How-To Adviser - Career and Business 3

Career & Business

Business

How to Start Your Own Business - Continuation

3) The Legal Opening

That’s the easiest part. You should talk to your accountant, explain what kind of business that you want to start and tell him how much money you and your associates will invest in it. He’ll probably propose you and your associates a contract that you must analyze with the help of your attorney. Everything agreed and signed, your accountant should go after the necessary permits and tell you how much they’ll cost. When all the papers are finished and the business receipts to your clients printed, you may start your sales.

It could be a good idea to copyright your companies’ and products’ names and logos. That could protect you from having your names and logos used by other companies. When other companies copy (or slightly change) the names that you have created for your own business and products and advertised for your sales, they will benefit from your prior expenses in advertising. In other words, they will spend much less money than you on their product advertising and, therefore, have a better cost/profit relation than you, gaining an advantage over you. Moreover, buyers may confuse your product with their product and may buy their product by mistake. That may sound improbable but that happens.

4) Starting the Company

As stated before, the start of a new company always demands hard work. That’s when you start executing what you have planned during the Pre-Project phase:

- Admitting and Training Employees - Will you work alone or will you contract and train employees? As I wrote before, the least that you invest the better. So, you should contract as little employees as you can and take the most out of them. I’m not saying that they should work as slaves, of course. But employees can usually work harder then we think. So, only contract new employees when you realize that the ones that you already have are close to their limit and that the lack of a new employee will be an obstacle for the growth of your company. But remember that they are human beings and deserve to be treated respectfully, and that a tired employee is not so efficient.

- Contacting Your Potential Customers - When should I start contacting the clients? This question sounds easy to answer: the sooner, the better. But I can add that it depends on some factors like: what is the type of business that you are opening? Is there any product secret involved? Will you sell your product or service directly to the public or will there be intermediary?

If your new business will be a shop or restaurant, for example, the easy answer applies. You may start telling your friends about it as soon as you decide to open it and they might begin spreading the word. Word-of-mouth advertising is known to be efficient (you can find some successful and unsuccessful examples here, http://en.wikipedia.org/wiki/Word_of_mouth at Wikipedia). It is also advisable to place a sign in front of your establishment while it is under refurbishment saying something like: ‘New restaurant here soon!’, ‘Under new direction’, ‘New bookstore, shop under refurbishment to serve you better’ or ’Big opening soon’. So people who pass in front of it be curious and informed about it.

If there is a new product secrecy involved and you are afraid that your product or service might be copied by someone else before you start selling it, it is my belief that you should guarantee your idea ownership first by copyrighting it. The problem is: there are ideas that cannot be copyrighted. For example, there are TV sets in airports that display only advertisements. I was informed that that is a great new idea that cannot be copyrighted because television channels already do that. Commercials on TVs are common place, so to say. So, there is no rule for action in your business in that situation. What I would do in that case is to keep my secret until I would have to start to invest in infrastructure (rent the shop or office, contract suppliers and employees, buy equipment and so on). At that time, I would start a fast but thorough research on how my new product or service would be accepted by the public, either by asking the public about it, by asking the professionals whom I would have to negotiate or work with next and by asking professionals that have formerly worked in my field of work (these certainly have experience with that type of product). If these professionals are your acquainted, better. But make sure that they will tell you all the truth about it – you probably know that friends usually don’t want to tell us things that could hurt our feelings and, in this case, that must be avoided at all costs. Otherwise, you will spend your money in a business that could go wrong and you are the only one that doesn’t know it. After the research is done and the results are favorable, I could start the investments, including advertising.

If there will be intermediaries between you and the public, you should negotiate their participation before investing and advertising your product. What if you started investing and advertising and then you found out that no intermediator will carry your product? You’ll have spent money in vain. I have heard about intermidiators that only deal with some specific companies. These will not trade your product because they are impeded by contracts with other parties. So, the previous paragraph partially applies here. That means that you’ll have to talk to the professionals described there to check if your business is viable. And the same conclusion applies, too, i.e. if the results are favorable, you could start the investments, including advertising.

- Marketing and Advertising - Marketing and advertising should be constantly focused by you. A good marketing and advertising campaign should boost your income. No campaign usually means no gain. Sometimes, it’s advisable to contract an advertising agency because marketing is not as easy as we usually think. Anyway, you should know your customers preferences before opening your business. That should guide you on how to advertise. It is also important to measure the efficiency of your advertisement. The basis of this is: At first, you spent an ‘x’ amount of money advertising with brochures in the supermarket and your revenue became ‘y’. Later, you decided to advertise spending the same amount of money ‘x’ giving free samples of your product away in the same supermarket and your revenue turned out to be ‘2 times y’. In that case, you realize that it’s preferable to give free samples away than to distribute brochures. So, keep track of your marketing expenses and how they relate to your incomes afterwards. The best cost x benefit relation should be observed in this subject, too.

I’ve read in a magazine an example that stated that movie producers must spend in marketing and advertising twice as much as the cost of the whole movie production (going from setting up the location, through the shooting and actors payment to edition and movie finishing). I. e., if the production of a movie costed $10 million, its promotion (marketing and advertising) will cost $20 million. I can’t confirm that information, though. Anyway, it sounds right to me.

Be aware that advertising is the key to have a greater profit compared to any other type of investment. It is well known by scholars that spending a certain amount of money in advertising usually brings more income than spending the same amount of money in any other way in your company. So, be sure to advertise your company, your products and your services.

- Control the Finances - Very important. Be sure to write down and file every income and expense in an organized way. There is some software on the market that helps small enterprises to control their finances, sales and material logistics. They may be handy if you’ll have to deal with many sales, many salespersons and material input and output. Also remember that you should always predict the stock that you should maintain for the next month or week.

- Stock - Stock means items (therefore, money) that are enclosed and not in use inside a room. Therefore, you should not have too many of those there, only what’s necessary for the defined period (a week, a month). And the money spent to acquire them should have been the least possible. So, try to buy the minimum necessary number of goods for the period from the least expensive suppliers by comparing prices and payment conditions. Remember that your suppliers’ goal is the same of yours: money (and in their case, your money!). So always do your best to negotiate the lowest prices – don’t be ashamed of bargaining because they will not be ashamed of doing it either on their behalf.

- Internet Site - Today, to have an internet site is a must in many cases. Many people, mainly young people, prefer to start looking for something over the internet than on a phonebook, for example. It doesn’t mean that that’s the only place that they will look for what they want but internet can certainly help you. For instance, there are people that prefer to buy pizza with the help of an internet chat program than over the phone, even though it takes a rather longer time to finish the order. The good thing here for you is that it’s inexpensive to maintain an internet site on a paid host service. The most expensive part is to pay for someone to make the site for you. It demands skills to manage the software, organization, good taste for the site layout, some knowledge on marketing, knowledge on your clients’ needs, on how to advertise your site over the internet and demands labor time from this person.

- Energy Supply - This is common place, but it doesn’t hurt to remember. Don’t forget to contact your energy, water, sewer, telephone, credit card service and internet connection suppliers to activate these services in your facilities.

5) The Growth

As I have stated before, marketing and advertising are the key to keep and acquire new clients. The well-known companies are known because they have spent lots of money advertising their products and their company name for years. So, if you want your products and the name of your company to be known, you should have enough money to advertise those as well.

But there are other issues that must be addressed as well. Some of them I mention in the following paragraphs, also according to my experience.

As I wrote in the item 3, workers can usually work harder than we think. I have observed that some entrepreneurs hire new employees before the current ones are really at their production limit. So, I advise you not to act like that. My advise is to observe when your employees are about to be overwhelmed with work, check if the company sales are going to continue growing and foresee the best time to hire someone new.

One should always verify if the company’s production capacity is idle or at it’s maximum. If idle, how much: 10, 50, 70 %? If your sales are growing, when will be the time to increase the production’s capacity? I’d say that it’s ratter simple to answer, but it has to be always checked. It’s a matter of comparison between your sales volume, your maximum production limit and the sales growth rate of your company. So, if your growth rate shows you that you’ll sell 20 % more next month but your production is idle in only 10 %, there will be a need for a 10 % increase on your production line for the next month and an investment is necessary. But how much should you invest now? That will depend on the predicted growth rate for the following months. So, if you predict that the growth rate is 20 % every month in the near future, you’ll have to consider an investment that will allow you to cover the demand for a few months. But remember that investments cost money. I mean that you should be aware that the return on the new investment takes months or years to pay off. So, you should be careful not to make a too big an investment on a production line that will leave you with a too much idle line for many months because it’s a waste of resources. Besides, maintenance costs money, too.

Moreover, do your suppliers have enough capacity to support your future sales? If not, you should tell them about your growth prediction, so they’ll be prepared to supply you in your growth. But if they will not be capable of supplying your needs, you should look for new suppliers. The same thought apply to your distributors and dealers.

6) How to Define When It’s Time to Close the Company?

First, I must say: your financial decisions should be made without emotion. You should only see your enterprise with a professional and financial view. Therefore, you should not be emotionally attached to your enterprise. One must always remember that an investment is a mean for one to acquire money. In other words, enterprise means money invested that should have a return. So, if it no longer brings you money, it should be terminated.

That stated, I’ll go through three situations next.

Let’s say that you have only loss, don’t have more money to invest, can’t say what the problem is or can’t solve it. Plain and simple, I’d say that that’s the time to close the company before more damage is done. The more you wait for a miracle, the more you’ll waste money or larger will your debts be.

On the other hand, can you say what the problem is? Have you had experience with the same problem before? Have you succeeded solving the problem before? Why has the same problem occurred twice? Can you eliminate it forever? Do you have enough money to solve the problem again? With this problem solved, will your company return to profit again? If so, then I’d say that it’s worth the try to solve it once more for real. If not, the last paragraph applies.

Now, let’s say that your company presents some months of profit and some months of loss, more or less at the same rate, but can still sustain yourself with the little that you make out of it. That means that, at the end, you’re not gaining any extra money with it. Well, at least in this situation you’re not loosing money. So, I ask: can you tell what the problem is (why the enterprise is not growing)? Do you have the knowledge to fix it? Can you pay someone else with enough knowledge to do it for you? Do you have the necessary money to invest in your company’s growth once you know what the problem is? Is it worth the try? If yes, I’d say go for it. If not, you should consider keep the company in that situation or closing it. But now, I ask: is it worth it keeping open a company that will not bring you money for your provision when you retire? Can you work on something else that will provide you a good retirement? Well, only you can answer that.

This article will continue with a conclusion but it’s still a work in progress.

I decided to place it here unfinished because I think that it might help, anyway.

Please, wait a few days for the continuation. Thank you.

Author: The editor

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