Will the rate of return on the money you invest in your business be greater than the rate you could receive if you invested your money elsewhere? While your decision to go into business for yourself may not depend entirely upon this, it is a factor that should interest you. Too frequently people invest money in their own businesses under the misapprehension that the financial return will be far greater than the return from other investments. Investigation of the average annual returns in the line of business in which you are interested may be worthy of your time.

Your decision to go into business may not depend entirely on financial rewards. The size of the potential return on your investment may be overshadowed by your desire for independence, the chance to do the type of work you would like to do, the opportunity to live in the part of the country or city you prefer, or the feeling that you can be more useful to the community than you would be if you continued working for someone else. Do not overlook such intangible considerations. But remember you cannot keep your own business open unless you receive an adequate financial return on your investment.

New Video: 20 things a small business owner must address

http://www.youtube.com/watch?v=j09CNozDx1g

The Ten Challenges

 Discussions between groups of small business owners revealed ten common challenges faced by small business owners:

à         Knowing Your Business

à         Knowing the Basics of Business Management

à         Having the Proper Attitude

à         Having Adequate Capital

à         Managing Finances Effectively

à         Managing Time Efficiently

à         Managing People

à         Satisfying Customers by Providing High Quality

à         Knowing How to Compete

à         Coping with Regulations and Paperwork

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There are, of course, many reasons for the failure of new small businesses. One way of looking at the causes is to remember that a new business is starting at zero momentum; newly entering a market, having to establish supplier relations, finding proper financing, and training employees. To coordinate all these facets and start them simultaneously is a tremendous job. If you don't have experience and management capability, success won't be very likely. You'll also find that undercapitalized business, those without enough cash to carry them through the first six months or so before the business starts making money, don't have good survival prospects. In such cases, even businesses with good management can founder.

Coordinated Marketing    

A following of dependable customers has always been a firm's greatest asset. The sage observation, "It is better to own a market than a plant," was until recently only a catch phrase to many manufacturers - more preached than practiced or understood. Except in times of serious depression, it was always possible to sell harder, improve performance, or cut price. Management's word to salesmen and distributors was, "We'll make It - you sell it." Today the successful business leader says, "What does the market want that we can make and market? How can we best please them with both product and service? How can we get that market to be ours - at least a share of it?"

In the early Fifties, a new concept of marketing emerged very clearly. It was a market and customer-oriented approach. For some firms this was not new, but for most industrial goods makers, so long production minded, it was a new idea to start with the needs of the market and work back.

If your training program is to be effective, you must see that your sales trainee understands this fact, is able to translate it into effective sales technique, and understands how his sales effort contributes to the total marketing mix of your company.

Valuing the Closely Held Firm 

Sometime during the life of every closely held business, the owner must plan for the eventual transition of ownership and control of the firm. To make correct decisions regarding the transfer of ownership interests in the business, the owner must be able to determine the appropriate value of the firm.

Other reasons for valuing the closely held firm include:

1.    realignment of operating units;

2.    establishing the value of a company considering an initial public offering;

3.    the establishment of stock benefit plans; and

4.    determining estate and gift taxes.

In a closely held business, family members or a small group of individuals own the stock. Generally, no shares are in the hands of the general public. Accordingly, establishing a market value for the firm is a difficult and complex process.

Book value often bears little, if any, resemblance to market values since the balance sheet represents the historical cost of fixed assets, which may be substantially different from market value. The asset's ability to produce earnings or positive cash flows is the fundamental determinant of value.

The IRS and court decisions have had a major impact on the valuation process. These parties agree that a range of values is typically preferable to a single value and that the valuation process should consider all relevant information.

Poor management is the largest single cause of business failure. Year after year, the lack of managerial experience and aptitude has accounted for around 90 percent of all failures analyzed by Dun & Bradstreet, Inc.

Many factors may adversely affect individual firms over which owners have little control. In such cases, the astute manager can often soften the blow or, sometimes, change adversity into an asset. Examples of factors over which the owner has little control are overall poor business conditions, relocation of highways, sudden style changes, the replacement of existing products by new ones, and local labor situations. While these factors may cause some businesses to close, they may represent opportunities for others. A local market place may decline in importance at the same time new shopping centers are developing. Sudden changes in style or the replacement of existing products may bring trouble to certain businesses but open doors for new ones. Adverse employment situations in some areas may be offset by favorable situations in others. Ingenuity in taking advantage of changing consumer desires and technological improvements will always be rewarded.

In the final analysis, it is up to you. Will your management be competent? Will you be able to judge, and then satisfy, your customers' wants? Can you do this accurately and quickly enough to more than compensate for risks due to factors beyond your control? Such accomplishment requires expert management

Marketing and selling are the same. This misconception comes about because many of the most successful entrepreneurs are also very good salespeople. Talented salespeople can often go a long way selling a particular product or service without having a clear understanding of the true dynamics of the marketplace. Thus their success in selling can delude them into believing they have mastered marketing.

In reality, though, selling is only one aspect of marketing implementation. That is, once you have identified your customer prospects and determined how best to reach them, you move into the sales process–convincing customers to buy your product or service. If you haven’t done your marketing homework, you can easily fail when it comes to selling. And if you are fortunate enough to convince a random group of individuals or companies to buy your product or service, without some notion as to why you picked them, your success may be a testimonial to your sales rather than your marketing skills.

Internet Marketing

Internet Marketing is a necessity in the new world economy. But what is IM? The internet is a communications channel that is multidimensional in its ability to transmit marketing messages. The key to using this communications channel for a small business is to present the same total content and unique selling position as a brick and mortar store would. So that is the analogy that I use in presenting an overall internet marketing plan.

Management of a website and the accompanying marketing can be a confusing and complex task. Search Engine Optimization (SEO), Search Engine Marketing (SEM), and Pay Per Click (PPC) are all terms that you see referencing the management of website marketing. Keywords, links, and page optimization are all important nonpaid aspects of making your website an effective sales tool for your business.

The above are technical aspects. Even more important is the brand development of the site and the presentation of your products and/or services key benefits. If search engines are the queens of the internet, then customer service is the emperor. Getting the technical aspects correct is only important if your site convinces the visitor that you can fulfill their specific needs.

Even if you have no interest in the physical management of your website, you need to understand how this key marketing tool functions. Websites are not "build it and leave" tools, You must consistently evaluate and modify a website for it to provide the performance you need. Businesses are allocating more and more of their marketing budget to the Internet. To meet the competition you need to manage your site and the various marketing technologies and tools.

The internet is now at the “top of the food chain” for marketing tools. It can provide a 24/7 fulfillment tool, a brand building tool, and perhaps most importantly a feedback loop from current and potential customers. The most important step you can make in developing a website is to define which of its functions you will need to utilize. It doesn’t matter if you build your own site or you work with a website designer, understanding how the web fits into your marketing plan is the most significant part of developing a web presence.

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The Benefits of Superior Service 

Lost Customer Revenue

         A.Annual revenue                                                      $_________________

         B.Total number of customers                                                _________________

         C.Percentage of dissatisfied customers                  x ____________%

         D.Number of dissatisfied customers (C x B)=        ________________

         E.Number of dissatisfied customers apt to switch x __________.25%

         F.Number of dissatisfied customers who will switch= ________________

         G.Average revenue per customer ( A / B)               $ ________________

         H.Revenue lost through poor service (F x G)         $ ________________

Additional Revenue From Word of Mouth

         I. Number of people satisfied customers will tell   (B x .87 x 2.5 people)                                                   = ________________

         J. Number of prospects who buy due to positive word of mouth assuming 1 in 50 told (I x .02) buys    = ________________

         K.Potential new revenue resulting from positive   "word of mouth" (J x G)                                           $ ________________

Repeat Customer Business

         L.                        Number of repeat customers, assuming only 1 in 10 (.10 x B)                                                    $ ________________

         M.           Revenue per customer (L x G)      $ ________________

         N.            Replacement cost for lost customers (M x 5)      $ ________________

Reduced Customer Replacement Cost

O.     Reduced replacement costs (N / 5)                          $ ________________

Total Increase 

         P.                        Total annual increase (H + K + M + O)                 $ ________________

         Q.            Total Increase over customer's lifetime or  10 years (P x lifetime or 10 years)                             $________________        

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Our economy depends heavily on the continuity and success of the family business. It is unfortunate, even alarming, that such a vital force has such a poor survival rate. Less than one third of family businesses survive the transition from first to second generation ownership. Of those that do, about half do not survive the transition from second to third generation ownership.

At any given time, 40 percent of businesses are facing the transfer of ownership issue. Founders are trying to decide what to do with their businesses; however, the options are few.

The following is a list of options to consider:

q   · Close the doors.

q   · Sell to an outsider or employee.

q   · Retain ownership but hire outside management.

q   · Retain family ownership and management control.

To be one of the few family businesses that survive transfer of ownership requires a good understanding of your business and your family.

There are four basic reasons why family firms fail to transfer the business from generation to generation successfully:

1.     · Lack of viability of the business.

2.     · Lack of planning.

3.     · Little desire on the owner's part to transfer the firm.

4.     · Reluctance of offspring to join the firm.

These factors, alone or in combination, make transferring a family business difficult, if not impossible. The primary cause for failure, however, is the lack of planning. With the right plans in place, the business, in most cases, will remain healthy.

There are four plans that make up the transition process. By implementing these plans, you will virtually ensure the successful transfer of your business within the family hierarchy.

 - A strategic business plan for the business will allow you an opportunity to chart a course for the firm. Setting business goals as a family will ensure that everyone has a clear picture of the company's future.

- The family strategic plan is needed to maintain a healthy, viable business. This plan establishes policies for the family's role in the business. For example, it may include an entry and exit policy that outlines the criteria for working in the business. It should include the creed or mission statement that spells out your family's values and basic policies for the business. The family strategic plan will address other issues that are important to your family. By implementing this plan, you may avoid later conflicts about compensation, sibling rivalry, ownership and management control.

- A succession plan will ease the founding or current generation's concerns about transferring the firm. It outlines how succession will occur and how to know when the successor is ready. Many founders do not want to let go of the company because they are afraid the successors are not prepared, or they are afraid to be without a job. Often, heirs sense this reluctance and plan an alternative career. If, however, the heirs see a plan in place that outlines the succession process, they may be more apt to continue in the family business.

- An estate plan is critical for the family and the business. Without it, you will pay higher estate taxes than necessary. Taking the time to develop an estate plan ensures that your estate goes primarily to your heirs rather than to taxes.

For business owners who do little planning, the idea of preparing four plans may seem overwhelming. Although it is not easy, the commitment made by all family members during the planning process is the key ingredient for business continuity and success.

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