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February 2, 2012
 Dear Young Entrepreneur,
Do you have a dream of owning your own business?
In my role as facilitator, I help women and men into self-employment. For the most part they are 30-something and older, and I often wonder how we might encourage more young people to get interested in business.
There are many reasons why young people would opt for a job over the uncertain world of entrepreneurship. Jobs can offer a steady paycheque and security, while business is risky and anything but a slam dunk. If you’re new on the job market and thinking about starting a business, here are a few points to consider.
- Risk your own money to get started, even if you’re fortunate enough to have loving grandparents willing to invest in your venture. Don’t rush into debt. Debt can drain the profit from a business. It tends to up a lot of the energy you could instead be using to serve customers.
- Start small and learn all you can while your business is tiny. The inexpensive lessons learned during the early stages will serve you well once your enterprise starts to grow.
- Learn how to manage money with the smaller amounts that filter through your life while you’re young. Good personal financial habits will be an advantage as you learn to manage your business.
- Save 10% of all the cash that flows through your bank account. Start as soon as you read this. Even a small amount of saving will improve a negative financial situation, almost immediately.
- Before jumping into a partnership, get to know the person or people you are teaming up with. A great partnership can serve you well, a bad one is sure to bring the business down. Have an exit plan going in.
- Be cautious about deals that look too good to be true. These tend to have a flavour of “get rich quick without breaking a sweat.” If a deal looks too good to be true, there’s a good chance it’s false.
- A business is a lot of hard work, if anything it’s a “get rich slow” plan. There are many reasons, beyond profit, to start a business—making a difference, pride in providing a great service in your community, lifestyle, and recognition for a job well done.
- Most of what you need to know to run a business, you probably learned in school— treat others fairly, say please and thank you, and smile—all essential business skills.
- If you’re risking any more than pocket change, write a business plan. It will help you learn about your venture and the industry around it. Be a learner.
It’s the start of 2012 and there are more business opportunities than ever before. A number of trends make this an ideal time to begin dabbling in the world of business. Demographics tell us that a large percentage of our aging workforce will soon be retiring, which will open up career and business opportunities right across the marketplace. Over the past decade, technology and the Internet have propelled us into the information age. These demographic and technological changes create an ongoing flow of new business opportunities for those with the vision to recognize them and the urge to take action.
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January 25, 2012
It takes guts to defy chaos and predict the future of your business, and yet that’s precisely what an entrepreneur does when writing a business plan. Considering it’s a written roadmap that can be used at any point in the future to measure whether the business succeeded or failed, most people will put it off as long as they can. Of course, most people don’t own businesses either. But those who develop business plans quickly come to realize an abundance of benefits.
The most important reason to do a business plan is to gain understanding about, and create a blueprint for starting or growing a business. Once the plan is done it can easily be adapted to communicate with different audiences.
Here are 5 different ways to reconfigure your business plan, from longest to shortest.
1. The Complete Business Plan. Your full business plan will include an executive summary, the narrative and financial components, and a number of supporting documents. By adding well-crafted, personalized cover letters for each contact, you will be able to use your business plan to communicate with potential partners, grant fund managers, bankers and other debt financing agencies.
2. The Investors Business Plan. Right up front, investors will want to know your pitch; what problem your business solves, what value you place on your business, how much money you need, and what are you are offering in return. They will also need to know whether you are seeking debt or equity financing, the expected return on the investment, how you plan to deal with the risks, and what your exit strategy is. Most importantly, investors will want to know all about you, the owner.
3. The Employees Business Plan. The scope of the business plan you present for employees will be guided by your philosophy on how much employees should know about the inner workings of your business. For example, you might use the narrative portion of the business plan plus the sales forecast, but exclude the historical and current financials and supporting documentation. The main benefit of sharing relevant parts of your business plan with employees is to have all members of your team on the same page.
4. The Business Plan Brief. Also known as an executive summary, this 1 to 2 page version can be used to introduce your business to various audiences. It can be added to presentations and proposals, or hung on the office wall to serve as visible reminder of the corporate direction. The brief can include things like the business vision, the mission statement, the strategic and marketing goals, sales, and profit targets. It provides most of the content needed to build a business website or to design flyers, brochures, prospectuses and other marketing materials.
5. The Elevator Pitch. An elevator pitch is a brief introduction to your business. The term is often used in the context of an entrepreneur pitching a business idea to someone during the time it takes for an average elevator ride. It might be as long as thirty seconds or 100 words.
Those who do step up and develop a business plan will usually discover that it’s not quite as formidable as it seems at first. Business planning can be a lot of fun, and whatever else can be said, it’s a remarkable confidence builder and an amazing learning experience for those who go for it.
January 23, 2012
By Dan Boudreau
You’ll never build goodwill by under-charging your customers. Those new to business are prone to undervaluing their products and services. This is one of the great pitfalls when starting a new business.
Whether from insecurity or just not knowing the costs, new business owners tend to want to shower their customers in great value by charging less than the other guys. Aside from the fact that undercutting is a sure recipe for going broke, it invariably leads to problems down the road when you want to increase your prices.
- Once customers are used to your low prices, it’s difficult to train them to pay more, and you are sure to lose a few when you increase your rates.
- Customers who have received your goods at lower prices tend to think you’re cheating them when you start to charge more.
- When you do begin to push your prices upward, you are bound to lose a few of the old customers who were just along for the free ride.
If you underrate your goods, your customers are almost certain to downgrade them too. A well intentioned deal might be perceived as worth a bit less, but you don’t want the customer thinking your services are completely worthless.
As a new business owner, one of the first pricing decisions you’ll make is to decide whether you really want to compete on price. If your strategy is to compete mainly on price, keep in mind that a large competitor will almost always crush a smaller business like a bug. Deeper pockets always prevail when price wars occur.
Here are a few suggestions for anyone tangling with the issue of pricing.
- Decide whether you want to be the cheapest, the fastest, or the best. Pick any two; trying to be all three is a sure recipe for going broke.
- When you’re setting your prices or rates, learn how much your competitors are charging and then position your prices where you want them to be. You don’t have to charge a lot less than the other guys to be perceived as giving a better deal.
- When it comes to providing a service, you will need to determine a value for your time. If you’re transitioning from a role as an employee to become self-employed, it’s important to remember that your hourly charge-out rate now needs to be much higher to help cover the cost of operating your business.
- Instead of simply attempting to undercut your competitors, find ways to provide more value to your customers; sometimes it makes more sense to compete by offering higher quality, or better service.
- If you’re already in business and your prices are too low, it may be time to begin to ratchet them up a bit. Be prepared to lose customers who refuse to adjust. In some cases, you may feel a shameless sense of relief as the more tenacious hagglers head off to buy from your competition.
When all is said and done, business owners need to pay the bills and earn a living. If your prices are too low to achieve these two goals, it may be time to increase your prices or consider winding down the business.
Related Articles and Resources:
Deadly Overhead Costs to Consider When Setting Your Prices
Small Business Goodwill is in the Eye of the Beholder
Free Business Planning Tools and Resources
66 Worksheets to help you write your business plan
January 20, 2012
Q: How do I know what my time is worth and how do I charge accordingly?
This is question I am often asked by new and aspiring business owners as they work their way through the writing of their business plan.
The matter of determining what to charge for your time is a personal one. Start-ups sometimes make one of two mistakes in this area: charging too much or not charging enough. The antidote for undercharging is to run a complete set of financial pro formas to ensure that your rates are sufficient to pay the operating expenses and be profitable. The way to ward off both under- and overcharging is to research your competition, with attention to the rates they charge for similar services. With this in mind, here are a few things to keep in mind when setting your hourly rates (list is adapted from the Online Business Planner’s RoadMap Step 44: Present Prices and Pricing Strategy).
- How price sensitive are your customers? If price is a major purchasing consideration for your customers, you’ll have to toe the line. If price is less important than other factors (quality, speed of delivery, brand, etc.), you might have more latitude as to how much you charge per hour.
- Do your customers decide to buy based on price or on other characteristics such as quality, location, or convenience?
- What is the cost of producing your products or services? Your prices must include the cost of providing the service (cost of goods sold), plus operating expenses, plus profit.
- What are your competitors’ prices for similar products or services? Those buying your services are continually comparing with competitors; you don’t have to undercut everyone, but you do have to be in the ballpark!
- How many units do you have to sell in order to break-even or earn a profit? Break-even will be revealed when you complete the pro forma financials. You will want to ensure that you break-even early enough in the year to allow time to earn profit.
- What are the Industry standard mark-ups or margins for your product or service? Standards or norms should be evident from your research of competitors. In some cases mark-ups or margins might be controlled or influenced by suppliers.
- What discount rates will you offer for bulk purchases? Be sure your regular prices are set high enough to allow for any planned discounts, deals, or costs such as affiliate marketing.
- How much will your customer pay for your product or service? At the end of the day, your customers will vote with their money. In the start-up stage, you can survey to determine how much they say they will pay, but once in business you will know whether or not you are making sales, and adjust accordingly. For example, you can test different rates to see if price makes a difference in your conversion rates.
- What is the relationship of supply to demand? For example, if you use subcontractors to provide services, their rates might determine how much your prices must be. If your subcontractor’s rates don’t leave you enough margin, you might be faced with finding new subcontractors or increasing your rates.
- What are the consumer buying trends? For example, an overabundance of providers might means lower prices; a shortage of providers might mean more pricing headroom, at least for a while. In almost any market, more competitors will mean you have to have a sharper pencil when it comes to pricing.
- What is your level of risk? Higher risk should equate to higher profit margins. Lower risk might enable
- What is your desired profit margin? Depending on how badly you need to work and how necessary your services are – a well qualified and credentialed consultant who doesn’t need a lot of work might command higher prices as long as they get the amount of work they want.
- What are your personal and corporate financial goals? Other factors come into play on pricing, such as how much money you personally wish to earn, and what financial aspirations you have set for your business.
Welcome to the tightrope we all walk as entrepreneurs and business owners. Hope this helps you find your niche.
To get started on your pricing, download the free worksheet we’ve created for you #33 Pricing. Use the worksheet to establish prices for your products and services. You will likely employ all three methods: pricing to market, pricing to cost and break-even pricing.
View a complete list of all 66 RiskBuster Business Planning Worksheets here.
January 19, 2012
By Dan Boudreau
Congratulations! For anyone with the slightest trickle of entrepreneurial blood flowing through their veins, it’s a glorious day when the boss offers to pay you as a contractor rather than as an employee. As an employee, you worked hard to gain your employer’s trust, earned your stripes, and got the contract.
Then comes the agonizing chat about how much to charge. This is when budding contractors need to sharpen their pencils. When it comes to business expenses, the boss will have a clearer view. Unless he is willing to share financial details, most employees will be ill prepared when it comes to figuring out how much to charge for their services, and most tend to bid too low.
Here are nine expenses that need to be covered in your hourly rate, if you’re going to survive the transition from employee to contractor.
- Employer Payroll Burden. This amalgamation of costs is often referred to as Mandatory Employee Related Costs (MERC’s). It includes the employer’s portion of employment insurance, pension, holiday pay and any other employee benefits.
- Insurance. You’ll need liability insurance and, as a contractor, you’ll be responsible for paying premiums for your own Worker’s Compensation coverage, as well as providing mandatory insurance for all workers under your employ. To learn about WCB costs, go to www.worksafebc.com and lookup rates and classifications.
- Rent and Utilities. Your business will have to have a home, and for many budding contractors that will be somewhere at your personal residence.
- Bookkeeping and Accounting. As a small business owner you’ll need to keep accurate records and complete year-end financials for tax purposes. Equally important, you’ll need to know, as owner, where you’re at financially at all times throughout the year.
- Legal. You’ll want a lawyer’s help in developing your agreement with your former employer, and there will be other legal purchases, such as licenses and permits.
- Marketing, Advertising, Sales. Even though your first contract fell into your lap through the good relations you’ve built with a current employer, you’ll soon be buying business cards and learning how to get the word out about your services.
- Tools and Equipment. As a contractor, you may need to supply tools and equipment that previously were provided by your employer. You’ll need to factor in the purchase cost, as well as the cost of repairing, maintaining and replacing equipment.
- Office Expenses. In today’s work environment, it’s difficult to imagine a business without a telephone, internet access, some sort of mobile, and a computer-fax-printer. There will also be a desk, chairs and something to store files and documents in.
- Bank Charges and Interest. A business needs its own bank account, independent of your personal account. If you borrow funds for business purposes, you’ll be paying interest on those funds until they’re repaid.
The Canada Revenue Agency is the final authority when it comes to deciding whether you’re an employee or a contractor. To locate tests that help to determine whether or not you’re an employee or a contractor, do an internet search using the keywords “employee vs. employer.”
As a contractor, if you’re charging anything less than double what the employer paid you as an employee, you’re probably not charging enough to cover your costs. Your appetite for contracting is more likely to grow if you start out with a healthy pricing strategy.
Related Articles:
Are You in Business or Enslaved to Self-Employment?
Business Needs More Than Passion
Business Owners Go the Extra Mile
January 18, 2012
By Dan Boudreau
There are many reasons to prepare a business plan, but the most popular is to get money to advance your business goals. At some point, most businesses will need to borrow money in order to grow. When that time comes, you’ll want to arm yourself with a bulletproof business plan.
Here are nine things you won’t want to miss as you ready your business plan to romance your lender.
- Describe Your Business. State your business vision and mission, and clarify how the business is structured, what you sell, and how it works. Weave these things together to create a snapshot of your current situation and be sure to tell why you need money and how much you need.
- Write Your Business Goals. Set goals for the term of the loan, including: sales targets, net profits, the number of units to be sold, new products or services, how you’ll diversify your business, and how many new clients you’ll add.
- List Your Customers. Describe your customers and the problem your business solves for them. Clarify who they are, what they want, and their main buying motives. A lender will want to know that you understand who you’re selling to.
- Describe Your Competitors. List your competitors and compare them according to the products or services they sell, how their facilities are arranged, how many workers they employ, and how long they have been in business. Explain how your business differs from the competition, and clarify why customers buy from you.
- Beef Up Your Biography. Provide a summary of your credentials and experience, including relevant academic, work, and business achievements. Feel free to toot your own horn by listing your strengths and successes—highlight your history of following through on your business plans and commitments.
- Plan Your Cash Flow. Cash flow is most easily created using a spreadsheet program. Determine the flow of cash into and out of your business—monthly for the term of the loan you hope to borrow, at a minimum for the first year. Key to your business plan, a cash flow forecast will clarify how much money you need to operate each month, as well as showing how you will pay back the borrowed funds.
- Project Your Income. While a cash flow projection shows how much money will be in the bank at the end of each month, pro forma income statements show whether or not your business is expected to be profitable in the future.
- Explain What You Need The Money For. In your business plan, show how you will use the borrowed funds. If you’re buying equipment, list the items and support your request with quotes. If you need an operating loan, your cash flow should show how much you need and when.
- Offer Security. Most small business owners will only be able to borrow against what they already own or can offer as security for the loan. Most often this means providing a personal guarantee and offering equity as security in the event you fail to make loan payments.
Finally, be prepared to invest a minimum of 20 to 50% of your own funds or equity into any venture or project for which you wish to borrow money. Lenders will want you to have enough skin in the game to ensure that you’re motivated to make payments and follow through on the promises made in your business plan.
Ready to get started on your business plan? We have free business planning and tools and resources for you. Visit our Tools page
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