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Start-up Dollars and Sense: Estimating Start-up Costs for Your Business

The first step in beginning a new business is to understand the cost of getting started and getting to break-even.

by Sherron Lumley.

“It’s exciting to start my own business because it’s taken me a long time to figure out what I really want to do,” says Renee Fisher, who recently launched an event-planning business in Portland, Oregon. “I used to put on parties when I was a little girl,” she says, “and I enjoyed it and people noticed I was good at it.” With background experience in organizing bridal shows, this is the moment Pull-Quote.pngshe has been waiting for. For her and for thousands of other entrepreneurs, forming a new business is one of the most exciting experiences of a lifetime.

A business needs passion, capital, and time to succeed, but deciding whether a business idea will fly starts with a hard look at start-up costs and the amount of seed money needed to keep the business going until it makes a profit (the break-even point). It could be a lot or a little, depending on the business, the funds available, and the creative abilities of the entrepreneur.

Brandon Davis, founder of Precision Rail of Oregon, tackles break-even analysis regularly. “We absolutely have to do that,” he says, noting that beyond estimating start-up costs, such analysis is also important for the ongoing success of the company. Fully immersed in the details of his business, Davis can easily recite the basic expenses of his operation: “cost of materials, cost of labor, the rent on the building and fuel cost for the vehicles.”

Write a business plan and make more money faster

The amount of time it takes to get past the break-even point and start making a profit differs for every small business. However, according to research by the Kauffman Center for Entrepreneurship, the world’s largest foundation devoted to entrepreneurship, companies with written business plans have 50 percent greater sales growth and 12 percent higher gross profit margins than companies without plans.

Even for those who aren’t spreadsheet-friendly, the task isn’t that difficult. Just write down every imaginable expenditure pertaining to the business prior to opening and for at least the first three months of operation. The U.S. Small Business Administration (SBA) advises new business owners to calculate the costs for several months up to the full first year. In fact, some businesses will not turn the corner and start making a profit until year two or three and creating a business plan will help you to discover that. In performing a break-even analysis, there are three key areas to examine: the initial start-up expenses (the buy-in), the monthly fixed expenses (the nut), and the monthly variable expenses (the burn rate).

The Buy-in: pre-operational start-up expenses

One of the ways Davis cut costs initially was by building his own website, which he estimates saved him $5,000. However, in retrospect he says there were drawbacks to that strategy. “It would be worth the expense to have a website designed by professionals who understand search engine optimization,” he says, referring to the digital specialty that focuses on making sure a business appears toward the top of the results when online searches are performed. Getting good results may require spending money on professional services, and this should be considered in factoring start-up costs.

Among essential early expenses, one of the first costs to negotiate is technology, including the purchase of computers, software, and phones. Other pre-operational start-up expenses include marketing and advertising, inventory or raw materials, insurance, and the business license. Every business needs one or more federal, state, or local license to operate, according to the SBA. (To find out all the local regulatory requirements in your area, visit the SBA’s Business Licenses and Permits Search Tool, which provides an interactive platform for learning all the federal, state, and local permits, licenses and registrations needed to run a business.) In examining all these expenses, be sure you are not overspending. In The Small Business Start-Up Kit from the legal publisher Nolo, author Peri H. Pakroo counsels budding entrepreneurs to only buy what the business really needs. (For a free online worksheet for calculating basic start-up expenses, check out The Frugal Entrepreneur.)

The Nut: ongoing fixed expenses

After calculating pre-operational costs, estimating the nut means adding together the fixed overhead expenses that do not change from month to month. Location expenses (rent or lease costs), salaries, and insurance premiums make up the bulk of this category. Regardless of how much business is done, rent does not change, employees expect regular paychecks, and insurance must be covered. Anything that is a regular reoccurring fixed expense should be included in the nut.

So, how much for rent? First be sure you have correctly identified exactly what your business needs because costs differ depending on what the space includes. Consider the cost of rent, length of the lease, quality of the space, operational limitations (such as hours of operation), zoning restrictions, storage capacity, lighting, data lines, security, access, and parking. For a retail space, the history of previous tenants and the type of neighbors are important. Factors to consider when looking for manufacturing space include the number of loading docks, shipping facilities, waste disposal costs, and proximity to suppliers and distributors. For an office-based business, the appearance, layout, privacy, meeting rooms, mail and shipping capabilities, and kitchen areas of a potential space are of greater consequence.

Salaries are another example of fixed expenses that do not change with the volume of business. If at all possible, avoid the common error of many budding entrepreneurs who neglect to pay themselves adequately. Just as insufficient cash flow can often spell the end of a small business, so too can being unable to pay your personal bills.

Finally, there is the increasingly large share of the nut taken up by insurance, most notably health insurance, which becomes more and more burdensome for small businesses every year. Other types of insurance you may need to secure for your business or its employees are dental, vision, life/disability, fire, loss/theft, business interruption, and malpractice. Make sure you carefully analyze the costs associated with each.

The Burn Rate: variable expenses

The burn rate is how much money is needed each month to meet variable expenses that change, depending on sales. Items in this category include cost of materials (inventory and/or raw materials), equipment replacement, project-based or seasonal labor, utilities, and delivery. For example, when Davis travels to meet clients or do railing installations, he burns fuel to get there. The more sales he has, the more gas he will burn. A literal example of the burn rate, this is an expense that is directly tied to sales volume.

Calculating variable expenses for a start-up requires some research to do accurately, and any expenses associated with doing so are tax deductible. Other tax deductible business start-up costs include the following from the Internal Revenue Service website:

Business analyses of potential markets, products, labor supply, transportation facilities, etc.
Advertisements for the opening of the business.
Salaries and wages for employees who are being trained and their instructors.
Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
Salaries and fees for executives and consultants, or for similar professional services.

Resources

Books:

Birthing the Elephant, by Karin Abarbanel and Bruce Freeman

Business Plans Kit for Dummies, by Steven Peterson, PhD, Peter E. Jaret and Barbara Findlay Schenck

Ladies Who Launch, by Victoria Colligan and Beth Schoenfeldt

Six-Week Start-Up, by Rhonda Abrams

The Small Business Start-Up Kit, a Step-by-Step Legal Guide, by Peri H. Pakroo, J.D.

Interviews:

Renee Smith Fisher, owner

Renee Fisher Event Planning, Portland, OR

Brandon Davis, founder

Precision Rail of Oregon, Gresham, OR

Website: www.precisionrail.net

Web:

IRS.gov: “Business Startup Costs”

http://www.irs.gov/publications/p535/ch08.html#en_US_2010_publink1000208939

Kauffman Center for Entrepreneurial Leadership:

http://www.kauffman.org/section.aspx?id=entrepreneurship

Kauffman Index of Entrepreneurial Activity:

http://www.kauffman.org/research-and-policy/kiea-interactive.aspx

SBA.gov: “Business Licenses and Permits Search Tool”

http://www.sba.gov/content/search-business-licenses-and-permits

SBA.gov: “Estimating Startup Costs”

http://www.sba.gov/content/estimating-startup-costs

SBA.gov: “Writing a Business Plan”

http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/writing-business-plan

The Frugal Entrepreneur, Free Business Forms and Templates:

http://frugalentrepreneur.com/free-business-forms-templates/

What is Your X Factor?

Simon Cowell has, as you likely know, a new show on the air called “The X Factor.” The show was a huge hit in his native England and he brought it across the pond looking for similar success. There are a lot of things one could say about Simon, but one important thing is that he knows a good idea (or product or singer) when he sees one. He knows that someone who has a special quality – something different, that X Factor, makes them memorable.

Of course, having an X Factor is not the private domain of entertainers. Indeed, if you think about it, a great business can usually point to any one of several things that may contribute to its success – good products, a great location, whatever – but I venture to say that their success often comes from one special thing makes them stand out from the crowd. They all have their own unique differentiator that sets them apart.

Example: Not long ago I went with my wife to an idyllic, small little fishing village on the Pacific coast of Mexico where the locals were kind, the beach perfect, and the vibe just right (sorry, its name will remain a secret amigos)! Many mornings we found ourselves at the same great little place for breakfast.

Did we keep coming back there for the huevos rancheros? Well, yes, that was part of it. Was it because of the wonderful waitresses? Yes, it was that too, but that was not the main reason.

The main reason was free WiFi. In a small town like that one, where getting online was a challenge, free WiFi kept us coming back. That was their differentiator. Isn’t that true of your favorite businesses, the ones you frequent time and again? Don’t they offer something unique and out of the ordinary?

There is a bookstore in the Pacific Northwest called Powell’s World of Books. It is a World of Books indeed. The store engulfs one full city block and is four stories high.
In Los Angeles, there is a fun sushi bar on the Westside. I don’t recall its real name because all anyone ever calls it is “Reggae Sushi.” Yep, reggae music all the time mon.
At the Monte Cristo store on 5th Avenue in New York, you can buy just about any cigar made in the world.

These are all X factors. All of these businesses have figured out something special that they do that they could hang their hat on to distinguish themselves from the competition. So the question you should ask yourself is – what is yours? What is it you do that is unique and special that you can tout that will make your business more memorable?

Not long ago I was in Erie, Pennsylvania, giving a speech for the local Small Business Development Center (SBDC). Every year, the SBDC honors local businesses with a banquet, the culmination of which is the presentation of “Business of the Year” awards in various categories. I was fortunate enough to give the keynote at the banquet and meet these exceptional entrepreneurs. As I think back upon the award winners, I would have to say that every one of them had their own unique, memorable distinguishing characteristic.

My favorite: At a time when large drug store chains are putting local pharmacies out of business, Pioneer Pharmacy in Erie is easily the busiest pharmacy in the area, routinely filling thousands of prescriptions a week. When I asked the owner what the secret of his success was, he told me about the usual suspects – a great staff, loyal customers and so on. Then he mentioned what I now see was his X Factor: Free delivery.

Every day he has two full-time drivers who do nothing but deliver prescriptions to his customers for free. “And, I only hire retired gentleman,” he told me. Given many of his customers are ill or even home bound, it’s a brilliant idea.

So that is the question to answer. What do you do that is different and better? What is your business differentiator? Figure it out, tout it, and you will likely find customers will find you and frequent your business more often – if not for the fish tacos then definitely for the free WiFi.

Four Ways to Snag Top Intern Talent

There are a lot of reasons you shouldn’t hire an intern. You shouldn’t hire an intern if you are only interested in free labor. You shouldn’t hire an intern if you need someone with a lot of experience. You shouldn’t hire an intern if you want an autonomous employee. You shouldn’t hire an intern if you need help with coffee runs and filing.

What is one of the primary reasons you should hire an intern? Hire an intern if having one is beneficial to your company and the intern.

Benefits to your company

As a small business owner, hiring an intern can allow you to see if the employee would be a good fit as a future employee. Seeing someone in action – contributing at meetings; participating in company events; accepting constructive criticism and thinking outside the box – is much more valuable than anything a candidate could tell you in an interview. Also, if it isn’t a good match between your company and the intern, you can part ways without feeling like you’ve made a major investment in bringing a new person up to speed.

In a way, internships can become part of your marketing program. Interns can help you spread the word about your business to customers and potential employees, which can be particularly valuable for small businesses that don’t have a lot of money or manpower. Further, if your small business is an active and visible part of a local community, hiring local interns can be a great way to give back to the community that supports your business.

Interns can also benefit longer-term business operations. For several months, a business with fewer than 10 employees can have the experience of managing a larger staff. Further, managing interns can also act as an impetus to spur a business to take a closer look at their operations and ways they can save on labor costs.

Benefits to the intern

According to a recent National Association of Colleges and Employees (NACE) survey, 61 percent of those who underwent a paid internship during college ended up with a full-time job upon graduation.

There are many ways to find an intern, including forging relationships with the career services offices of local universities, posting listings in local newspapers or on LinkedIn, and utilizing the services of a national “matching service” like Urban Interns.

Businesses often look for students from top colleges, with high GPAs, who are majoring in an area that has some affinity with their businesses. Since a lot of these students are snatched up by larger companies, it becomes more challenging for small companies to attract these candidates. However, there are some things small business owners can do to make themselves more appealing than their big business counterparts:

Stress the fact that interns may get a broader spectrum of experiences at a small business, where they can touch on many job functions versus a large business where they may be focusedon one small area.
Pull Quote.pngAssign a mentor who will spend at least 20-30 percent of their work week actively teaching the intern. Have the mentor intervene as soon as they observe issues with work performance.
Offer perks that have a tie-in with your business, such as clothing discounts if you’re a fashion designer, or free courses at a school.
Highlight any community-focused work your company dedicates its time to.

Finally, there are several things to watch out for if you decide to have an internship program:

An internship is meant to expose a trainee to a business area with which they have no previous experience. So don’t make your hiring decisions based on existing skill sets but on qualities you would hope for in any full-time employee – intellectual capacity, work ethic, technical skills and openness to constructive criticism.
Some problems may arise from the age gap between senior employees, who may be in their 50s or 60s and college-aged interns, who may still be in their late teens. These issues could include misunderstandings about the value and appropriate use of the Internet and social media in a business setting, as well as appropriate workplace attire.
When hiring interns there are a number of criteria laid out by the Department of Labor in its Fair Labor Standard Act that must be followed, including some of the following: training must be similar to class work in an educational setting; interns cannot replace paid workers; and there is no obligation to hire at the end of the internship.

That is not to say that you cannot hire your intern if you want. After three months of teaching an intern the ins and outs of your small business, you may discover that you’ve found a valuable long-term employee. Have you ever hired interns? What has been your experience – share your thoughts with the SBOC community below.

3 Factors to Consider When Determining the Best Corporate Structure for Your Small Business

One of the first and most important decisions you make when starting a business is selecting the right organizational structure. The first question you have to ask yourself is “to incorporate or not to incorporate?” Deciding how to classify your business is a complex issue that can have long-standing implications. Because the needs of every business are different, and the law varies from state-to-state, it’s worth an hour or two with a knowledgeable attorney and accountant to investigate all of the issues that will affect your decision. Broadly however, there are a number of arguments that can be made on either side of incorporation.

In terms of pros, formalizing a corporate identity can help boost your business’ credibility. Additionally, incorporated businesses can sell stock or securities thereby expanding your capital-raising options. Finally, barring some exceptions, incorporation may safeguard your personal assets from liability if your company gets sued. On the flipside, time-intensive paperwork and related costs tend to deter some small business business owners in pursuing incorporation.

If you determine that incorporation is the right direction for your business, there are several alternatives to choose from:

Sole proprietorship is the simplest and most common form of business structure especially for small business owners who are in business by themselves or operating on a shoestring budget. There are no complex rules or paperwork. The main requirement is filing a certificate in the countries where the business operates. Generally, sole proprietors are personally responsible for business debts.

General partnership is similar to a sole proprietorship but is used when two or more people go into a business together. A general partnership has the same certificate filing requirements as a sole proprietorship and does not require a formal agreement between the partners. As with a sole proprietorship, you and your partners are personally liable for business obligations.

Corporations usually cross our minds when we think of large companies – and for good reason. A corporation is a more complex undertaking than a partnership or a sole proprietorship. Those with an ownership interest are shareholders and the company is normally managed by directors, though that could be circumvented through a shareholder agreement. Corporations are subject to regulations, such as keeping minutes for shareholder meetings and could be somewhat costly in fees to set up. There are two types of corporations; an “S” and “C” corporations, respectively. The main difference between the two is taxes. “S” corporations can help you get around the double taxation issue, but you have to meet specific criteria. Shareholders for “C” corporations are taxed on the company’s dividends, even though the business already paid taxes on these earnings.

The upside is that unlike in partnerships and sole proprietorships, corporations can make full deductions on health insurance premiums and shareholders have no personal liability for the company.

Limited Liability Company (LLC) is essentially a hybrid with the properties of both a corporation and a partnership. The owners of an LLC are called “members” and can manage the LLC themselves or with managers. Owners have flexibility to determine the structure, from either a general partnership with limited liability, a limited partnership where everyone is part of management with limited liability as well, or even an “S” corporation without the ownership and tax restrictions. Each entity’s liability is limited to their investment in the LLC, but the tax and other benefits are shared by all.

Pull Quote.pngThere is no right answer when it comes to incorporation. Each structure has its merits depending on the size and type of your business. For example, if you plan to engage in activities that involve a higher level of risk, like driving customers or offering financial advice, you may be more likely to consider a corporation or an LLC because of the liability protection they offer. Likewise, if you never intend to go public, or anticipate needing to issue stock for any reason, a corporation may be an unnecessary investment of time and resources. What’s most important to remember is that your initial choice of a business structure isn’t set in stone. You can start out in a sole proprietorship or partnership and later, if your business grows or the risk of personal liability increases, you can convert your business to an LLC or a corporation.

You can find a user-friendly summary of the various corporate structures here or by visiting the Small Business Administration website for more information.

Payroll Best Practices: What Fits Your Small Business Best?

By Cindy Waxer.

Most small businesses understand the value of smart payroll practices. But many fail to anticipate the negative impact of this business-critical activity if poorly executed. While a solid payroll system can keep employees happy and the government satisfied, poor payroll practices can create tax-related nightmares, send labor costs skyrocketing, and prompt an employee exodus.

Fortunately, small businesses need not invest millions in high-end software programs or high-priced consultants to make the most of payroll. Here, experts and entrepreneurs alike chime in on what it takes to put in place world-class payroll practices on a small business budget.

1. The benefits of a do-it-yourself strategy

When it comes to payroll, using pen and paper or a simple Excel spreadsheet is still commonplace. That’s because a manual payroll system is easy to get off the ground and one of the most cost-efficient approaches to issuing checks and tracking payments. What’s more, a DIY-payroll system doesn’t have to bend to the constraints of an off-the-shelf software program. Nor must small business owners spend thousands of dollars customizing a manual payroll system.

Pull-Quote-Tall.pngHowever, there is often an opportunity cost to entrepreneurs who take on the burden of handling their own payroll. After all, hours spent calculating overhead, figuring tax withholding, and issuing payments translate into time not spent on things like refining your business’s current production capability, brainstorming new product ideas, or prospecting for new customers. These intangible losses won’t directly show up on a profit and loss statement, but after a few years of stagnant growth, an entrepreneur might discover that their time is too valuable to be devoted to back-office clerical work like payroll.

2. Deploy a software program that’s right for your business

These days, there’s no shortage of payroll software packages promising to simplify accounting, calculate and remit payroll taxes, print paychecks, ensure government compliance and provide paystubs to employees.

Just ask Barbara Kittrell, owner of Kittrell/Riffkind Art Glass, a Dallas-based art glass studio specializing in custom-stained glass. “When I used to do my taxes, it would take hours because I had no way of tracking it manually,” recalls Kittrell. “It used to take way longer and it all had to be done by hand and then verified. I tended to be a little dyslexic with numbers so I had to do everything over and over just to make sure it was right.”

That is until Kittrell converted to a small business accounting and payroll software solution. Today, Kittrell says payroll activities that used to take an hour-and-a-half now require “just minutes” to complete. Better yet, the system allows her to easily add and subtract new workers as they come and go, making it easy to adjust to seasonal workflows.

CrowdSPRING’s introduction to payroll software wasn’t quite as smooth as that of Kittrell’s but the adventure has since paid off. The Chicago-based online marketplace for buyers and sellers of creative services began with one payroll package that Mike Samson, the company’s co-founder, describes as nothing short of “awful.” Plagued by an unfriendly user interface and poor customer service, he eventually switched to a different software provider and now Samson says crowdSPRING’s 14 employees couldn’t be happier.

“They have access to their accounts, they can print a copy of a check stub, or sign right in and have access to everything,” says Samson. “It saves us money and our employees love it because [with its direct deposit capabilities], nobody wants to have to deposit a paycheck nowadays.”

3. Consider outsourcing

Sometimes running the most seamless payroll processes means not running them at all. At least, not in-house. Many small businesses turn to third-party providers to oversee their payroll practices.

“Because of its complexities and the changing rules and regulations, I’m a fan of outsourcing payroll,” says Tom Gegax, founder of Gegax Advisors and author of The Big Book of Small Business: You Don’t Have To Run Your Business By The Seat Of Your Pants. “A small business doesn’t want to mess around with payroll. Plus, it’s so inexpensive to outsource payroll—for a tiny company, it’s worth it.”

To learn more, check out our earlier article on the decision to outsource payroll.

It’s easy to do the math. Simply calculate the number of hours your employees spend on a weekly basis tending to payroll activities. Then compare these costs to the price of the packages being offered by third-party providers. Don’t forget to factor in additional in-house costs such as printing expenses, distribution fees, creating tax documents, and more. Chances are, you’ll save money by handing over payroll activities to an outsourcing company.

But not all small business owners are ready and willing to sing the praises of outsourcing. As far as Samson is concerned, payroll software offers “phenomenal access to information” while outsourcing arrangements can make business owners feel as if they’ve lost control over their finances and payroll processes, so choose accordingly.

Be true to your company

Doing it yourself, using a payroll software package, or paying for a third-party provider—these are a small business owner’s major choices when it comes to satisfying your employees and providing the best possible payroll practices. But remember: Just as no two companies are alike, no two small businesses are likely to have exactly the same set of processes. So decide what’s right for your specific company and industry.

3 Ways to Hire a Superstar

Let’s say you are the general manager of an NBA team and you want to win the championship (assuming of course that you solve your labor dispute and get back to playing ball). There are two ways to approach this goal. Which do you think offers you the best chance of winning it all?

First, you could assemble a team of one great player, some other really, really good players and a few OK players to round them out
Second, you could nab three superstars and fill out the team with a bunch of role players

If those scenarios sound familiar, it’s because they are. Last year’s NBA Championship consisted of the Miami Heat, with three superstars – LeBron James, Dwayne Wade and Chris Bosh. That mega-team made it to the Championship Finals their first year playing together. They were surprisingly beaten by the Dallas Mavericks, a team that no one considered to be a championship threat, mostly because they were made up of but one legitimate superstar (Dirk Nowitzki) and a team of talented role players.

You will notice that the one common trait that both teams had is at least one rock star player; teams without one don’t even sniff a championship.

The sports analogy applies surprisingly well in a small business context. Having a superstar employee can take your team over the top too – whether it’s an exceptional salesperson, a superstar marketer or what have you.

But just how do you find and hire superstar talent? Here’s how:

Be ready: Exceptional people will only go to a business that is exceptional as well. They will expect a wide berth and a lot of support. Therefore you have to be internally prepared – both logistically as well as psychologically – to accommodate the superstar, for the superstar will likely have some baggage: A big ego, demands, the need to do business his or her way, etc.

Now, maybe the person won’t be prima donna (probably won’t be, in fact) but you do need to be prepared for the fact that there will likely be some new demands made upon your organization. After all, you are recruiting the talent for some reason. They know that.

Recruit: Locating a superstar in your industry is often best left to professionals, that is, a talent recruiter. Executive recruiters are available in every industry and are great because they know both the players and the business. They will have leads, contacts and ideas that you do not. Sure it will cost you, but so will the superstar. You get what you pay for.

Of course you could try finding the person on your own – posting on Monster.com and Craigslist for instance – but it will take a lot more time and the results will probably not be nearly as great. After all, how many superstar talents are out there actively scouring Craigslist advertisements? Right.

Be prepared to pay: Superstars may expect superstar pay and benefits: Full medical and dental, a 401(k), several paid weeks off a year, paid holidays and significant base compensation with a hefty bonus structure built in.

Perks: Your rock star may also expect:

A company car
Life insurance
The ability to telecommute
Hi-tech toys like state-of-the-art laptops, smartphones, software and other tools
Ongoing training
The chance for growth within the company

Other issues: Be prepared for the fact that your regular staff may resent the newcomer, especially if the perks he or she receive are fairly transparent. That sort of inequality can’t help but breed problems. By the same token, the newcomer may expect that, for the pay he or she is getting, the place will be exceptional. Is it?

Bringing in a superstar has many benefits, but it is not always an easy fit. As with a sports team, egos often need to be finessed. But if you can mange that and get them to play together, your superstar just may lead you to the Promised Land as well.

About Steve Strauss

Steve Strauss is one of the world’s leading small business experts. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. Steve is also the author of the Small Business Bible and his latest book is Get Your Business Funded: Creative Methods for Getting the Money You Need. A popular media guest, Steve is a regular contributor to ABC News Now and frequently appears on television and radio. His business, The Strauss Group, creates unique, actionable, entertaining, and informative multi-media small business content.

How to Prepare Your Small Business for Winter

With winter approaching, small business owners should focus on more than preparing for the holiday shopping season. You should also think about ways to get your business prepared for the many challenges presented by the wintry conditions.

Understanding the Alerts

In order to stay one step ahead of winter storms and severe weather, regularly check the National Weather Service website for live weather updates and potential winter weather alerts. Understanding the meaning of the alerts will help you plan your response appropriately.

A “winter storm outlook” means there may be a storm of unknown severity in the next two to five days.
An “advisory” means there may be a storm that causes inconveniences, but it will most likely not be life threatening.
A “watch” means there is a chance of heavy snow, sleet, an ice storm or a blizzard within two to three days.
A “warning” means that a storm is imminent, and you and your employees should either stay home or find shelter.

Weathering the Storm

If you must be at work during a winter storm, there are several steps to protect your business and employees by taking precautions.

Have battery-powered or hand-cranked radios on hand so you can stay informed on the latest weather conditions.
Stock up on batteries and emergency supplies, including rock salt, sand and first-aid kits.
Invest in a generator if you have a small business that depends on electricity. Be sure that there is proper ventilation, as generators can cause electrical fires or carbon monoxide poisoning if used incorrectly.

Pull Quote.png

Calling a Snow Day

As you consider whether or not you should declare a “snow day,” consider the guidelines that the U.S. Department of Labor outlined for situations where inclement weather occurs (such as heavy snow or other types of disasters).

Utilizing Technology and Consultant Expertise

As technology used to predict the weather improves, some businesses are employing “business meteorology” – customizing their marketing strategies to target customers based on real-time changes in the weather. For more long-range strategic planning, small business owners may want to consult with one of the growing number of business meteorology consultancies that can predict weather fluctuations from several days to many months in advance.

My Way or the Buy-Way? Should you start your business from scratch or buy a franchise?

by Cindy Waxer.

Cary Cheung wakes up at 4:30 a.m. every morning to run a business that requires him to pay a fee. He doesn’t own it outright, and it doesn’t even bear his name. And yet he couldn’t be happier.

That’s because Cheung is a franchise owner of Doc Popcorn, a maker of flavored popcorn that uses a variety of organic and all-natural ingredients. In fact, Cheung abandoned his career as an assistant vice-president at WaMu Investments to become Doc Popcorn’s very first franchisee in November 2009. And just a few weeks ago, Cheung and his wife, Judy, opened their second Doc Popcorn location in California.

Pull-Quote-Tall.pngThe Cheungs aren’t alone. According to the International Franchise Association, approximately 4 percent of all businesses in the United States are franchisee-worked. And the consultancy Franchise Marketing Systems says that franchising is a business model that generates more than $1 trillion in U.S. sales annually across more than 70 industries. Franchised businesses ran 767,483 establishments in the United States through 2008, including establishments owned by both franchisees and franchisors.

But while running a franchise business can be both professionally attractive and personally satisfying, not everyone is cut out for the task. Just ask Amy Bennett, owner of The Greene Grape, a Brooklyn, New York-based seller of fine food and wine. The choice was obvious to Bennett: “Part of opening my own business rather than a franchise was for it to be a creative outlet for me. I wanted something I could contribute to meaningfully.” Add that desire for creativity to the many negatives associated with franchising, such as royalty fees, restrictive licenses, meddlesome franchising authorities, and a lack of ownership, and it is easy to see why many are dissuaded from signing up to become a party to a franchise.

For many others, of course, those negatives are more than outweighed by the many benefits of running a business associated with an established brand and backed by the marketing muscle and support of a large corporation. So how do you know if you’re best suited to run a franchise or if you should strike out on your own? Answering these five questions can get you a step closer to the right answer.

1. How much legwork are you willing to do?

“When you invest in a franchise, you’re getting the brand name of the franchisor, the operating system, a proven track record, not to mention ongoing support, education and training,” says Brian Miller, president of The Entrepreneur’s Source, a business ownership consultancy in Connecticut. “If you started out running your own business, however, you really wouldn’t have anybody to rely on.”

That kind of pre-existing structure was precisely why the Cheungs opted to run a franchise. “My parents owned their own restaurant so I saw the struggles they had starting off and all those lessons they had to learn,” he says. “The attraction of a franchise is the system is created for you.”

“There are very few people who are true entrepreneurs and who can really go out and make a business their own,” says Miller. “But there are a lot of people who have that passion and fire in their belly and know that they want to take control of their own destiny but need a little bit of help.”

2. What are you willing to invest financially?

Launching your own business often requires little to no capital, especially if you start small. But many popular franchises demand lots of upfront capital and collateral—sometimes up to millions of dollars—from a prospective franchisee before offering a contract. These “working capital reserves,” as they’re called, are often required by franchisors so that they will feel comfortable that a franchisee can stay in business until he or she reaches the financial break-even point.

In the case of Cheung, he invested between $100,000 and $150,000 to open his first store, including upfront franchise fees. “That was a main reason why we chose Doc Popcorn—the low entry point.” Every other franchise he looked at was going to cost from $200,000 to $250,000 to start, he says.

Still, some franchises are willing to lend a helping financial hand. “My wife and I funded the store on our own, but I know that Doc Popcorn has third-party connections to help with funding,” says Cheung.

To learn more, check out our previous article on franchise startup costs.
3. Can you back someone else’s product?

While there’s definitely something to be said for creating your own business, many entrepreneurs are proud to peddle a franchise’s products. “The only reason we signed with Doc Popcorn is because of the product and what it represents,” says Cheung. “Of course, trying to make money is always a goal for all business owners but you have to believe in the product.”

For Bennett, however, launching The Greene Grape was an opportunity to express herself and act on her vision of a perfect wine shop. “At the time I opened my first wine store, there wasn’t really a franchise that focused on handcrafted, affordable wine,” she says. “My twist on a regular wine store was part of the creative process.”

4. How much say would you like in the business?

“The advantages to running your own business are mostly in creative control,” says Bennett. “I can market the way I want, my store can have a personality that reflects who we are. This means a lot more work, of course, but at the end of the day I can step back and be proud of how the store is presented.”

That’s not to suggest that franchisees don’t have any input. Rather, Miller explains, “As you become successful in a franchise system, there are opportunities for you to work collaboratively and to develop new products and services.”

5. How long can you wait to break even?

According to Miller, “the support given by a franchise in the beginning in terms of brand recognition means that you might have a quicker start in terms of sales. Educating the consumer for a new business definitely takes more time. Depending on how a franchise agreement is structured, that could mean breaking even for the franchisee earlier.”

Still, if the substantial franchise buy-in requirements are too steep, taking the franchise route (and its more desirable, early break-even point) may not be a realistic option for many budding entrepreneurs. Instead, they may have no other option but to launch on their own, either diving into entrepreneurship full-time and striving for a quick rise in profits or running a side or part-time venture for a longer period of time, until the business proves it can stand on its own.

Hard to grow your client base as a single-person operation?

When you are one person trying to run your accounting, finance, administrative, marketing, operations, and customer service departments during a 24 hour period each day, you start to wonder “How the heck am I going to grow this thing?” You do not have the time for networking events or posting flyers and you do not have the budget for any sort of advertising campaign (both online or in the physical world!)

So what do you do? I say focus on how you deliver your product or service!

Think about it! If you are a service-based company, then you are being hired because of your expertise in a given area (or because you are cheaper than your competitors.) The only thing your client expects is for you to deliver what they are paying for. You, however, actually have much more knowledge about what your service is provided for and why it is needed than your client may know and/or think they need to know. Educate your clients about your industry, products, and services and why they are needed. Share your knowledge with your clients that can help them make better informed decisions in the future and possibly prevent any problem situations that may arise down the road. Giving your knowledge to you clients is free to you, but invaluable for them!

The rest is up to you! You should be managing the entire client experience with your company in a way that promotes honesty and integrity! Become a vendor they can trust and count on! Show them you want them to become as successful as they can be by exceeding their expectations! Not just in terms of the service you are providing, but the way you provide it and the knowledge you share with them! They will love you for it and sing your praises, and not just to you! When they come in contact with others that need your services, they will remember you!

Now your business growth is fueled by FREE marketing in the form of word-of-mouth advertising and client referrals!

My Way or the Buy-Way? Should you start your business from scratch or buy a franchise?

Cary Cheung wakes up at 4:30 a.m. every morning to run a business that requires him to pay a fee. He doesn’t own it outright, and it doesn’t even bear his name. And yet he couldn’t be happier.

That’s because Cheung is a franchise owner of Doc Popcorn, a maker of flavored popcorn that uses a variety of organic and all-natural ingredients. In fact, Cheung abandoned his career as an assistant vice-president at WaMu Investments to become Doc Popcorn’s very first franchisee in November 2009. And just a few weeks ago, Cheung and his wife, Judy, opened their second Doc Popcorn location in California.

Pull-Quote-Tall.pngThe Cheungs aren’t alone. According to the International Franchise Association, approximately 4 percent of all businesses in the United States are franchisee-worked. And the consultancy Franchise Marketing Systems says that franchising is a business model that generates more than $1 trillion in U.S. sales annually across more than 70 industries. Franchised businesses ran 767,483 establishments in the United States through 2008, including establishments owned by both franchisees and franchisors.

But while running a franchise business can be both professionally attractive and personally satisfying, not everyone is cut out for the task. Just ask Amy Bennett, owner of The Greene Grape, a Brooklyn, New York-based seller of fine food and wine. The choice was obvious to Bennett: “Part of opening my own business rather than a franchise was for it to be a creative outlet for me. I wanted something I could contribute to meaningfully.” Add that desire for creativity to the many negatives associated with franchising, such as royalty fees, restrictive licenses, meddlesome franchising authorities, and a lack of ownership, and it is easy to see why many are dissuaded from signing up to become a party to a franchise.

For many others, of course, those negatives are more than outweighed by the many benefits of running a business associated with an established brand and backed by the marketing muscle and support of a large corporation. So how do you know if you’re best suited to run a franchise or if you should strike out on your own? Answering these five questions can get you a step closer to the right answer.

1. How much legwork are you willing to do?

“When you invest in a franchise, you’re getting the brand name of the franchisor, the operating system, a proven track record, not to mention ongoing support, education and training,” says Brian Miller, president of The Entrepreneur’s Source, a business ownership consultancy in Connecticut. “If you started out running your own business, however, you really wouldn’t have anybody to rely on.”

That kind of pre-existing structure was precisely why the Cheungs opted to run a franchise. “My parents owned their own restaurant so I saw the struggles they had starting off and all those lessons they had to learn,” he says. “The attraction of a franchise is the system is created for you.”

“There are very few people who are true entrepreneurs and who can really go out and make a business their own,” says Miller. “But there are a lot of people who have that passion and fire in their belly and know that they want to take control of their own destiny but need a little bit of help.”

2. What are you willing to invest financially?

Launching your own business often requires little to no capital, especially if you start small. But many popular franchises demand lots of upfront capital and collateral—sometimes up to millions of dollars—from a prospective franchisee before offering a contract. These “working capital reserves,” as they’re called, are often required by franchisors so that they will feel comfortable that a franchisee can stay in business until he or she reaches the financial break-even point.

In the case of Cheung, he invested between $100,000 and $150,000 to open his first store, including upfront franchise fees. “That was a main reason why we chose Doc Popcorn—the low entry point.” Every other franchise he looked at was going to cost from $200,000 to $250,000 to start, he says.

Still, some franchises are willing to lend a helping financial hand. “My wife and I funded the store on our own, but I know that Doc Popcorn has third-party connections to help with funding,” says Cheung.

To learn more, check out our previous article on franchise startup costs.
3. Can you back someone else’s product?

While there’s definitely something to be said for creating your own business, many entrepreneurs are proud to peddle a franchise’s products. “The only reason we signed with Doc Popcorn is because of the product and what it represents,” says Cheung. “Of course, trying to make money is always a goal for all business owners but you have to believe in the product.”

For Bennett, however, launching The Greene Grape was an opportunity to express herself and act on her vision of a perfect wine shop. “At the time I opened my first wine store, there wasn’t really a franchise that focused on handcrafted, affordable wine,” she says. “My twist on a regular wine store was part of the creative process.”

4. How much say would you like in the business?

“The advantages to running your own business are mostly in creative control,” says Bennett. “I can market the way I want, my store can have a personality that reflects who we are. This means a lot more work, of course, but at the end of the day I can step back and be proud of how the store is presented.”

That’s not to suggest that franchisees don’t have any input. Rather, Miller explains, “As you become successful in a franchise system, there are opportunities for you to work collaboratively and to develop new products and services.”

5. How long can you wait to break even?

According to Miller, “the support given by a franchise in the beginning in terms of brand recognition means that you might have a quicker start in terms of sales. Educating the consumer for a new business definitely takes more time. Depending on how a franchise agreement is structured, that could mean breaking even for the franchisee earlier.”

Still, if the substantial franchise buy-in requirements are too steep, taking the franchise route (and its more desirable, early break-even point) may not be a realistic option for many budding entrepreneurs. Instead, they may have no other option but to launch on their own, either diving into entrepreneurship full-time and striving for a quick rise in profits or running a side or part-time venture for a longer period of time, until the business proves it can stand on its own.

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