Marketing.
You know what it is, you see it every where you turn. It's billboards and magazine ads and radio commercials and more. There are so many ways you can market a business or a product, but most start up companies cannot afford half of them. Marketing can be expensive and it is definitely not discretionary if you want to succeed.
Since we're currently working on research and planning for a new business, this post will focus on what types of marketing you can do on a smaller budget as you're getting started. Right now, the most important thing for us to know is cost and return, so I will not be discussing branding or marketing messages in this post.
First and foremost, there are two things that are non-negotiable when you're starting a business: business cards and a website.
Business cards are pretty low cost, you can order them online for around $40 for 500 cards. When you're getting started, 500 cards will probably last you a good while. I like Printing for Less. They do good work, fast and reasonably priced. Plus they have a nifty pricing tool on their website, which will let you estimate the cost of a variety of printing projects. You will need to be able to easily get pricing when you're planning future campaigns.
A website is a little trickier to price out. If you've made it this far in your planning, you probably feel pretty good about your business idea. You've looked a lot at expenses and you have a good idea of how much money you're going to need to get this thing going. Hopefully you've also looked at the websites of other companies in your industry and have an idea of what you like and don't like. Your site can be as simple or as complex as you want. It is possible, with the tools that are available, that you could create a simple website yourself, even without web design experience. However, I will say there is usually a night and day difference between websites created by amateurs with free tools and websites created by professionals. Professional work costs money and you should shop around before making a commitment. WordPress is a very common platform for websites and is easy to update yourself once it is established. I would expect a WordPress based non-shopping cart site to cost around $1,500-3,000 to create professionally. The nice thing about hiring a pro is you can get really close to the website look you have envisioned for yourself. Free tools are very limited in what they will allow you to do with the overall look of the site. Let's estimate on the high side for our budget.
In addition to the basics, we need to plan for marketing for our business launch or Grand Opening. A retail location may want to put a good bit of marketing money into a Grand Opening to entice people to walk in. A service business is usually less traffic based, so a simple direct mail campaign to let them know you're in business may be enough.
For our dog walking business, we are going to utilize direct mail to launch our business. A few posts back, we narrowed down our market to a few zip codes in St. Louis. We determined there were 46,260 high-income households in this area. We also determined that only 46% were dog owners. Finally, we could only service 160 dogs per week. Direct mail has a response rate of about 3%. Meaning if we sent a mail piece to all 25,558 households, we could expect about 766 responses. Obviously that is more people than we can serve, so we need to narrow down our mailing list. We could start off with just one zip code to see how it goes. I usually buys my mailing lists from Info USA. They will allow you to buy lists for just mailing or for mailing and calling. When buying a list like this, you want to make sure to use a reputable company who collects and verifies the data themselves, otherwise you get information that is out of date and it is just money wasted.
When I start with zip code 63131 and narrow the household income to $60,000 and over and select people who own pets, the total households in that zip code drops from 9,058 households to 398. If I increase the area to include all three zip codes with the same criteria, it returns 768 leads. This is significantly lower than we estimated for the area, but still more customers than we need to fill our schedule. I would go ahead and plan to mail to all 768 leads, since we know they won't all respond to our advertisement. The list will cost $153.
Now, jump over to Printing for Less and use their handy calculator to determine the cost of printing 768 mailing pieces. They will even do the mailing work for you, which is very handy. Just make sure you check the box to include mailing in the price. It looks like we can send a postcard for about $400.
So, we now know if we can design the postcard ourselves, the direct mail campaign will cost $593 and we can expect 23 people (3%) to respond. Although with a specialized list of only pet owners, we may realize a higher response rate. That is a cost of $26 per customer. It's not outrageous assuming they become regular customers, but this calculation is something you always want to keep in mind when spending marketing dollars. You want to keep a good balance between effectiveness of your marketing and efficiency.
In addition, to a website and a direct mail campaign, you should also go ahead and setup your Facebook business page and join any local associations that apply to your business. You may also want to think about joining the Chamber of Commerce, which usually costs a couple hundred dollars per year, but provides lots of opportunities to meet other business people.
At this point, you will also want to plan out your on-going marketing campaigns. This can be a rough plan, but we need to have some numbers to include in the budget. For example, maybe you want to re-use your mailing list to send direct mail pieces every quarter, budget for more printing and mailing costs. Or you might want to place an ad in your local newspaper. Get their rate sheet and determine how often you want to advertise.
Ultimately for our business plan, we will need to lay out the financial picture for the first few years of business.
Friday, August 2, 2013
Monday, July 29, 2013
A few words on Sales Tax
For many people taxes are the scariest part of starting a new business. No one wants the department of revenue knocking on their door claiming they own back taxes. Taxes are a complicated business, so please contact your own state's department of revenue to find out the applicable laws for your business.
Do I have to collect sales tax?
This one depends on what type of business you're in and where you are located. It also depends heavily on who your customers are. In very general terms, anytime you are selling a product (some states also tax services) to a person who is located in your state for their personal use, you must collect sales tax. If you are selling from a retail store, you don't need to worry about the buyer's location - you will tax everything at your state/county/city's tax rate. If you are selling items online, you are currently only required to tax items that are shipped within your own state. With online purchases, the buyer is responsible for reporting the sales tax on their personal tax return.
What determines my location?
Your nexus, or sufficient physical presence, is determined by the presence of people (employees, service people, or independent contractors) or property (inventory, offices or warehouses). Physical presence can be permanent (like a retail store location) or temporary (like a trade show). Consigned inventory locations and inventory warehousing locations also count towards your nexus.
Do all states require sales tax?
No. There are currently 5 states that don't impose a state sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Although a couple of these states do allow taxation by local jurisdictions.
What is the difference between sales and use tax?
Sales tax is a tax that you collect when selling something to your customer. You are collecting it on behalf of the buyer and remitting it to the state. Use tax is tax due on something that you have purchased but not been taxed on, a perfect example is when you buy something online or from an out-of-state vendor and they do not collect sales tax, you are responsible for reporting these purchases and paying the taxes in your state.
A buyer claims they are exempt from paying sales tax - is this true?
If a person is purchasing for resale (meaning they will sell this item again) and they have a resale certificate, they do not have to pay sales tax. To protect yourself in case of audit, you should always obtain a copy of the resale certificate and keep it on file. In addition, you will want to make sure your accounting or POS software can track purchases by customer name, so you can link the tax free sale to a specific person or company. A reseller cannot use their certificate to purchase things that they will consume. It only applies to items they are purchasing with the intent of reselling.
Do non-profits have to pay sales tax?
Yes. Often times non-profits will claim exemption from sales tax. They are not exempt on the front side of the transaction, meaning when they are buying from you. On the back end, they can file for a refund of sales tax paid on their annual tax returns.
How often do I have to file my sales tax return?
This varies and your period will be determined by your state. However, monthly filing is the most common.
Do I have to file a return even if I don't owe taxes?
If you have registered with the state to collect sales tax, then the answer is yes. You must file a return every period, even if the tax liability is zero.
What if I don't have the money to pay my taxes?
The money you collect for sales tax is not your money. It is a liability, in this case money that is collected on behalf of the buyer. You can expect serious repercussions if you do not pay your sales tax in a timely manner.
Keep in mind - I have only covered the basics here. With taxes it is always best to be proactive instead of reactive. If you have nexus and tax-ability, then you are liable for sales tax from day 1 of opening your business, regardless of whether you collected the tax money from your customer.
Please seek help from your local department of revenue or your tax accountant if you have questions regarding your specific situation. I would also like to mention that tax laws change frequently, so this post may become outdated at some point in the future.
Do I have to collect sales tax?
This one depends on what type of business you're in and where you are located. It also depends heavily on who your customers are. In very general terms, anytime you are selling a product (some states also tax services) to a person who is located in your state for their personal use, you must collect sales tax. If you are selling from a retail store, you don't need to worry about the buyer's location - you will tax everything at your state/county/city's tax rate. If you are selling items online, you are currently only required to tax items that are shipped within your own state. With online purchases, the buyer is responsible for reporting the sales tax on their personal tax return.
What determines my location?
Your nexus, or sufficient physical presence, is determined by the presence of people (employees, service people, or independent contractors) or property (inventory, offices or warehouses). Physical presence can be permanent (like a retail store location) or temporary (like a trade show). Consigned inventory locations and inventory warehousing locations also count towards your nexus.
Do all states require sales tax?
No. There are currently 5 states that don't impose a state sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Although a couple of these states do allow taxation by local jurisdictions.
What is the difference between sales and use tax?
Sales tax is a tax that you collect when selling something to your customer. You are collecting it on behalf of the buyer and remitting it to the state. Use tax is tax due on something that you have purchased but not been taxed on, a perfect example is when you buy something online or from an out-of-state vendor and they do not collect sales tax, you are responsible for reporting these purchases and paying the taxes in your state.
A buyer claims they are exempt from paying sales tax - is this true?
If a person is purchasing for resale (meaning they will sell this item again) and they have a resale certificate, they do not have to pay sales tax. To protect yourself in case of audit, you should always obtain a copy of the resale certificate and keep it on file. In addition, you will want to make sure your accounting or POS software can track purchases by customer name, so you can link the tax free sale to a specific person or company. A reseller cannot use their certificate to purchase things that they will consume. It only applies to items they are purchasing with the intent of reselling.
Do non-profits have to pay sales tax?
Yes. Often times non-profits will claim exemption from sales tax. They are not exempt on the front side of the transaction, meaning when they are buying from you. On the back end, they can file for a refund of sales tax paid on their annual tax returns.
How often do I have to file my sales tax return?
This varies and your period will be determined by your state. However, monthly filing is the most common.
Do I have to file a return even if I don't owe taxes?
If you have registered with the state to collect sales tax, then the answer is yes. You must file a return every period, even if the tax liability is zero.
What if I don't have the money to pay my taxes?
The money you collect for sales tax is not your money. It is a liability, in this case money that is collected on behalf of the buyer. You can expect serious repercussions if you do not pay your sales tax in a timely manner.
Keep in mind - I have only covered the basics here. With taxes it is always best to be proactive instead of reactive. If you have nexus and tax-ability, then you are liable for sales tax from day 1 of opening your business, regardless of whether you collected the tax money from your customer.
Please seek help from your local department of revenue or your tax accountant if you have questions regarding your specific situation. I would also like to mention that tax laws change frequently, so this post may become outdated at some point in the future.
So you want to start a business...Part 3
So far we have come up with a business idea (luxury dog walking), we have a market (high-income dog owners in St. Louis), we have researched our industry and our competitors, we have determined how many dogs we can walk each week. Now, let's start thinking about expenses.
10. How much money does your business need to run? This is a complicated one. Your expenses will vary greatly depending on what type of business you are planning to start. But we will talk about this in general terms and you can brainstorm your own business specific expenses that might not be listed here.
First, let's discuss start up expenses and one-time expenses. Remember a few posts back when I said it is not impossible to start a business with very little money, that's true, however you do need some money to start any business. There are some general expenses which you will pay for starting your company, but luckily most are not terribly expensive. Some examples are licensing fees, website domain purchases, legal fees for establishing your business entity, possible registration fees for your business entity, accounting fees for help setting up your tax accounts, etc. There may be more or less startup fees for you depending on what type of business you're in and where your business is located. You can usually find good lists online by searching something as simple as "how to start a business in St. Louis". If you ever feel lost or uncomfortable with the forms you have to complete to register your business, ask for advice from an attorney or accountant. It is always better to be safe than sorry.
Secondly, there will be additional start up costs that will be more expensive. Some of these things will be optional and some of the pricing will be discretionary - so you can spend as much or as little as you like, but just make sure to give yourself a realistic budget for this planning exercise. Some of these expenses are: website design, business cards and stationary, equipment and furnishings for your office (if needed), computers, cell phones, printers, other technology, leasehold improvements, etc.
Next, we should think about the cost of our office space. Now, I am not sure a dog-walking business requires an office space, but if they ever want to offer additional services like grooming or dog-washing, they will definitely need a place to work. Remember we are just planning right now, so we are not yet ready to lease any office space. But we can estimate how much our office space will cost by shopping around online for commercial spaces. I like to look for as many spaces as I can find pricing for online. Determine where they are located and drive by if I don't know the area. I make a note of the pricing and the extras (usually maintenance and taxes) for each location. Commercial realty prices are most often listed as triple net or NNN. So for example, a property might be listed as $15 NNN. This means you will pay a total of $15 per square foot per year. So 1,000 sq feet at $15 per square foot is $15,000 and if we divide that by 12 months, our monthly payment will be $1,250. I also make other notes about how much traffic there is at the location, what other kinds of businesses are located there and what the neighborhood is like. Once you have a good idea of the pricing, you should be able to plan a budgeted expense for the monthly lease cost based on how much space you think you need.
Additionally, we need to budget in the cost of security deposits for utilities and for our leased space. Utility deposits for commercial spaces are usually much higher than residential deposits. So call your utility company and ask them for an estimate. Sometimes they can give you a rough idea and sometimes they can only tell you if you give them a specific address. Speaking of which, once you find a space you are interested in leasing, you should definitely call the utility companies and ask them how much the monthly bills run for that location.
You will also want to add in a line item for things like office supplies, dues & subscriptions, association fees, uniforms, repairs & maintenance (if you have an office or store), finance charges, credit card processing fees, postage, travel expenses, etc. These expenses vary pretty widely, so I'm not going to go into how to determine each one. Just use an estimate for your planning. And always try to estimate too much rather than too little.
The rest of your expenses will be highly dependent on the type of business you are opening. For example, any retail store is going to have a very high cash outlay for inventory when starting up. A restaurant will have high equipment and food costs. For our dog-walking business, I am going to assume that I am just running the company out of my home. Since it will just be me working there to start, there will be no employee costs. Your business may be different. If you are going to have employees, be sure to budget for payroll taxes which can run 10% of your labor costs or more.
One thing that every business should think about is marketing expenses. Because believe me, the old phrase "if you build it, they will come" does NOT apply to starting a new business. So, in our next post we will focus on marketing our new business.
10. How much money does your business need to run? This is a complicated one. Your expenses will vary greatly depending on what type of business you are planning to start. But we will talk about this in general terms and you can brainstorm your own business specific expenses that might not be listed here.
First, let's discuss start up expenses and one-time expenses. Remember a few posts back when I said it is not impossible to start a business with very little money, that's true, however you do need some money to start any business. There are some general expenses which you will pay for starting your company, but luckily most are not terribly expensive. Some examples are licensing fees, website domain purchases, legal fees for establishing your business entity, possible registration fees for your business entity, accounting fees for help setting up your tax accounts, etc. There may be more or less startup fees for you depending on what type of business you're in and where your business is located. You can usually find good lists online by searching something as simple as "how to start a business in St. Louis". If you ever feel lost or uncomfortable with the forms you have to complete to register your business, ask for advice from an attorney or accountant. It is always better to be safe than sorry.
Secondly, there will be additional start up costs that will be more expensive. Some of these things will be optional and some of the pricing will be discretionary - so you can spend as much or as little as you like, but just make sure to give yourself a realistic budget for this planning exercise. Some of these expenses are: website design, business cards and stationary, equipment and furnishings for your office (if needed), computers, cell phones, printers, other technology, leasehold improvements, etc.
Next, we should think about the cost of our office space. Now, I am not sure a dog-walking business requires an office space, but if they ever want to offer additional services like grooming or dog-washing, they will definitely need a place to work. Remember we are just planning right now, so we are not yet ready to lease any office space. But we can estimate how much our office space will cost by shopping around online for commercial spaces. I like to look for as many spaces as I can find pricing for online. Determine where they are located and drive by if I don't know the area. I make a note of the pricing and the extras (usually maintenance and taxes) for each location. Commercial realty prices are most often listed as triple net or NNN. So for example, a property might be listed as $15 NNN. This means you will pay a total of $15 per square foot per year. So 1,000 sq feet at $15 per square foot is $15,000 and if we divide that by 12 months, our monthly payment will be $1,250. I also make other notes about how much traffic there is at the location, what other kinds of businesses are located there and what the neighborhood is like. Once you have a good idea of the pricing, you should be able to plan a budgeted expense for the monthly lease cost based on how much space you think you need.
Additionally, we need to budget in the cost of security deposits for utilities and for our leased space. Utility deposits for commercial spaces are usually much higher than residential deposits. So call your utility company and ask them for an estimate. Sometimes they can give you a rough idea and sometimes they can only tell you if you give them a specific address. Speaking of which, once you find a space you are interested in leasing, you should definitely call the utility companies and ask them how much the monthly bills run for that location.
You will also want to add in a line item for things like office supplies, dues & subscriptions, association fees, uniforms, repairs & maintenance (if you have an office or store), finance charges, credit card processing fees, postage, travel expenses, etc. These expenses vary pretty widely, so I'm not going to go into how to determine each one. Just use an estimate for your planning. And always try to estimate too much rather than too little.
The rest of your expenses will be highly dependent on the type of business you are opening. For example, any retail store is going to have a very high cash outlay for inventory when starting up. A restaurant will have high equipment and food costs. For our dog-walking business, I am going to assume that I am just running the company out of my home. Since it will just be me working there to start, there will be no employee costs. Your business may be different. If you are going to have employees, be sure to budget for payroll taxes which can run 10% of your labor costs or more.
One thing that every business should think about is marketing expenses. Because believe me, the old phrase "if you build it, they will come" does NOT apply to starting a new business. So, in our next post we will focus on marketing our new business.
Friday, July 26, 2013
So you want to start a business...Part 2
Yesterday we began our planning and research process. In our example, we are starting a luxury dog-walking and pampering service business based in St. Louis. We determined that we have 11,756 high income households who own dogs. Now let's find out what that means to us.
In this instance, we have owners who will be our customers - they are the ones paying for service. But each owner may have more than one dog. So we need to figure out how many dogs are available to be serviced. In the case of your business, this might be number of children, cars, computers, telephones...any thing that may be owned in multiples.
7. Determine how many things are available for service. (This step might not apply to your business) If we search again for "how many people own dogs in the US", we find out that the average number of dogs per household is 1.7.
If you wanted to get more specific, you could calculate the total number of 1 dog households, 2 dog households and so forth. That information is also available. For the purpose of this exercise the average number will work.
So 11,756 high income households multiplied by 1.7 dogs per household = 19,985 dogs in high income households.
8. Consider how large you want your business to be. If you are the only employee and you want to work 40 hours per week. You need to determine how many dogs you can service in that time.
Lets assume you are working a 40 hour week at your new dog walking business. Each dog you service gets walked for 30 minutes and there is 30 minutes of prep time for pickup and dropoff. If you can walk 4 dogs simultaneously, then you have 160 dog walking time slots available each week (40 hours multiplied by 4 dogs per hour).
Hopefully you have some experience in this industry and you're not just blindly starting a dog walking business. Your experience is key in knowing how frequently you will be servicing the same clients. For example, if you need to service each dog you walk 3 times per week, then you are only able to service 53 dogs (160 walking slots divided by 3 walks per week). Alternatively, if you need to walk each dog 5 times per week, then you will only have 32 slots available. Or perhaps each dog is only walked once per week, so you have the full 160 slots available. More than likely it will be a combination of these based on the needs of the dog owners. But whatever the frequency, you will definitely not be able to service more than 160 dogs per week.
9. How much are you going to charge? At this point you should have a good idea of who your local competition is and how much they are charging. When you are just starting out, you are not going to be able to charge the highest rates, even if that's what your competitors are charging. You lack experience and reputation. Likewise, you don't want to undercut your competition's prices by too much because you will lose perceived value and appear to be an amateur.
I searched "dog walking rates" and find the typical charge is $15-20 for a 30 minute walk.
If we can do 160, 30-minute walks in a week and we charge $20 per walk, that is $3,200 per week.
WHOA! Who knew dog walking was such a lucrative business?!
Now before you start shopping for a vacation home, let's consider that this is the maximum amount of money we can ever make if we are working alone, working 40-hours every week, and have a full schedule for 160 dogs every week. Also, we have not yet accounted for any expenses associated with our business.
What we have learned from this calculation is that with 19,985 available dogs in our market and only 160 slots to walk them, we need a very small MARKET SHARE to fill our schedule (Market Share = The percent of your customers compared to the total available market). In fact, our market share only needs to be .8% to fill our schedule (160 slots divided by 19,985 available dogs in our market). Assuming our expenses are not more than $3,200 a week, this definitely seems like a feasible plan.
That's enough math for today. In the next post, we will work on estimating our expenses.
In this instance, we have owners who will be our customers - they are the ones paying for service. But each owner may have more than one dog. So we need to figure out how many dogs are available to be serviced. In the case of your business, this might be number of children, cars, computers, telephones...any thing that may be owned in multiples.
7. Determine how many things are available for service. (This step might not apply to your business) If we search again for "how many people own dogs in the US", we find out that the average number of dogs per household is 1.7.
If you wanted to get more specific, you could calculate the total number of 1 dog households, 2 dog households and so forth. That information is also available. For the purpose of this exercise the average number will work.
So 11,756 high income households multiplied by 1.7 dogs per household = 19,985 dogs in high income households.
8. Consider how large you want your business to be. If you are the only employee and you want to work 40 hours per week. You need to determine how many dogs you can service in that time.
Lets assume you are working a 40 hour week at your new dog walking business. Each dog you service gets walked for 30 minutes and there is 30 minutes of prep time for pickup and dropoff. If you can walk 4 dogs simultaneously, then you have 160 dog walking time slots available each week (40 hours multiplied by 4 dogs per hour).
Hopefully you have some experience in this industry and you're not just blindly starting a dog walking business. Your experience is key in knowing how frequently you will be servicing the same clients. For example, if you need to service each dog you walk 3 times per week, then you are only able to service 53 dogs (160 walking slots divided by 3 walks per week). Alternatively, if you need to walk each dog 5 times per week, then you will only have 32 slots available. Or perhaps each dog is only walked once per week, so you have the full 160 slots available. More than likely it will be a combination of these based on the needs of the dog owners. But whatever the frequency, you will definitely not be able to service more than 160 dogs per week.
9. How much are you going to charge? At this point you should have a good idea of who your local competition is and how much they are charging. When you are just starting out, you are not going to be able to charge the highest rates, even if that's what your competitors are charging. You lack experience and reputation. Likewise, you don't want to undercut your competition's prices by too much because you will lose perceived value and appear to be an amateur.
I searched "dog walking rates" and find the typical charge is $15-20 for a 30 minute walk.
If we can do 160, 30-minute walks in a week and we charge $20 per walk, that is $3,200 per week.
WHOA! Who knew dog walking was such a lucrative business?!
Now before you start shopping for a vacation home, let's consider that this is the maximum amount of money we can ever make if we are working alone, working 40-hours every week, and have a full schedule for 160 dogs every week. Also, we have not yet accounted for any expenses associated with our business.
What we have learned from this calculation is that with 19,985 available dogs in our market and only 160 slots to walk them, we need a very small MARKET SHARE to fill our schedule (Market Share = The percent of your customers compared to the total available market). In fact, our market share only needs to be .8% to fill our schedule (160 slots divided by 19,985 available dogs in our market). Assuming our expenses are not more than $3,200 a week, this definitely seems like a feasible plan.
That's enough math for today. In the next post, we will work on estimating our expenses.
Thursday, July 25, 2013
So you want to start a business...
The first thing you should know about starting a new business is - it is not for the faint of heart.
Starting your own business can be very rewarding but it can also be very stressful and extremely demanding. If you like the security of a regular paycheck it will be a real wake up call. Many times, especially if you are operating on a shoe string budget, you will not have any guarantee that you will get a paycheck at all. On top of worrying about money, you will most likely have to work more than a typical forty hour work week. Which can exasperate stress levels and be very hard on your personal life. To get through it all you must have a good support system and thick skin.
Here's the bad news...As many as 70% of small businesses fail within the first 18 months. There are a lot of factors that contribute to this failure rate. However, it seems like most entrepreneurs have egos that lead them to believe they will be immune to failure. No one is immune. But what you can do to help your odds is be prepared and that is how I am going to help.
Step 1: THE PLAN
Don't run out and rent a spot and start a business. That's a sure way to fail.
Planning is boring. It's kind of like doing research for a paper in school. Some people love research, but most people don't. Planning can be time consuming. But having all the extra prep time will not only help you be ready to start your business, it will give you loads of time to daydream about how you want every tiny detail to play out. Finally, planning is essential if you need to borrow money. No one, including your family and friends if they are smart, will loan you money without a solid business plan. If you're not good at researching and writing, then you need to hire someone to help you. There are people like me everywhere who can do that part of the work for you. But the key is that you know the business inside and out. Don't just take the word of someone you hire, you need to check their facts and statistics and make your own decision. In addition, to those few of you who have your own savings and don't need to borrow money - you still need to do the research. Do it for yourself, to know that you are making a sound investment.
I am an entrepreneur at heart. I have had dozens of ideas for businesses to start up. Most ideas seem like they are bound for success, but sometimes the more I think about the idea, I come to realize it just won't work. I have spent weeks researching an idea, just to end up scrapping the whole thing for one reason or another.
For the purpose of this exercise, let's pretend I am going to open a luxury dog-walking and pampering service in St. Louis, MO.
Let's get planning - Google is your new best friend! If you don't have your Google search set to auto-complete your requests, you should do that now. As scary as it is, Google aggregates search data from everything you look up and from everyone else who uses Google. They are surprisingly accurate at guessing what you will type next and sometimes they will show you search terms you didn't think to use. Sometimes good Googling is all in the wording of the search term.
What kinds of things do you need to research when you are in the planning stage?
Here is a good starting list (which is not all inclusive):
1. Is there a business like yours nearby (a competitor)? Learn everything you can about them. Look at their website, track down their advertisements, go to their store, use their service, ask people about them, read online reviews, make a list of their pricing, etc. Know them inside and out. I would start by searching "dog walkers in St. Louis, MO". On the first site, I find more than 30 dog-walkers serving different parts of St. Louis. I didn't spend a lot of time checking this because it is an example, but you need to spend a lot of time on this one. Check the internet, drive around, ask your friends and family, check the yellow pages, try to create an exhaustive list because an over-saturated market is not going to be welcoming to a new business.
2. Is there a business like yours anywhere in the world? (Thank God for the internet) Learn as much as you can on a variety of companies in your industry. Don't try to reinvent the wheel, because it is much easier to build your success on the lessons from other people's failures. See what they do the same as each other and what they do differently. Get a feel for the size and success of their business. Look at what specific kind of customers they serve (do they focus on particular industries or social groups). I would search "dog walker" and "dog walking rates" to start.
Sometimes you can approach a company that is not a direct competitor and ask them questions about the industry. But most of the time, I use the internet to find out as much as I can. You would be surprised what you find online. You can find pricing, forms, company policies, schedules, number of employees, employee salaries, customer lists, supplier lists, annual revenues, etc.
3. Are there any articles or blog posts on your type of business? These can be a gold mine. Reporters are typically very good at research. They will often provide statistics and reference where they obtained them. You may also find links to more reference material related to your field. If you Google your type of business and find a bunch of articles talking about the demise of the industry - think seriously about walking away. Unless you have a sure fire industry changing idea, your company is not going to be the exception to the industry trend. The search of "dog walker" is pretty broad and returns a lot of business listings, so maybe we should try searching "trends in dog walking".
4. Are there any trade organizations that relate to your new business? Trade organizations are usually loaded with statistics about every aspect of their specialty business. They can give you trends and historical data, which are both important. They can also be a good source for finding competitors and suppliers. Search "dog walking organizations" and you get International Association of Canine Professionals, National Association of Professional Pet Sitters, National Association of Dog Walkers, just to name the first few.
5. Figure out who your potential customers are. This depends on what kind of business you are starting, but try to be as specific as possible.
I am a high-priced dog walker and pamper-er, so my customers are people who own dogs and have a lot of money and want to pay me to take care of them.
6. Once you know who your customers are, you need to figure out how many of them there are. This is your MARKET. (Market = the maximum number of potential customers in a given area)
If I was preparing to start a luxury dog-walking business, here's what I would look for:
- What is the total population of my city? (or whatever geographical area you are willing to service). Search "population of St. Louis", returns 318,069
- Since dogs are usually owned by a whole household and not just an individual person, we need to look up the number of households in St. Louis. Search "number of households in St. Louis" and you get a website full of city-wide facts, including households at 175,639.
- Since our dog-walking and pampering service is aimed at higher income customers, we need to find out how many high income people we have in our market. For the purpose of this exercise, let's assume high income is more than $80,000 a year. A search of "household income in St. Louis" returned zipatlas.com, which has a list of population and income by zip code. Here are the three highest income areas:
zip code = 63131, population = 16,396, income = $112,017
zip code = 63124, population = 9,819, income = $95,719
zip code = 63141, population = 20,025, income = $81,180 - What percentage of people own dogs? Search "how many people own dogs in the us" returns several results, the top result being the Humane Society, which says 46% of households have at least 1 dog.
I'm not going to lie, translating this information for our purposes will require some math skills...
318,069 total population in St. Louis divided by 175,639 households = 1.81 people per household
16,396 + 9,819 + 20,025 high income people in 3 zip codes = 46,260 high income people in St. Louis
46,260 high income people divided by 1.81 people per household = 25,558 high income households
25,558 high income households multiplied by 46% of households own dogs = 11,756 high income dog owners
This is your market = 11,756 high income dog owners
I can tell your eyes have glazed over from all those math equations and statistics, so we are going to break here until tomorrow...
Welcome
People often speak about the capitalist society that we live in here in the United States. But in reality, capitalism is now the dominating system worldwide. There are opportunities around every corner for people to exchange goods and services for the almighty dollar. With all this money flying around, there's no question as to why so many entrepreneurs want to join in the game.
But once you have set off on the adventure of owning your own company, you may find that everything is not as easy as it once seemed.
There is one key ingredient that is required for every form of business...MONEY. My specialty!
The challenge is that big businesses have the budgets to have CFOs, Accounting Departments, Sales Departments, Marketing Departments, etc. and your company may have just you, (and your family or maybe a couple of friends). Regardless, you rarely see a small business with the budget to hire people who are designated and specialized in one particular field. That's where I come in.
By trade, I am an Accountant. But that title doesn't really describe the things I typically do in my work. I have performed every kind of office work for a variety of small businesses - from accounting to customer service to purchasing to marketing and so on. I have been an accountant worker bee at a few large corporations. I have started a couple of businesses from scratch, one which went out of business and one which I sold for a profit. I have bought into an existing business and then in turn sold that business. I have also been the in the C-level Financial positions for a couple of well-established small businesses. I have provided financial consulting services to small businesses for many years. In short, I have been working in a variety of Accounting and Business Management positions since 1997.
But aside from my resume, I can tell you, I am a huge nerd! I spend most of my free time reading and learning about business and financial matters and give me a spreadsheet with a bunch of numbers to analyze and I am in heaven.
In all of my experience, I have noticed that there are quite a few things that small businesses have in common. So I decided to start this blog to address some of those things and maybe offer some advice to those who might be trying to improve their situation.
So welcome and may the odds be ever in your favor...
There is one key ingredient that is required for every form of business...MONEY. My specialty!
The challenge is that big businesses have the budgets to have CFOs, Accounting Departments, Sales Departments, Marketing Departments, etc. and your company may have just you, (and your family or maybe a couple of friends). Regardless, you rarely see a small business with the budget to hire people who are designated and specialized in one particular field. That's where I come in.
By trade, I am an Accountant. But that title doesn't really describe the things I typically do in my work. I have performed every kind of office work for a variety of small businesses - from accounting to customer service to purchasing to marketing and so on. I have been an accountant worker bee at a few large corporations. I have started a couple of businesses from scratch, one which went out of business and one which I sold for a profit. I have bought into an existing business and then in turn sold that business. I have also been the in the C-level Financial positions for a couple of well-established small businesses. I have provided financial consulting services to small businesses for many years. In short, I have been working in a variety of Accounting and Business Management positions since 1997.
But aside from my resume, I can tell you, I am a huge nerd! I spend most of my free time reading and learning about business and financial matters and give me a spreadsheet with a bunch of numbers to analyze and I am in heaven.
In all of my experience, I have noticed that there are quite a few things that small businesses have in common. So I decided to start this blog to address some of those things and maybe offer some advice to those who might be trying to improve their situation.
So welcome and may the odds be ever in your favor...
Subscribe to:
Posts (Atom)