pay self-employment tax contributions towards Medicare and Social Security.
LLCs can have a limited life in many states. When a member joins or leaves an LLC, some states may require the LLC to be dissolved and re-formed with new membership — unless there’s already an agreement in place within the LLC for buying, selling, and transferring ownership.
LLCs can be a good choice for medium – or higher-risk businesses, owners with significant personal assets they want to be protected, and owners who want to pay a lower tax rate than they would with a corporation.
A corporation, sometimes called a C corp, is a legal entity that’s separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable.
Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting.
Unlike sole proprietors, partnerships, and LLCs, corporations pay income tax on their profits. In some cases, corporate profits are taxed twice — first, when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns.
Corporations have a completely independent life separate from its shareholders. If a shareholder leaves the company or sells his or her shares, the C corp can continue doing business relatively undisturbed.
Corporations have an advantage when it comes to raising capital because they can raise funds through the sale of stock, which can also be a benefit in attracting employees.
Corporations can be a good choice for medium- or higher-risk businesses, businesses that need to raise money, and businesses that plan to “go public” or eventually be sold.
An S corporation, sometimes called an S corp, is a special type of corporation that’s designed to avoid the double taxation drawback of regular C corps. S corps allows profits, and some losses, to be passed through directly to owners’ personal income without ever being subject to corporate tax rates.
Not all states tax S corps equally, but most recognize them the same way the federal government does and taxes the shareholders accordingly. Some states tax S corps on profits above a specified limit and other states don’t recognize the S corp election at all, simply treating the business as a C corp.
S corps must file with the IRS to get S corp status, a different process from registering with their state.
There are special limits on S corps. S corps can’t have more than 100 shareholders, and all shareholders must be U.S. citizens. You’ll still have to follow strict filing and operational processes of a C corp.
S corps also have an independent life, just like C corps. If a shareholder leaves the company or sells his or her shares, the S corp can continue doing business relatively undisturbed.
S corps can be a good choice for businesses that would otherwise be a C corp, but meet the criteria to file as an S corp.
A benefit corporation, sometimes called a B corp, is a for-profit corporation recognized in a majority of U.S. states. B corps are different from C corps in purpose, accountability, and transparency, but aren’t different in how they’re taxed.
B corps are driven by both mission and profit. Shareholders hold the company accountable to produce some sort of public benefit in addition to a financial profit. Some states require B corps to submit annual benefit reports that demonstrate their contribution to the public good.
There are several third-party B corp certification services, but none are required for a company to be legally considered a B corp in a state where the legal status is available.
Close corporations resemble B corps but have a less traditional corporate structure. These shed many formalities that typically govern corporations and apply to smaller companies.
State rules vary, but shares are usually barred from public trading. Close corporations can be run by a small group of shareholders without a board of directors.
Nonprofit corporations are organized to do charity, education, religious, literary, or scientific work. Because their work benefits the public, nonprofits can receive tax-exempt status, meaning they don’t pay state or federal taxes or income taxes on any profits it makes.
Nonprofits must file with the IRS to get tax exemption, a different process from registering with their state.
Nonprofit corporations need to follow organizational rules very similar to a regular C corp. They also need to follow special rules about what they do with any profits they earn. For example, they can’t distribute profits to members or political campaigns.
Nonprofits are often called 501(c)(3) corporations — a reference to the section of the Internal Revenue Code that is most commonly used to grant tax-exempt status.
A cooperative is a business or organization owned by and operated for the benefit of those using its services. Profits and earnings generated by the cooperative are distributed among the members, also known as user-owners. Typically, an elected board of directors and officers run the cooperative while regular members have voting power to control the direction of the cooperative. Members can become part of the cooperative by purchasing shares, though the amount of shares they hold does not affect the weight of their vote.
Combine Different Business Structures
Designations like S corp and nonprofit aren’t strictly business structures — they can also be understood as a tax status. It’s possible for an LLC to be taxed as a C corp, S corp, or a nonprofit. These arrangements are far less common and can be more difficult to setup. If you’re considering one of these non-standard structures, you should speak with a business counselor or an attorney to help you decide.
Compare Business Structures
Compare the general traits of these business structures, but remember that ownership rules, liability, taxes, and filing requirements for each business structure can vary by state.
|Sole proprietorship||One person||Unlimited personal liability||Personal tax only|
Two or more people
Unlimited personal liability unless structured as a limited partnership
Self-employment tax (except for limited partners)
Limited liability company (LLC)
One or more people
Owners are not personally liable
Personal tax or corporate tax
Corporation – C corp
One or more people
Owners are not personally liable
Corporation – S corp
One or more people, but no more than 100, and all must be U.S. citizens
Owners are not personally liable
Corporation – B corp
One or more people
Owners are not personally liable
Corporation – Nonprofit
One or more people
Owners are not personally liable
Tax-exempt, but corporate profits can’t be distributed
Fund Your Business
It costs money to start a business. Funding your business is one of the first — and most important — financial choices most business owners make. How you choose to fund your business could affect how you structure and run your business.
Determine How Much Funding You’ll Need
Every business has different needs, and no financial solution is one size fits all. Your personal financial situation and vision for your business will shape the financial future of your business.
Once you know how much startup funding you’ll need, it’s time to figure out how you’ll get it.
Fund Your Business Yourself with Self-Funding
Otherwise known as bootstrapping, self-funding lets you leverage your own financial resources to support your business. Self-funding can come in the form of turning to family and friends for capital, using your savings accounts, or even tapping into your 401k.
With self-funding, you retain complete control over the business but you also take on all the risk yourself. Be careful not to spend more than you can afford, and be especially careful if you choose to tap into retirement accounts early. You might face expensive fees or penalties, or damage your ability to retire on time — so you should check with your plan’s administrator and a personal financial advisor first.
Get Venture Capital from Investors
Investors can give you funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and active role in the company.
Venture capital differs from traditional financing in a number of important ways. Venture capital typically:
- Focuses high-growth companies
- Invests capital in return for equity, rather than debt (it’s not a loan)
- Takes higher risks in exchange for potential higher returns
- Has a longer investment horizon than traditional financing
Almost all venture capitalists will, at a minimum, want a seat on the board of directors. So be prepared to give up some portion of both control and ownership of your company in exchange for funding.
How to Get Venture Capital Funding
There’s no guaranteed way to get venture capital, but the process generally follows a standard order of basic steps.
- Find an investor
Look for individual investors — sometimes called “angel investors” — or venture capital firms. Be sure to do enough background research to know if the investor is reputable and has experience working with startup companies.
- Share your business plan
The investor will review your business plan to make sure it meets their investing criteria. Most investment funds concentrate on an industry, geographic area, or stage of business development.
- Go through due diligence review
The investors will look at your company’s management team, market, products and services, corporate governance documents, and financial statements.
- Work out the terms
If they want to invest, the next step is to agree on a term sheet that describes the terms and conditions for the fund to make an investment.
Once you agree on a term sheet, you can get the investment! Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally come in “rounds.” As the company meets milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.
Use Crowdfunding to Fund Your Business
Crowdfunding raises funds for a business from a large number of people, called crowdfunders. Crowdfunders aren’t technically investors, because they don’t receive a share of ownership in the business and don’t expect a financial return on their money.
Instead, crowdfunders expect to get a “gift” from your company as thanks for their contribution. Often, that gift is the product you plan to sell or other special perks, like meeting the business owner or getting their name in the credits. This makes crowdfunding a popular option for people who want to produce creative works (like a documentary), or a physical product (like a high-tech cooler).
Crowdfunding is also popular because it’s very low risk for business owners. Not only do you get to retain full control of your company, but if your plan fails, you’re typically under no obligation to repay your crowdfunders. Every crowdfunding platform is different, so make sure to read the fine print and understand your full financial and legal obligations.
Get a Small Business Loan
If you want to retain complete control of your business, but don’t have enough funds to start, consider a small business loan.
To increase your chances of securing a loan, you should have a business plan, expense sheet, and financial projections for the next five years. These tools will give you an idea of how much you’ll need to ask for, and will help the bank know they’re making a smart choice by giving you a loan.
Once you have your materials ready, contact banks and credit unions to request a loan. You’ll want to compare offers to get the best possible terms for your loan.
Use Lender Match to Find Lenders Who Offer SBA-Guaranteed Loans
If you have trouble getting a traditional business loan, you should look into SBA-guaranteed loans. When a bank thinks your business is too risky to lend money to, the SBA can agree to guarantee your loan. That way, the bank has less risk and is more willing to give your business a loan.
Use Lender Match to find lenders who offer SBA-guaranteed loans.
Small Business Administration Investment Programs
Small Business Investment Company (SBIC)
SBICs are privately owned and managed investment funds licensed and regulated by the Small Business Administration. They use their own capital, plus funds borrowed with an SBA guarantee, to make equity and debt investments in qualifying small businesses.
Small Business Innovation Research (SBIR) Program
This program encourages small businesses to engage in federal research and development that has the potential for commercialization.
Small Business Technology Transfer (STTR) Program
This program offers funding opportunities in the federal innovation research and development arena. Small businesses who qualify for this program work with nonprofit research institutions in the early and intermediate stages of starting up.
Open a Business Bank Account
Open a business account when you’re ready to start accepting or spending money as your business. A business bank account helps you stay legally compliant and protected. It also provides benefits to your customers and employees.
Benefits of Business Bank Accounts
As soon as you start accepting or spending money as your business, you should open a business bank account. Common business accounts include a checking account, savings account, credit card account, and a merchant services account. Merchant services accounts allow you to accept credit and debit card transactions from your customers.
You can open a business bank account once you’ve gotten your federal EIN.
Most business bank accounts offer perks that don’t come with a standard personal bank account.
- Protection. Business banking offers limited personal liability protection by keeping your business funds separate from your personal funds. Merchant services also offer purchase protection for your customers and ensures that their personal information is secure.
- Professionalism. Customers will be able to pay you with credit cards and make checks out to your business instead of directly to you. Plus, you’ll be able to authorize employees to handle day-to-day banking tasks on behalf of the business.
- Preparedness. Business banking usually comes with the option for a line of credit for the company. This can be used in the event of an emergency, or if your business needs new equipment.
- Purchasing power. Credit card accounts can help your business make large startup purchases and help establish a credit history for your business.
Find an Account with Low Fees and Good Benefits
Some business owners open a business account at the same bank they use for their personal accounts. Rates, fees, and options vary from bank to bank, so you should shop around to make sure you find the lowest fees and the best benefits.
Here are things to consider when you’re opening a business checking or savings account:
- Introductory offers
- Interest rates for savings and checking
- Interest rates for lines of credit
- Transaction fees
- Early termination fees
- Minimum account balance fees
Here are things to consider when you’re opening a merchant services account:
- Discount rate: The percentage charged for every transaction processed.
- Transaction fees: The amount charged for every credit card transaction.
- Address Verification Service (AVS) fees.
- ACH daily batch fees: Fees charged when you settle credit card transactions for that day.
- Monthly minimum fees: Fees charged if your business doesn’t meet the minimum required transactions.
Payment processing companies are an increasingly popular alternative to traditional merchant services accounts. Payment processing companies sometimes provide extra functionality, like accessories that let you use your phone to accept credit card payments. The fee categories that you need to consider will be similar to merchant services account fees. If you find a payment processor that you like, remember that you’ll still need to connect it to a business checking account to receive payments.
Get Documents You Need to Open a Business Bank Account
Opening a business bank account is easy once you’ve picked your bank. Simply go online or to a local branch to begin the process. Here are some of the most common documents banks ask for when you open a business bank account. Some banks may ask for more.
- Employer Identification Number (EIN) (or a Social Security number, if you’re a sole proprietorship)
- Your business’s formation documents
- Ownership agreements
- Business license
Get Business Insurance
Business insurance protects you from the unexpected costs of running a business. Accidents, natural disasters, and lawsuits could run you out of business if you’re not protected with the right insurance.
Pick the Type of Business Insurance You Need
The protections you get from choosing a business structure like an LLC or a corporation typically only protects your personal property from lawsuits, and even that protection is limited.
Business insurance can fill in the gaps to make sure both your personal assets and your business assets are fully protected from unexpected catastrophes.
In some instances, you might be legally required to purchase certain types of business insurance.
The federal government requires every business with employees to have workers’ compensation, unemployment, and disability insurance.
Some states also require additional insurance. Laws requiring insurance vary by state, so visit your state’s website to find out the requirements for your business.
Six Common Types of Business Insurance
After you purchase insurance that’s required by law, you can find insurance to cover any other business risk. As a general rule, you should insure against things you wouldn’t be able to pay for on your own.
Speak to insurance agents to find out what kinds of coverage makes sense for your business, and compare terms and prices to find the best deal for you. Here are six common kinds of business insurance to look for.
- General Liability Insurance if for any business. This coverage protects against financial loss as the result of bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments.
- Product Liability Insurance if for businesses that manufacture, wholesale, distribute, and retail a product. This coverage protects against financial loss as a result of a defective product that causes injury or bodily harm.
- Professional Liability Insurance is for businesses that provide services to customers. This coverage protects against financial loss as a result of malpractice, errors, and negligence.
- Commercial Property Insurance if for businesses with a significant amount of property and physical assets. This coverage protects your business against loss and damage of company property due to a wide variety of events such as fire, smoke, wind and hail storms, civil disobedience and vandalism.
- Home-Based Business Insurance is for businesses that are run out of the owner’s personal home. Coverage that’s added to homeowner’s insurance as a rider can offer protection for a small amount of business equipment and liability coverage for third-party injuries.
- Business Owner’s Policy is for most small business owners, but especially home-based business owners. A business owner’s policy is an insurance package that combines all of the typical coverage options into one bundle. They simplify the insurance buying process and can save you money.
Four Steps to Buy Business Insurance
- Assess your risks. Think about what kind of accidents, natural disasters, or lawsuits could damage your business. If you need help, the National Federation of Independent Businesses (NFIB) provides information for choosing insurance to help you assess your risks and to make sure you’ve insured every aspect of your business.
- Find a reputable licensed agent. Commercial insurance agents can help you find policies that match your business needs. They receive commissions from insurance companies when they sell policies, so it’s important to find a licensed agent that’s interested in your needs as much as his/her own.
- Shop around. Prices and benefits can vary significantly. You should compare rates, terms, and benefits for insurance offers from several different agents.
- Re-assess every year. As your business grows, so do your liabilities. If you have purchased or replaced equipment or expanded operations, you should contact your insurance agent to discuss changes in your business and how they affect your coverage.
Stay Legally Compliant
Keep your business compliant with state and federal business laws. Your legal responsibilities will depend on your business and location.
For Your Own Records: Internal Requirements
You’ll need to meet external and internal business compliance requirements. Most external requirements involve filing paperwork or paying taxes with state or federal governments.
Internal business requirements are for your own record keeping. You should document your compliance with internal requirements closely with company records. You might need them when you decide to sell your business or if a legal action is taken against your business.
Requirements by Business Structure
Corporations have the strictest internal requirements. Corporations should hold initial and annual director and shareholder meetings, record their meeting minutes, adopt and maintain bylaws, issue stock to shareholders, and record all stock transfers.
LLCs have less strict internal requirements, but are generally advised to maintain an updated operating agreement, issue membership shares, record all membership interest transfers, and hold annual meetings.
Other business structures have few, if any internal requirements. However, it’s rarely a bad idea to document important decisions with your business.
Ongoing State Filing Requirements
Your annual filing requirements will vary based on your business structure and the state. Still, there are a few common requirements to look out for.
- Annual report or biennial statement. Most states require one or the other. Some states set the due date on the anniversary of the business formation date, and other states pick a specific day for all businesses.
- Statement filing fees. Fees normally accompany the annual report or biennial statement, which can exceed $300.00.
- Franchise tax. Some states charge franchise taxes for corporations or LLCs that operate with their border. Formulas vary by state.
- Initial reports. Some states require initial reports and fees shortly after incorporation.
- Articles of Amendment. If you’ve made important changes to your company — like address, name, new shares, or membership — report it with articles of amendment.
Ongoing Federal Filing Requirements
Most businesses won’t have federal requirements beyond paying federal taxes and complying with the Affordable Care Act. Make sure that you meet all federal tax obligations, including income and employer taxes.
The Affordable Care Act requires businesses with 50 or more employees to report to the IRS that they provide health coverage.
If your business has any federal licenses, permits, or certificates, you’ll need to keep those up to date.
Other Federal Requirements
Some business activities are regulated but don’t require filing. Make sure to stay in compliance with any applicable marketing and advertising laws, copyright laws, workplace poster laws, and workplace health and safety laws.
Maintain Licenses, Permits, and Recertification
The documents for staying legally compliant vary based on your industry and location.
Maintain any licenses, permits, or certificates your business received from your state, city, or county. Renewal requirements vary, so it’s best to check with local business licensing offices.
For example, most restaurants need to regularly renew health and safety certificates. Businesses that sell regulated items like tobacco, alcohol, or tires might need to regularly renew their sales permits. For professional services like plumbing or nursing, the state might require certification with a third-party board to keep your license.
For federal licenses, permits, and certificates, check with the issuing institution to confirm renewal requirements for your business. Here’s a list of some common federal agencies and departments that small businesses register with:
- S. Department of Agriculture (USDA)
- Alcohol and Tobacco Tax and Trade Bureau (TTB)
- Federal Aviation Administration
- Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)
- S. Fish and Wildlife Service
- National Oceanic and Atmospheric Administration
- The Federal Communications Commission
Manage Your Finances
Accounting for revenue and expenses can help keep your business running smoothly. Make sure you maintain proper bookkeeping and have a basic knowledge of business finances.
Start with a Balance Sheet
The balance sheet is the foundation of managing your finances. It operates as a snapshot of your business financials. It helps you keep track of your capital and provide a cash flow projection for future years.
A balance sheet will help you account for costs, like employees and supplies. It will also help you track assets, liabilities, and equity. You can get insights by separating and analyzing segments of your business, like comparing online sales to face-to-face sales.
Cost-Benefit Analysis (CBA)
Looking closely at money-in and money-out helps maintain a sustainable balance between profit and loss. From development and operations to recurring and nonrecurring costs, it’s important to categorize expenses in your balance sheet. Then, you can use a cost-benefit analysis to weigh the strengths and weaknesses of a business decision, and put potential recurring benefits and cost reductions in context.
A CBA is a technique for making non-critical choices in a relatively quick and easy way. It simply involves adding money in benefits and money in costs over a specified time period, before subtracting costs from benefits to determine success in terms of dollars. This can come in handy with hiring another employee or an independent contractor.
For example, let’s say you’re deciding whether to add outdoor seating for your sausage themed restaurant, Haute Dog. You estimate outdoor seating would add $5,000 in extra profit from sales each year. But, the outdoor seating permit costs $1,000 each year, and you’d also have to spend $2,000 to buy outdoor tables and chairs. Your cost-benefit analysis shows that you should add outdoor seating, because the new benefits ($5,000 in new sales) outweigh the new costs ($3,000 in permitting and equipment expenses).
Pick a Method of Accounting
Businesses often use either the accrual or cash methods of recording purchases. The accrual method puts transactions on the books immediately upon completing the sale. The cash method only records this once payment has been received.
For example, if you make a sale in January and receive the $200 payment in February, an accrual method would allow you to record that on January’s books, while the cash method would require that payment to land on February’s books.
Accrual Method Pros
Creates immediate snapshot
Can reduce tax burden
Accrual Method Cons
More complex to manage
Potentially deceiving figures
Cash Method Pros
Shows cash flow clearly
Easier to understand
Cash Method Cons
Limits predictive value
Less long-term clarity
There are many strategies for preparing financial statements for a small business. Generally accepted accounting principles, known as GAAP or “Gap”, provides a common a way to standardize financial reporting using the accrual method. Private companies aren’t required to follow GAAP. The Financial Accounting Standards Board (FASB) maintains GAAP in the United States.
Get Accounting Help
You might want to get help with your accounting. Consider hiring a certified public accountant (CPA), bookkeeper, or using an online service.
A CPA will typically cost more than online services, but can normally offer more tailored service for your specific business needs. A bookkeeper can provide basic day-to-day functions at a lower cost, but won’t possess the formal accounting education of a CPA.
Ensure that someone can manage the following:
- Accounts receivable
- Accounts payable
- Available cash
- Bank reconciliation
Manage Business Credit
Establishing and managing business credit can help your company secure financing when you need it, and with better terms. Business credit can be crucial for negotiating supply agreements and protecting against business identity theft.
These five steps can lay the groundwork to sound financial planning.
- Determine whether you have business credit on file with Dun & Bradstreet
- Establish a business credit history by using lines of credit associated with your business
- Pay bills on time and understand other factors that influence your credit rating
- Keep your credit files current and monitor for ratings changes
- Know your customers’ and vendors’ credit standing
Knowing your customers’ credit standing gives you a window into consumer patterns, and that can affect your marketing and sales strategy. You may not need to conduct credit checks, but there are credit evaluation tools available for small business. Customer behavior also impacts your business’s cash flow, which affects planning for future supplies, hiring employees, and expanding your business.
Your business will need to meet its federal, state, and local tax obligations to stay in good legal standing. Your business structure and location will influence which taxes your business has to pay.
Choose Your Tax Year
Your business is legally required to pay taxes and keep accounting records on a consistent yearly schedule called a tax year.
Most businesses choose their tax year to be the same as the calendar year. You select your tax year the first time you file for taxes, but can change it later with permission from the IRS.
- Calendar tax year if you don’t have special accounting needs for your business.
- Fiscal tax year if you want your 12-month accounting cycle to end in a month that isn’t December.
- Short tax year if your business wasn’t in existence for an entire tax year, or you changed your accounting period.
If your business doesn’t have much reporting or bookkeeping, you may be required to use a calendar tax year. Check with the IRS for detailed rules about tax years.
Determine Your State Tax Obligations
Your business might need to pay state and local taxes. Tax laws vary by location and business structure, so you’ll need to check with state and local governments to know your business’ tax obligations.
The two most common types of state and local tax requirements for small business are income taxes and employment taxes.
Your state income tax obligations are determined by your business structure. For example, corporations are taxed separately from the owners, while sole proprietors report their personal and business income taxes using the same form.
If your business has employees, you’ll be responsible for paying state employment taxes. These vary by state, but often include workers’ compensation insurance, unemployment insurance taxes, and temporary disability insurance. You might also be responsible for withholding employee income tax. Check with your state tax authority to find out how much you need to withhold and when you need to send it to the state.
Determine Your Federal Tax Obligations
Your business structure determines what federal taxes you must pay and how you pay them. Some of the taxes require payment throughout the year, so it’s important to know your tax obligations before the end of your tax year.
There are five general types of business taxes.
- Income tax
- Self-employment tax
- Estimated tax
- Employer tax
- Excise tax
Each category of business tax might have special rules, qualifications, or IRS forms you need to file. Check with the IRS to see which business taxes apply to you.
If your business has employees, you might be required to withhold taxes from their paychecks. Federal employment taxes include income, Social Security and Medicare, unemployment, and self-employment taxes. Check with the IRS to see which taxes you need to withhold.
How to Build a Brand That Stands the Test of Time
By Andrew Gazdecki of Bizness Apps
When it comes time to develop a brand, many companies set their sights on attention rather than retention, but 64% of people say a shared sense of value is the main reason they’re loyal to a brand. On top of that, 48% of those same consumers say a positive first experience with a company can easily earn their allegiance. Clearly, branding can serve as an incredible asset for customer retention, which should inform the foundation of your philosophy.
So what are the keys to building a brand that increases customer loyalty? Here are the basics.
Find Your Values
A strong brand builds repeat customers, and repeat customers strengthen your brand. This perpetual cycle is vital to the success of your business and it all starts with your customers’ first experience.
First, ask yourself what you believe in as a company and how you can convey that to your customers. Look at some of the most trusted brands out there; it’s clear to customers what they represent. For example, FedEx customers know the company lives up to its promises—it’s efficient and effective. Similarly, everyone knows that Nike is all about inspiring athletes to push themselves. The company’s innovative approach to developing products for elite athletes and the masses makes it a unanimously trusted brand.
Determine what you want your brand to be known for, and then make that the foundation of your company.
Remember, loyalty begins right off the bat and your business’ success relies heavily on the values shining through to your customers. However, beliefs alone won’t sustain a business; you need an authentic product or service to accompany those values too.
There’s no better example than Levi’s. The longevity of Levi’s is a major lesson to entrepreneurs. First of all, the company never skimps on quality—the rivets Levis uses in its jeans have become industry standard, and this quality and durability has earned them over 162 years of success in the market.
Also, the company does not diverge from its core product. Rather than jumping on the bandwagon with every new trend, Levi’s is committed to its authentic, original product: quality denim. This commitment is what has kept it thriving all these decades, and will surely continue to set them above the rest for decades to come.
Do something well—and stick to it.
Craft Your Image
To gain a contemporary audience’s trust, you need an external image that showcases your core beliefs. You’ve started from the inside, you’ve found what you stand for, and you’ve developed an authentic product or service. Now it’s time to convey that in your company’s image.
Start with a logo. Develop a visual representation of what you stand for then choose a color palette. The right graphic designer can mean the difference between reaching your target audience and nudging them along to a better-branded competitor. Remember, that first impression is critical in capturing and retaining customers.
You can learn a lot from Google when it comes to logo design. The company’s simple typeface and bold appearance make it a six-letter, multi-color image known to all as the information giant. A designer capable of crafting a commanding statement with an inviting image is pivotal to your brand development.
Next, come up with a slogan or a tagline that speaks to what you do. Establishing the voice of your company takes creativity. Don’t fall into the trap of clichés and overused marketing nonsense that simply fill up space. Be concise, be unique, and be relevant.
Look at some of the best taglines and slogans in the industry. They speak to the customer and reflect the values of the brand in unison. BMW is known as the “Ultimate Driving Machine” and customers remain loyal to this brand because the company backs its message. Not only does BMW build a quality product, it’s widely trusted by consumers as an exceptional brand. The same can be said about American Express. Everyone knows the “don’t leave home without it” tagline.
Notice how these examples aren’t full of fluff and cliché. They’re bold statements that speak volumes about the companies’ philosophies and products.
Quality visuals paired with clear language create a sense of value that leads to customer trust.
Focus on Experience
If you have a brick and mortar that’s inviting and welcoming, that in itself can build loyalty. A simple, “Hello, can I help you?” creates a positive customer experience. But in a digital market, it’s much harder to develop that kind of rapport. There’s no solid handshake, no face time to establish that shared sense of value. Digital loyalty requires some extra work, and no company has done a better job than Amazon.
You can learn a lot from Amazon’s commitment to the customer experience. Here are a few ways they excel:
- Purchase experience: Amazon’s clear product descriptions and wealth of reviews simplifies the purchase process, helping customers make informed decisions.
- Price: Free shipping and Prime benefits keep Amazon on top.
- Convenience: One-click checkout and ultra-fast shipping give Amazon an incredible edge compared to other more slow-moving online retailers.
- Charity: Amazon Smilelets customers donate at zero cost to themselves.
Make your customers’ lives easier and happier by connecting to them on a personal level and answering their basic needs.
Listen to Your Customers
If you take the time to not just listen to but hear your customers, you can continue building a brand that meets their needs. Constructive criticism is one of the best ways to cultivate a business in any niche. Nobody knew this better than the face of Apple, Steve Jobs.
Many businesses conduct surveys and reviews to see what customers like and dislike. And since money is the motivating factor in any business, changes based on survey results are often implemented to boost sales. But what sets Apple apart from most is its ability to predict customers’ future needs.
Apple has always been genius at knowing what customers want before they do—and guiding those wants through highly intelligent design. It’s this study of customer behavior that has made Apple such a powerhouse in the tech industry.
Take feedback in step. Get to know your customers so well, you can predict their wants before they do.
Connect with Your Community
People like businesses that seem to care about the community as much as they care about making money. Businesses that connect with local groups create a loyal following that generates return business.
Starbucks is known for bringing people together. The brand has built a long-standing sense of community—customers know that through their doors they’ll find a gathering place. From offering free Wi-Fi to sponsoring service projects in the community, Starbucks is the perfect example of how money-makers can become a positively regarded staple in the community. And because of this commitment, the brand continues to thrive.
Contribute to your community and they’ll return the favor.
Developing your brand isn’t just about picking a logo and slapping it on some letterhead. There’s a lot of methodical planning that touches the deepest foundations of your company’s philosophy and goals. Building a brand that works and lasts means doing some professional soul-searching to identify what it is that drives you—and how that can drive your customers.
By starting with your vision and then putting that vision into your product, you are laying the foundation for success. But a strong vision and an authentic product or service is just the start. You need to bring that vision to fruition by showing your customers your business is the real deal. You do this by creating a great customer experience when they’re shopping online or simply walking by. A strong community presence and powerful visual appeal go a long way in solidifying what your brand stands for.
The bottom line is clear: determine what you want to accomplish, put your heart and soul in it, and then share that vision with the world.
Buy an Existing Business or Franchise
It can be hard to start a business from scratch. Starting a business from scratch can be challenging. The good news? You don’t have to start from scratch to have your own business. Consider franchising or buying an existing business.
- Know the difference between franchising and buying a business
- Consider 3 factors before franchising or buying a business
- Get ready to buy your franchise or business
- Know the difference between franchising and buying a business
Before you decide if one of these options is right for you, make sure you know the basics of franchising and buying an existing business. The main difference between franchising and buying an existing business is the level of control you’ll have over your business.
Franchising Gives You More Guidance but Less Control
A franchise is a business model where one business owner (the “franchisor”) sells the rights to their business logo, name, and model to an independent entrepreneur (the “franchisee”). Restaurants, hotels, and service-oriented businesses are commonly franchised.
Two common forms of franchising are:
- Product/trade name franchising: The franchisor owns the right to the name or trademark of a business, and sells the right to use that name and trademark to a franchisee. This style of franchising normally focuses on supply chain management. Typically, products are manufactured or supplied by the franchisor and delivered to the franchisee to sell.
- Business format franchising: The franchisor and franchisee have an ongoing relationship. This style of franchising normally focuses on full-spectrum business management. Typically, the franchisor offers services like site selection, training, product supply, marketing plans, and even help getting funding.
When you buy a franchise, you get the right to use the name, logo, and products of a larger brand. You’ll also get to benefit from brand recognition, promotions, and marketing. But, it also means you have to follow rules from the larger brand about how you run your business.
Buying an Existing Business Gives You More Control but Less Guidance
Buying an existing business is exactly what it sounds like. The buyer typically takes over full ownership of the business. The largest advantage is having an existing blueprint that can include important factors like an established customer base, defined operating expenses, and fully trained employees. Regardless of business type, almost any kind of business could be bought or sold.
When you buy an existing business, you typically get complete control over its direction. However, with no set vision, infrastructure, or external guidance, your business could struggle as you figure out the best way to run things.
Consider 3 Factors before Franchising or Buying a Business
Though the business models differ, there are three common steps to take that will help you determine whether you should franchise or buy a business.
- Quantify your investment: Review your financial landscape and decide how much you’re willing to spend to purchase — and ultimately manage — the business. This will help you determine what type of businesses or brands are best for your budget.
- Consider your talents and lifestyle: Be honest about your skills and experience, as they can help you eliminate unrealistic business ventures. For example, if you prefer hands-on assistance, then franchising might be best for you. On the contrary, if you’re an experienced business owner, you may want to consider buying an existing business.
- Review the full landscape: Look at the existing infrastructure and make sure you understand everything that comes along with the purchase. Don’t be afraid to ask questions about contracts, leases, existing cash flow, and inventory. The more you know, the better equipped you’ll be to make a sound decision.
Pick the Right Franchise or Existing Business for You
Once you know whether you want to franchise or buy a business, you’ll need to evaluate each specific opportunity. In short, it boils down to this: do your due diligence.
Your research should help you understand the business from both a financial standpoint and in the overall landscape.
If you’re interested in franchising, you should explore the following:
- Any and all existing reports: Now’s the time to put your detective hat on. To start, get a Uniform Franchise Offering Circular (UFOC). This form contains vital details about the franchise’s legal, financial, and personnel history.
- Associated rules and regulations: Every franchise is different. Confirm that you’ll have the right to use the franchise name, trademark, and do business in an area protected from other franchisees. You can also find out if you’ll get training and management help from the franchisor, and be able to use the franchisor’s expertise in marketing and advertising.
- Contracts: The contract between the two parties usually benefits the franchisor more than the franchisee. The franchisee generally needs to meet sales quotas and buy equipment, supplies, and inventory. Make sure you understand it all before signing.
If you’re interested in buying an existing business, here’s what to look into:
- Licenses and permits: You’ll need to get any needed licenses and permits from the current owner or apply for them yourself. Find out which federal, state, and local permits and licenses you’ll need to run your business.
- Zoning requirements: Zoning requirements may affect your business. Make sure your business follows all the basic zoning laws in your area.
- Environmental concerns: If you’re buying real property along with the business, it is important to check the environmental regulations in the area.
- The value of the business: There are many different methods to determine a fair price for the sale of the business. Here are a few:
- Capitalized earning approach: This method refers to the return on the investment that the investor expects.
- Excess earning method: Like the capitalized earning method, except it separates return on assets from other earnings.
- Cash flow method: This method is typically used to determine how much of a loan the business’ cash flow can support.
- Tangible assets (balance sheet) method: This method values the business by the tangible assets.
- Value of specific intangible assets method: This method compares buying a wanted intangible asset versus creating it.
Get Ready to Buy Your Franchise or Business
Once you’ve found a franchise or business to buy, it’s important to conduct a thorough, objective investigation.
At this stage, you’ll probably want professional help. Consider hiring an attorney and an accountant. The tax rules surrounding franchises in particular are often complex. A specialist in franchise law can assist you with evaluating the franchise package and tax considerations. An accountant can help you determine the full costs of purchasing and operating the business, and even help estimate potential profit.
An attorney and an accountant together can help you create and evaluate important documents.
Typically that includes:
- Letter of intent
- Confidentiality agreement
- Contracts and leases
- Financial statements
- Tax returns
- Sales agreement
- Purchase price adjustment
Be sure to visit the Federal Trade Commission’s Bureau of Consumer Protection for a wide range of resources and guides to help you buy a franchise.
Also, don’t miss your opportunity to buy an existing business. Check out the classified ads for more information.
Buy Assets and Equipment
Your business will need special assets and equipment to succeed. Figure out which assets you need, how to pay for them, and whether you should buy government surplus.
Know the Assets and Equipment You Need
Business assets fall into three broad categories: tangible, intangible, and intellectual property. Depending on the asset type, you’ll have to decide whether you want to buy or lease assets for your business. The first step is figuring out which assets will help your business succeed.
Tangible assets — like buildings, vehicles, and equipment — are used for regular business activity and lose value over time. Things like printer paper, which get used up, typically don’t get counted as assets. Count tangible assets on your balance sheet as property or equipment.
Intangible assets are the things you can’t touch — like your business reputation, your brand, or your business partner’s influential network. You don’t list these on your balance sheet and it’s often difficult or impossible to sell them for cash. But they can still contribute to the overall value of your business.
Intellectual property is a type of intangible asset that includes trademarks, patents, logos, websites, domain names, and software. Intellectual property is often protected by copyright or trademark protection.
Decide to Lease or Buy
Once you’ve determined all the assets you need for your business, you can decide how you’d like to acquire them.
Leasing can be a good option if you need to quickly get a lot of equipment, or if the equipment you need is very expensive. Commercial space can also be leased, so you can rent a place to run your business. In some cases, leasing can actually be less expensive than purchasing with a high-interest loan.
Leasing has benefits:
- Needs less cash or credit upfront
- Short-term leases let you test out the equipment
- Maintenance is sometimes included at no extra cost
- Lease payments for business assets are typically tax deductible
Leasing also has disadvantages:
- The lifetime cost is normally higher than buying
- Replacing it when the lease is up could be expensive
- Depreciation of leased assets typically isn’t tax deductible
Every lease can be structured differently, so look into the details of your offer to make sure you’re getting something that works for you.
Confirm the Details of a Lease
There are two general kinds of leases: operating leases and capital leases. Since the accounting treatment is different, the kind of lease you use can have a significant impact on your business taxes.
Operating leases work like a traditional rental. You don’t own the asset, so it doesn’t get added to your balance sheet. Payments are considered operational expenses. You generally don’t take on maintenance, risk, or tax obligations for the asset.
Capital leases work more like a loan. For accounting purposes, you own the asset. It does get added to your balance sheet, and you can claim depreciation and interest expenses. You also take on all maintenance, risk, and tax obligations for the asset.
There are other factors to look at, too. Leases sometimes have buyout options that let you fully purchase the asset at the end of the lease. The length of a lease can vary, and shorter leases typically have higher monthly payments. If you want to leave a lease early, you could face steep early-termination penalties.
You might want to ask an attorney to review a lease with you before signing, especially if any of the terms or conditions are unclear.
Buying equipment can be a good option if you have enough cash or credit available and you’re confident you’ll be using the assets for a long time.
Buying has benefits:
- You can claim depreciation on your taxes
- The lifetime cost to buy is usually less than leasing
- You can count it as an asset on your balance sheet
Buying also has disadvantages:
- Needs more cash or credit upfront
- Less opportunity to “test out” the asset
- You could be fully liable for maintenance and replacement
Buy with Cash or Credit
If you buy your assets with cash, you’ll own it in full right away. But it also means you’ll have less cash available to cover operating expenses. Make sure you’ve done your accounting homework and that you can actually afford to pay with cash.
Loans can give you some of the same benefits of leases by distributing the total cost over a longer period. However, you’ll pay more in fees and interest than buying outright with cash.
You might be able to leverage lines of credit with your bank, or look for other sources to get more funding for your business.
Consider Buying Government Surplus
Purchasing surplus goods from the government can be easy and affordable. Just about any tangible asset your business might need is sold by the government at or below what you’d pay on the open market.
When a federal or state agency has extra equipment, seized goods, or foreclosed property, the goods are either transferred to another government agency or sold to the public. These items are sold “as is” by auction or negotiated sale either online, in-person, or both. State governments tend to have a single auction site online, while the federal government has several.
Use this list of federal government auction sites to start your search.
- Military Surplus
- U.S. Marshals Service – Seized Asset Information
- U.S. Treasury – Seized Vehicles Sales
- U.S. Treasury – IRS
Prepare for Emergencies
Smart planning can help you keep your business running if disaster strikes. You’ll want to take the right steps to prevent and prepare for disaster, and know where to get aid if disaster strikes.
An estimated 25 percent of businesses don’t open again after a major disaster, according to the Institute for Business and Home Safety. Protect your small business by identifying the risks relevant to your location, both natural and man-made. Then, keep your plan of action updated.
Preserve your equipment and business records by referencing the IRS Guide found at https://www.irs.gov/businesses/small-businesses-self-employed/preparing-for-a-disaster-taxpayers-and-businesses on protecting your information before an emergency strikes. The Federal Emergency Management Agency (FEMA) also offers an emergency preparedness checklist and toolkit.
Specific Disaster Checklists and Tips
Focus on disasters that pose a realistic risk to your small business such as: hurricanes, winter weather, earthquakes, tornadoes, wildfires, floods and cyber security. There are many resources that provide checklists and safety tips for all types of disasters. Seriously consider researching potential risks for your business and get prepared.
Get Financial Assistance after a Disaster
When a disaster hits your small business, first contact FEMA to apply for financial assistance. They can provide money for housing along with other personal expenses including food, clothing and medicine.
The SBA and the U.S. Department of Agriculture provide low-interest loans for damaged and destroyed assets in a declared disaster. These include repair and replacement costs for real estate, personal property, machinery, equipment, inventory, and business assets.
Other Sources of Disaster Aid
Disaster unemployment assistance helps individual employees while they’re unemployed due to a disaster, and flood recovery assistance can help workers displaced by flooding.
Businesses in federally declared disaster areas could qualify for special tax provisions for financial recovery. The Farm Service Agency also provides a disaster assistance guide for farmers and ranchers after natural disasters.
Take precautions to avoid injury or illness occurring in the cleanup process following a disaster. The wide range of hazards includes downed power lines, contaminated waters and hidden molds and toxins.
Disasters are magnified by their consequences on health and health services, so the Center for Disease Control (CDC) serves as an important resource through its Health Studies Branch. The Occupational Safety and Health Administration (OSHA) published cleanup tips specifically for hazards during natural disaster recoveries. Find these tips at https://www.osha.gov/OshDoc/cleanupHazard.html.
If you encounter hazardous material spills or discharges, call the National Response Center, and contact the National Pesticide Center if applicable. The Environmental Protection Agency (EPA) outlines reporting for spills and environmental violations. Follow the procedures outlined at https://www.epa.gov/pesticide-incidents/how-report-spills-and-environmental-violations.
Visit FEMA to find emergency management agencies in your state.
For more emergency preparedness advice, visit preparemybusiness.org or contact SBA’s Disaster Assistance Customer Service Center at 1-800-659-2955 (TTY: 1-800-877-8339) or firstname.lastname@example.org.
You can also receive local business counseling to determine the best way to prepare for emergencies and the next step when disaster strikes.
Market to Sell
Marketing takes time, money, and preparation. One of the best ways to stay on schedule and on budget is to make a marketing plan. It describes the actions you’ll take to persuade potential customers to buy your products or services.
Your business plan should contain the central elements of your marketing strategy. Your marketing plan turns your strategy into action.
Most marketing plans cover these topics. As always, use what works best for your business.
Describe your audience in detail. Look at the market’s size, demographics, unique traits, and trends that relate to demand for your business.
Describe what gives your product or service an advantage over the competition. It might be a better product, a lower price, or an excellent customer experience. Sometimes, an environmentally friendly certification or “made in the USA” on your label can be an important factor for customers.
Describe in detail how you’ll sell your service or product to your customers. List the sales methods you’ll use, like retail, wholesale, or your own online store. Explain each step your customer takes once they decide to buy.
Marketing and Sales Goals
Describe your marketing and sales goals for the next year. Common marketing and sales goals are to increase email subscribers, grow market share, or increase sales by a certain percent.
Marketing Action Plan
Describe how you’ll achieve your marketing and sales goals. List marketing channels you’ll use, like online advertising, radio ads, or billboards. Explain your pricing strategy and how you’ll use promotions. Talk about the customer support that happens after the sale. The federal government regulates advertising and labeling for a number of consumer products, so make sure your advertising is legally compliant.
Include a complete breakdown of the costs of your marketing plan. Try to be as accurate as possible. You’ll want to keep tracking your costs once you put your plan into action.
Measure and Update Your Plan
Plan to compare your marketing and sales costs to the revenue it generates. You want to make sure you’re getting a positive return on investment, or ROI.
Some tactics are hard to measure — like print advertising or word-of-mouth campaigns. Get creative and use others’ advice, but be consistent in how you measure the effectiveness of your marketing efforts.
Marketing plans should be maintained on an annual basis, at minimum. Measuring ROI will help you know which part of the plan is working and which part needs to be updated.
Don’t Forget About Operations
Not everyone agrees on the exact distinctions between marketing and sales, but most people recognize they’re connected. The influence operations have on marketing and sales is often overlooked.
Simple operations elements like your staff uniform, where your product is made, or the product return process contribute to your customer’s experience. That experience shapes how your customers view your company, and can influence whether they’ll become a loyal customer for life or tell their friends to stay away.
How You’ll Accept Payments
The kinds of payments you accept can impact your marketing and sales, as well as your bottom line. Accept forms of payments that are cost effective, secure, and provide a positive experience for your customers.
You’ll need a business bank account no matter what kinds of payment you choose.
To accept credit and debit cards, you’ll need either a merchant services account with a bank or an account with an independent payment processing company.
You’ll pay small processing fees for each credit or debit card transaction, plus costs for setting up any necessary equipment.
Accepting credit and debit cards exposes you to the risk of fraud, but most vendors provide a certain level of protection for your business. Make sure that you use an EMV chip reader, which will limit both fraud and your liability.
You only need a business bank account to accept checks.
You’ll want to create a policy for accepting checks to help you avoid bad or fraudulent checks. Standard practices include only taking checks from well-known or in-state banks, or requiring checks be only for the exact amount owed. You could also use a third party service to help verify the quality of the check.
If a check bounces, your options to get the final payment will vary depending on your location. Some states require businesses to mail a registered letter and allow a designated waiting period to lapse before further action is taken. To get payment for a bounced check, you could end up in small claims court or using a collection agency.
Many small businesses operate as “cash only” merchants because it’s fast, easy, and inexpensive.
If you accept cash, remember that large sums of cash can add to accounting time and come with an additional security risk. You’ll want a secure way to hold your cash, like a register and a safe.
There are special reporting requirements for cash. The IRS requires you to report if your business gets more than $10,000 in cash, or a cash equivalent, from one buyer as a result of a single transaction or two or more related transactions.
If you sell your product or service online, you could accept payment through your website with an online payment service.
Online payment services typically accept credit and debit cards in addition to other popular online money transfer services. You’ll pay fees to in order to accept payments online, just like accepting credit cards in a physical location.
Online payment services require a virtual shopping cart to calculate the total, tax, and shipping costs of an order, in addition to collecting customer account and shipping information. Some online payment service providers offer free shopping cart services to businesses.
Hiring Your First Employee? 8 Steps You Need to Know
If your business is booming, but you are struggling to keep up, perhaps it’s time to hire some help. The eight steps below can help you start the hiring process and ensure you are compliant with key federal and state regulations.
Step 1. Obtain an Employer Identification Number (EIN)
Before hiring your first employee, you need to get an employment identification number (EIN) from the U.S. Internal Revenue Service. The EIN is often referred to as an Employer Tax ID or as Form SS-4. The EIN is necessary for reporting taxes and other documents to the IRS. In addition, the EIN is necessary when reporting information about your employees to state agencies. Apply for EIN online or contact the IRS at 1-800-829-4933.
Step 2. Set up Records for Withholding Taxes
According to the IRS, you must keep records of employment taxes for at least four years. Keeping good records can also help you monitor the progress of your business, prepare financial statements, identify sources of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.
Below are three types of withholding taxes you need for your business:
- Federal Income Tax Withholding
Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of employment. The employer must then submit Form W-4 to the IRS.
- Federal Wage and Tax Statement
Every year, employers must report to the federal government wages paid and taxes withheld for each employee. This report is filed using Form W-2, wage and tax statement. Employers must complete a W-2 form for each employee who they pay a salary, wage or other compensation.
Employers must send Copy A of W-2 forms to the Social Security Administration by the last day of February to report wages and taxes of your employees for the previous calendar year. In addition, employers should send copies of W-2 forms to their employees by Jan. 31 of the year following the reporting period.
- State Taxes
Depending on the state where your employees are located, you may be required to withhold state income taxes.
Step 3. Employee Eligibility Verification
Federal law requires employers to verify an employee’s eligibility to work in the United States. Within three days of hire, employers must complete Form I-9, employment eligibility verification, which requires employers to examine documents to confirm the employee’s citizenship or eligibility to work in the U.S. Employers can only request documentation specified on the I-9 form.
Employers do not need to submit the I-9 form with the federal government but are required to keep them on file for three years after the date of hire or one year after the date of the employee’s termination, whichever is later.
Employers can use information taken from the Form I-9 to electronically verify the employment eligibility of newly hired employees by registering with E-Verify.
Visit the U.S. Immigration and Customs Enforcement agency’s I-9 website to download the form and find more information.
Step 4. Register with Your State’s New Hire Reporting Program
All employers are required to report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date.
Step 5. Obtain Workers’ Compensation Insurance
All businesses with employees are required to carry workers’ compensation insurance coverage through a commercial carrier, on a self-insured basis or through their state’s Workers’ Compensation Insurance program.
Step 6. Post Required Notices
Employers are required to display certain posters in the workplace that inform employees of their rights and employer responsibilities under labor laws.
Step 7. File Your Taxes
Generally, employers who pay wages subject to income tax withholding, Social Security and Medicare taxes must file IRS Form 941, Employer’s Quarterly Federal Tax Return.
New and existing employers should consult the IRS Employer’s Tax Guide to understand all their federal tax filing requirements.
Step 8. Get Organized and Keep Yourself Informed
Being a good employer doesn’t stop with fulfilling your various tax and reporting obligations. Maintaining a healthy and fair workplace, providing benefits and keeping employees informed about your company’s policies are key to your business’ success.
Business Plan = Small Business Success
A business plan is an essential roadmap for business success. This living document generally projects 3-5 years ahead and outlines the route a company intends to take to grow revenues. Get started on yours today.
The executive summary is often considered the most important section of a business plan. This section briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful. If you are seeking financing, the executive summary is also your first opportunity to grab a potential investor’s interest.
The executive summary should highlight the strengths of your overall plan and therefore be the last section you write. However, it usually appears first in your business plan document.
Below are several key points that your executive summary should include based on the stage of your business.
If You Are an Established Business
If you are an established business, be sure to include the following information:
- The Mission Statement – This explains what your business is all about. It should be between several sentences and a paragraph.
- Company Information – Include a short statement that covers when your business was formed, the names of the founders and their roles, your number of employees, and your business location(s).
- Growth Highlights – Include examples of company growth, such as financial or market highlights (for example, “XYZ Firm increased profit margins and market share year-over-year since its foundation). Graphs and charts can be helpful in this section.
- Your Products/Services — Briefly describe the products or services you provide.
- Financial Information – If you are seeking financing, include any information about your current bank and investors.
- Summarize future plans – Explain where you would like to take your business.
With the exception of the mission statement, all of the information in the executive summary should be covered in a concise fashion and kept to one page. The executive summary is the first part of your business plan many people will see, so each word should count.
If You Are a Startup or New Business
If you are just starting a business, you won’t have as much information as an established company. Instead, focus on your experience and background as well as the decisions that led you to start this particular enterprise.
Demonstrate that you have done thorough market analysis. Include information about a need or gap in your target market, and how your particular solutions can fill it. Convince the reader that you can succeed in your target market then address your future plans.
This section of your business plan provides a high-level review of the different elements of your business. This is akin to an extended elevator pitch and can help readers and potential investors quickly understand the goal of your business and its unique proposition.
What to Include in Your Company Description
- Describe the nature of your business and list the marketplace needs that you are trying to satisfy.
- Explain how your products and services meet these needs.
- List the specific consumers, organizations or businesses that your company serves or will serve.
- Explain the competitive advantages that you believe will make your business a success such as your location, expert personnel, efficient operations, or ability to bring value to your customers.
The market analysis section of your business plan should illustrate your industry and market knowledge as well as any of your research findings and conclusions. This section is usually presented after the company description.
Industry Description and Outlook – Describe your industry, including its current size and historic growth rate as well as other trends and characteristics (e.g., life cycle stage, projected growth rate). Next, list the major customer groups within your industry.
Information About Your Target Market – Narrow your target market to a manageable size. Many businesses make the mistake of trying to appeal to too many target markets. Research and include the following information about your market:
Distinguishing characteristics – What are the critical needs of your potential customers? Are those needs being met? What are the demographics of the group and where are they located? Are there any seasonal or cyclical purchasing trends that may impact your business?
Size of the primary target market – In addition to the size of your market, what data can you include about the annual purchases your market makes in your industry? What is the forecasted market growth for this group?
How much market share can you gain? – What is the market share percentage and number of customers you expect to obtain in a defined geographic area? Explain the logic behind your calculation.
Pricing and gross margin targets – Define your pricing structure, gross margin levels, and any discount that you plan to use.
When you include information about any of the market tests or research studies you have completed, be sure to focus only on the results of these tests. Any other details should be included in the appendix.
Competitive Analysis – Your competitive analysis should identify your competition by product line or service and market segment. Assess the following characteristics of the competitive landscape:
- Market share
- Strengths and weaknesses
- How important is your target market to your competitors?
- Are there any barriers that may hinder you as you enter the market?
- What is your window of opportunity to enter the market?
- Are there any indirect or secondary competitors who may impact your success?
- What barriers to market are there (e.g., changing technology, high investment cost, lack of quality personnel)?
Regulatory Restrictions – Include any customer or governmental regulatory requirements affecting your business, and how you’ll comply. Also, cite any operational or cost impact the compliance process will have on your business.
Organization & Management
This section should include: your company’s organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors.
Who does what in your business? What is their background and why are you bringing them into the business as board members or employees? What are they responsible for? These may seem like unnecessary questions to answer in a one- or two-person organization, but the people reading your business plan want to know who’s in charge, so tell them. Give a detailed description of each division or department and its function.
This section should include who’s on the board (if you have an advisory board) and how you intend to keep them there. What kind of salary and benefits package do you have for your people? What incentives are you offering? How about promotions? Reassure your reader that the people you have on staff are more than just names on a letterhead.
A simple but effective way to lay out the structure of your company is to create an organizational chart with a narrative description. This will prove that you’re leaving nothing to chance, you’ve thought out exactly who is doing what, and there is someone in charge of every function of your company. Nothing will fall through the cracks, and nothing will be done three or four times over. To a potential investor or employee, that is very important.
This section should also include the legal structure of your business along with the subsequent ownership information it relates to. Have you incorporated your business? If so, is it a C or S corporation? Or perhaps you have formed a partnership with someone. If so, is it a general or limited partnership? Or maybe you are a sole proprietor.
The following important ownership information should be incorporated into your business plan:
- Names of owners
- Percentage ownership
- Extent of involvement with the company
- Forms of ownership (i.e., common stock, preferred stock, general partner, limited partner)
- Outstanding equity equivalents (i.e., options, warrants, convertible debt)
- Common stock (i.e., authorized or issued)
- Management Profiles
- Experts agree that one of the strongest factors for success in any growth company is the ability and track record of its owner/management team, so let your reader know about the key people in your company and their backgrounds. Provide resumes that include the following information:
- Position (include brief position description along with primary duties)
- Primary responsibilities and authority
- Unique experience and skills
- Prior employment
- Special skills
- Past track record
- Industry recognition
- Community involvement
- Number of years with company
- Compensation basis and levels (make sure these are reasonable — not too high or too low)
- Be sure you quantify achievements (e.g. “Managed a sales force of ten people,” “Managed a department of fifteen people,” “Increased revenue by 15 percent in the first six months,” “Expanded the retail outlets at the rate of two each year,” “Improved the customer service as rated by our customers from a 60 percent to a 90 percent rating”)
Also highlight how the people surrounding you complement your own skills. If you’re just starting out, show how each person’s unique experience will contribute to the success of your venture.
Board of Directors’ Qualifications
The major benefit of an unpaid advisory board is that it can provide expertise that your company cannot otherwise afford. A list of well-known, successful business owners/managers can go a long way toward enhancing your company’s credibility and perception of management expertise.
If you have a board of directors, be sure to gather the following information when developing the outline for your business plan:
- Positions on the board
- Extent of involvement with company
- Historical and future contribution to the company’s success
Service or Product Line
The next part of your business plan is where you describe your service or product, emphasizing the benefits to potential and current customers. Focus on why your particular product will fill a need for your target customers.
A Description of Your Product / Service
Include information about the specific benefits of your product or service – from your customers’ perspective. You should also talk about your product or service’s ability to meet consumer needs, any advantages your product has over that of the competition, and the current development stage your product is in (e.g., idea, prototype).
Details about Your Product’s Life Cycle
Be sure to include information about where your product or service is in its life cycle, as well as any factors that may influence its cycle in the future.
If you have any existing, pending, or any anticipated copyright and patent filings, list them here. Also disclose whether any key aspects of a product may be classified as trade secrets. Last, include any information pertaining to existing legal agreements, such as nondisclosure or non-compete agreements.
Research and Development (R&D) Activities
Outline any R&D activities that you are involved in or are planning. What results of future R&D activities do you expect? Be sure to analyze the R&D efforts of not only your own business, but also of others in your industry.
Marketing & Sales
The next part of your business plan should focus on your marketing and sales management strategy for your business.
Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. There is no single way to approach a marketing strategy; your strategy should be part of an ongoing business-evaluation process and unique to your company. However, there are common steps you can follow which will help you think through the direction and tactics you would like to use to drive sales and sustain customer loyalty.
An overall marketing strategy should include four different strategies:
- A market penetration strategy.
- A growth strategy. This strategy for building your business might include: an internal strategy such as how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where you would provide the same type of products to different users, or a vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain.
- Channels of distribution strategy. Choices for distribution channels could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers.
- Communication strategy. How are you going to reach your customers? Usually a combination of the following tactics works the best: promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.
After you have developed a comprehensive marketing strategy, you can then define your sales strategy. This covers how you plan to actually sell your product.
- A sales force strategy. If you are going to have a sales force, do you plan to use internal or independent representatives? How many salespeople will you recruit for your sales force? What type of recruitment strategies will you use? How will you train your sales force? What about compensation for your sales force?
- Your sales activities. When you are defining your sales strategy, it is important that you break it down into activities. For instance, you need to identify your prospects. Once you have made a list of your prospects, you need to prioritize the contacts, selecting the leads with the highest potential to buy first. Next, identify the number of sales calls you will make over a certain period of time. From there, you need to determine the average number of sales calls you will need to make per sale, the average dollar size per sale, and the average dollar size per vendor.
If you are seeking funding for your business venture, use this section to outline your requirements.
Your funding request should include the following information:
- Your current funding requirement
- Any future funding requirements over the next five years
- How you intend to use the funds you receive: Is the funding request for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.
- Any strategic financial situational plans for the future, such as: a buyout, being acquired, debt repayment plan, or selling your business. These areas are extremely important to a future creditor, since they will directly impact your ability to repay your loan(s).
When you are outlining your funding requirements, include the amount you want now and the amount you want in the future. Also include the time period that each request will cover, the type of funding you would like to have (e.g., equity, debt), and the terms that you would like to have applied.
To support your funding request you’ll also need to provide historical and prospective financial information.
You should develop the Financial Projections section after you’ve analyzed the market and set clear objectives. That’s when you can allocate resources efficiently. The following is a list of the critical financial statements to include in your business plan packet.
Historical Financial Data
If you own an established business, you will be requested to supply historical data related to your company’s performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business.
The historical financial data to include are your company’s income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to three to five years). Often, creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.
Prospective Financial Data
All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, you should supply monthly or quarterly projections. After that, you can stretch it to quarterly and/or yearly projections for years two through five.
Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies. It’s much better if you catch mistakes before they do. If you have made assumptions in your projections, be sure to summarize what you have assumed. This way, the reader will not be left guessing.
Finally, include a short analysis of your financial information. Include a ratio and trend analysis for all of your financial statements (both historical and prospective). Since pictures speak louder than words, you may want to add graphs of your trend analysis (especially if they are positive).
Next, you may want to include an Appendix to your plan. This can include items such as your credit history, resumes, letters of reference, and any additional information that a lender may request.
The Appendix should be provided to readers on an as-needed basis. In other words, it should not be included with the main body of your business plan. Your plan is your communication tool; as such, it will be seen by a lot of people. Some of the information in the business section you will not want everyone to see, but specific individuals (such as creditors) may want access to this information to make lending decisions. Therefore, it is important to have the appendix within easy reach.
The appendix would include:
- Credit history (personal & business)
- Resumes of key managers
- Product pictures
- Letters of reference
- Details of market studies
- Relevant magazine articles or book references
- Licenses, permits or patents
- Legal documents
- Copies of leases
- Building permits
- List of business consultants, including attorney and accountant
Any copies of your business plan should be controlled; keep a distribution record. This will allow you to update and maintain your business plan on an as-needed basis. Remember, too, that you should include a private placement disclaimer with your business plan if you plan to use it to raise capital.
How to Make Your Business Plan Stand Out
One of the first steps to business planning is determining your target market and why they would want to buy from you.
For example, is the market you serve the best one for your product or service? Are the benefits of dealing with your business clear and are they aligned with customer needs? If you’re unsure about the answers to any of these questions, take a step back and revisit the foundation of your business plan.
The following tips can help you clarify what your business has to offer, identify the right target market for it and build a niche for yourself.
Be Clear About What You Have to Offer
Ask yourself: Beyond basic products or services, what are you really selling? Consider this example: Your town probably has several restaurants all selling one fundamental product—food. But each is targeted at a different need or clientele.
One might be a drive-thru fast food restaurant, perhaps another sells pizza in a rustic Italian kitchen, and maybe there’s a fine dining seafood restaurant that specializes in wood-grilled fare. All these restaurants sell meals, but they sell them to targeted clientele looking for the unique qualities each has to offer. What they are really selling is a combination of product, value, ambience and brand experience.
When starting a business, be sure to understand what makes your business unique. What needs does your product or service fulfill? What benefits and differentiators will help your business stand out from the crowd?
Don’t Become a Jack of All Trades-Learn to Strategize
It’s important to clearly define what you’re selling. You do not want to become a jack-of-all trades and master of none because this can have a negative impact on business growth. As a smaller business, it’s often a better strategy to divide your products or services into manageable market niches. Small operations can then offer specialized goods and services that are attractive to a specific group of prospective buyers.
Identify Your Niche
Creating a niche for your business is essential to success. Often, business owners can identify a niche based on their own market knowledge, but it can also be helpful to conduct a market survey with potential customers to uncover untapped needs. During your research process, identify the following:
- Which areas your competitors are already well-established
- Which areas are being ignored by your competitors
- Potential opportunities for your business
Is Entrepreneurship For You?
Starting your own business can be an exciting and rewarding experience. It can offer numerous advantages such as being your own boss, setting your own schedule and making a living doing something you enjoy. But, becoming a successful entrepreneur requires thorough planning, creativity and hard work.
Consider whether you have the following characteristics and skills commonly associated with successful entrepreneurs:
- Comfortable with taking risks: Being your own boss also means you’re the one making tough decisions. Entrepreneurship involves uncertainty. Do you avoid uncertainty in life at all costs? If yes, then entrepreneurship may not be the best fit for you. Do you enjoy the thrill of taking calculated risks? Then read on.
- Independent: Entrepreneurs have to make a lot of decisions on their own. If you find you can trust your instincts — and you’re not afraid of rejection every now and then — you could be on your way to being an entrepreneur.
- Persuasive: You may have the greatest idea in the world, but if you cannot persuade customers, employees and potential lenders or partners, you may find entrepreneurship to be challenging. If you enjoy public speaking, engage new people with ease and find you make compelling arguments grounded in facts, it’s likely you’re poised to make your idea succeed.
- Able to negotiate: As a small business owner, you will need to negotiate everything from leases to contract terms to rates. Polished negotiation skills will help you save money and keep your business running smoothly.
- Creative: Are you able to think of new ideas? Can you imagine new ways to solve problems? Entrepreneurs must be able to think creatively. If you have insights on how to take advantage of new opportunities, entrepreneurship may be a good fit.
- Supported by others: Before you start a business, it’s important to have a strong support system in place. You’ll be forced to make many important decisions, especially in the first months of opening your business. If you do not have a support network of people to help you, consider finding a business mentor. A business mentor is someone who is experienced, successful and willing to provide advice and guidance.
Still think you have what it takes to be an entrepreneur and start a new business? Great! Now ask yourself these 20 questions to help ensure you’ve thought about the right financial and business details.
- Why am I starting a business?
- What kind of business do I want?
- Who is my ideal customer?
- What products or services will my business provide?
- Am I prepared to spend the time and money needed to get my business started?
- What differentiates my business idea and the products or services I will provide from others in the market?
- Where will my business be located?
- How many employees will I need?
- What types of suppliers do I need?
- How much money do I need to get started?
- Will I need to get a loan?
- How soon will it take before my products or services are available?
- How long do I have until I start making a profit?
- Who is my competition?
- How will I price my product compared to my competition?
- How will I set up the legal structure of my business?
- What taxes do I need to pay?
- What kind of insurance do I need?
- How will I manage my business?
- How will I advertise my business?