Now that Hurricane Irene is done pummeling the Eastern Seaboard, affected business owners will move on to the next phase: trying to figure out if insurance will cover their losses.
In the chaos that follows a natural disaster, mistakes can be made that may delay insurance reimbursement, or mean your insurance won't pay at all. Long delays can be deadly for a business trying to bounce back and get the doors open again.
Here are the top seven mistakes business owners make in filing insurance claims:
1. Not contacting your insurer immediately. Many people make the mistake of cleaning up damage before an insurance representative visits the business. This creates confusion about how bad things really were, and you may find that labor you did or paid for is disallowed if it preceded an insurer's inspection. In a disaster situation, many insurers have a quick-response team that will come out to survey the situation.
2. Not documenting the damage. Often, repairs must begin immediately to prevent additional damage, or equipment must be moved to a new location. If so, be sure to photograph the original scene to document how it was before you started your cleanup effort. Also take photos of any repairs you make.
3. Not keeping damaged goods. If your business cleanup includes removal of items such as water-damaged merchandise, flooring or insulation, keep it all, even if it has to pile up in the parking lot. The damaged materials are all evidence of the impact of the disaster on your business.
4. Not appealing your insurer's lowball estimate. Your insurer will give you a damage estimate after surveying your business. If you think it's too low, you can appeal. Hire your own adjuster to do a second estimate. Usually, an impartial, third-party mediator will then be employed to make a final decision on the payment amount.
5. Not reading your policy. It's a common myth that if you have insurance for a building, you must have coverage for flooding, earthquakes and all other possible calamities. But often, it's not true. In earthquake-prone states, for instance, this coverage often must be obtained on a separate policy or rider, and flood insurance is only offered through the National Flood Insurance Program. Don't waste time submitting claims to your private insurance policy if it won't cover you for the disaster you've just suffered.
6. Counting on FEMA for quick help. If your business is in a federally declared disaster area, federal aid will be available. But you can ask survivors of Hurricane Katrina how maddeningly slow this aid moves. It might provide homeowners with temporary shelter and eventual money to rebuild. But for a business owner, your private insurance will be your best chance at receiving money fast enough to reopen before all your customers drift away.
7. Not preparing ahead of time. Obviously, the aftermath of a disaster goes more smoothly if you are ready to swing into action when trouble hits. Start with reviewing your policy to make sure you have adequate coverage. Then be prepared. Do you know where your insurance policy is kept? Is it handy, where you could grab it if you had to leave suddenly? Is an extra copy in a safe deposit box where it would be safe from flooding or fire? Do you have your insurance agent's number programmed into your phone? It'll prevent delays if you have your information handy.
Selasa, 30 Desember 2014
7 Types of Insurance You Need to Protect Your Business
From the day an entrepreneur starts a business, he exposes himself to certain risks. Even before the first employee is hired, a business is at risk, making it important to have the right insurance in place. One lawsuit or catastrophic event could be enough to wipe out a small business before it even has a chance to get off the ground.
Fortunately, businesses have access to a wide range of insurance types to protect them against these dangers. Here are some insurance types that a business must have in place as soon as possible.
1. Professional liability insurance.
Professional liability insurance, also known as errors and omissions (E&O) insurance, covers a business against negligence claims due to harm that results from mistakes or failure to perform. There is no one-size-fits-all policy for professional liability insurance. Each industry has its own set of concerns that will be addressed in a customized policy written for a business.
Related: Do I Need Liability Insurance?
2. Property insurance.
Whether a business owns or leases its space, property insurance is a must. This insurance covers equipment, signage, inventory and furniture in the event of a fire, storm or theft. However, mass-destruction events like floods and earthquakes are generally not covered under standard property insurance policies. If your area is prone to these issues, check with your insurer to price a separate policy.
3. Workers’ compensation insurance.
Once the first employee has been hired, workers’ compensation insurance should be added to a business’s insurance policy. This will cover medical treatment, disability and death benefits in the event an employee is injured or dies as a result of his work with that business. Even if employees are performing seemingly low-risk work, slip-and-fall injuries or medical conditions such as carpal tunnel syndrome could result in a pricey claim.
Related: Does Your Home Business Need Insurance?
4. Home-based businesses.
Many professionals begin their small businesses in their own homes. Unfortunately, homeowner’s policies don’t cover home-based businesses in the way commercial property insurance does. If you’re operating your business out of your home, ask your insurer for additional insurance to cover your equipment and inventory in the event of a problem.
5. Product liability insurance.
If your business manufactures products for sale on the general market, product liability insurance is a must. Even a business that takes every measure possible to make sure its products are safe can find itself named in a lawsuit due to damages caused by one of its products. Product liability insurance works to protect a business in such a case, with coverage available to be tailored specifically to a specific type of product.
6. Vehicle insurance.
If company vehicles will be used, those vehicles should be fully insured to protect businesses against liability if an accident should occur. At the very least, businesses should insure against third-party injury, but comprehensive insurance will cover that vehicle in an accident, as well. If employees are using their own cars for business, their own personal insurance will cover them in the event of an accident. One major exception to this is if they are delivering goods or services for a fee. This includes delivery personnel.
7. Business interruption insurance.
If a disaster or catastrophic event does occur, a business’s operations will likely be interrupted. During this time, your business will suffer from lost income due to your staff’s inability to work in the office, manufacture products or make sales calls. This type of insurance is especially applicable to companies that require a physical location to do business, such as retail stores. Business interruption insurance compensates a business for its lost income during these events.
By having the right insurance in place, a business can avoid a major financial loss due to a lawsuit or catastrophic event. Check with your insurer to find out what forms of insurance are advised for your type of business and put those plans in place as soon as possible.
Fortunately, businesses have access to a wide range of insurance types to protect them against these dangers. Here are some insurance types that a business must have in place as soon as possible.
1. Professional liability insurance.
Professional liability insurance, also known as errors and omissions (E&O) insurance, covers a business against negligence claims due to harm that results from mistakes or failure to perform. There is no one-size-fits-all policy for professional liability insurance. Each industry has its own set of concerns that will be addressed in a customized policy written for a business.
Related: Do I Need Liability Insurance?
2. Property insurance.
Whether a business owns or leases its space, property insurance is a must. This insurance covers equipment, signage, inventory and furniture in the event of a fire, storm or theft. However, mass-destruction events like floods and earthquakes are generally not covered under standard property insurance policies. If your area is prone to these issues, check with your insurer to price a separate policy.
3. Workers’ compensation insurance.
Once the first employee has been hired, workers’ compensation insurance should be added to a business’s insurance policy. This will cover medical treatment, disability and death benefits in the event an employee is injured or dies as a result of his work with that business. Even if employees are performing seemingly low-risk work, slip-and-fall injuries or medical conditions such as carpal tunnel syndrome could result in a pricey claim.
Related: Does Your Home Business Need Insurance?
4. Home-based businesses.
Many professionals begin their small businesses in their own homes. Unfortunately, homeowner’s policies don’t cover home-based businesses in the way commercial property insurance does. If you’re operating your business out of your home, ask your insurer for additional insurance to cover your equipment and inventory in the event of a problem.
5. Product liability insurance.
If your business manufactures products for sale on the general market, product liability insurance is a must. Even a business that takes every measure possible to make sure its products are safe can find itself named in a lawsuit due to damages caused by one of its products. Product liability insurance works to protect a business in such a case, with coverage available to be tailored specifically to a specific type of product.
6. Vehicle insurance.
If company vehicles will be used, those vehicles should be fully insured to protect businesses against liability if an accident should occur. At the very least, businesses should insure against third-party injury, but comprehensive insurance will cover that vehicle in an accident, as well. If employees are using their own cars for business, their own personal insurance will cover them in the event of an accident. One major exception to this is if they are delivering goods or services for a fee. This includes delivery personnel.
7. Business interruption insurance.
If a disaster or catastrophic event does occur, a business’s operations will likely be interrupted. During this time, your business will suffer from lost income due to your staff’s inability to work in the office, manufacture products or make sales calls. This type of insurance is especially applicable to companies that require a physical location to do business, such as retail stores. Business interruption insurance compensates a business for its lost income during these events.
By having the right insurance in place, a business can avoid a major financial loss due to a lawsuit or catastrophic event. Check with your insurer to find out what forms of insurance are advised for your type of business and put those plans in place as soon as possible.
What Successful Businesses Have in Common
How does a small company become successful? Despite the bad news we so often hear about the number of small businesses closing or moving, the news really isn't all that bad: Thousands of small businesses startup every year, and a good percentage of those companies have learned what it really takes to survive the early startup years and become successful enterprises.
After working with dozens of small companies, I discovered that the successful ones share some common traits. Here, then, are the 14 qualities I've witnessed in many of the thriving small businesses I've worked with:
Company culture. Culture is defined as the "integrated pattern of human knowledge, belief and behavior that depends upon man's capacity for learning and transmitting knowledge to succeeding generations." For successful companies, culture is about attracting and hiring the people who would be most successful in that specific organization. And it's about driving the behavior that makes the company successful.
Customer service. Simply defined, customer service means taking care of your customers. Many companies integrate customer service into their business culture through training and the design (and frequent redesign) of relevant business processes. In most cases, the business plan dictates how they will provide quality customer service.
Attitude. As the owner of the company, you must have a positive attitude and accept 100 percent of the responsibility for the results of your business. When you accept responsibility, you can act to make the necessary changes to accomplish the desired results. Then, when success is achieved, you're generous in giving credit to others within the organization. Without exception, the most successful business owners understand that it's all about people: hiring and retaining the right people, eliminating ineffective people and providing the necessary resources for employees to master their tasks.
Business strategy. A complex strategy or business plan isn't necessary to achieve success. A simple one-page document will do, but it should be well thought out and well executed. A poorly crafted business plan that's well executed is far superior to the well-crafted business plan that sits on the shelf collecting dust. A good business plan defines and drives the activities and behaviors of the entire organization. Without it, the business becomes a ship without a rudder; it simply can't be steered and ends up going around in circles. A sound strategy should include a financial plan, marketing differentiators, and product strategy as well as a plan for employee retention.
Discipline. Discipline is all about executing the strategies and then staying the course. It's about staying focused on your core markets and measuring success as defined by your business strategy. It's not about overreacting to market changes and adjusting your core strategy to keep up.
Risk. Successful business owners aren't afraid to take calculated risks with clear outcomes in mind. Most owners who take risks do so because they recognize the need to change as the economic climates changes, and they understand it's disastrous not to embrace change. Successful business leaders understand that being in business is about managing and responding to change. Companies that succeed embrace change and respond to challenges presented by the market, the competition or changes in general business conditions.
Financial roadmap. An important attribute is the creation of a financial roadmap and budget--and then having the discipline to follow it. A financial plan reminds owners where and how to spend money, and it provides ways to measure progress or shortfalls. A sound financial plan is the cornerstone of a great business plan.
Business processes. Another frequently credited attribute of success is the streamlining of business processes. We call this "creating predictability." Unfortunately, this is probably the least understood task a small-business owner can take accomplish. Business processes are how things are done within a business. Every company has some processes; some are clearly defined, others are implicit. The intention here is to increase productivity and reduce costs while generating the same (or better) outcomes. Successful businesses understand the need to continuously improve their business processes: to become more efficient and productive, and to respond to market changes faster while providing better service to customers.
Information technology. While technology is important, it doesn't have to be complex or costly to be effective. Effective technology is probably the most important enabler for change that a company can introduce.
Marketing. Effective marketing efforts perform different functions around unique selling environments. For example, business-to-consumer enterprises have completely different marketing needs than business-to-business companies. Having a good understanding of the pains your clients are experiencing and how your product and services stop that pain can help you understand just how to market to your customers--and that's critical to business success.
Sales. Every company's approach to sales is different. Some depend on building referral partnerships and strategic alliances, and this is the extent of their sales process. Others aggressively attack the market with direct-mail campaigns, cold calling and other forms of direct customer contact. The specific selling approach a company uses is usually defined by its marketing plan. Successful owners know that the concept of selling is a process that can be measured and improved, like all business processes. They talk about the importance of having a consistent, measurable and repeatable sales process, and they engage professional sales trainers (with flexibility to customize training to their selling environment) to help create consistency within their selling process.
Training. Because we live in a world of continuous change, it's more important than ever to implement a culture of continuous learning. For many successful owners, continual investment in training is a major contributor to success. For training to be successful, however, there must a direct link back to the business plan and an understanding of how training supports the successful implementation of the business strategy.
Team of advisors. Without exception, every successful business owner I've worked with has talked to about how having trusted advisors is necessary for success. They know they can't know everything and they searched out advisors they could trust. They usually preferred to pay for this advice because they were looking for someone who would challenge them, hold them accountable, ask them important questions and introduce them to others who could help them when necessary.
Work/life balance. Successful business owners understand that every person has just 1,440 minutes in any given day and how they spend this time directly impacts how effective they'll be in growing their businesses. Smart entrepreneurs successfully integrate their social lives into their business lives: The client who purchases a product today gets invited to the lakeside cabin the next weekend. Clients become friends, and co-workers become like family. These entrepreneurs build their lives around their business, and it's almost impossible to distinguish between their social lives and their business lives.
After working with dozens of small companies, I discovered that the successful ones share some common traits. Here, then, are the 14 qualities I've witnessed in many of the thriving small businesses I've worked with:
Company culture. Culture is defined as the "integrated pattern of human knowledge, belief and behavior that depends upon man's capacity for learning and transmitting knowledge to succeeding generations." For successful companies, culture is about attracting and hiring the people who would be most successful in that specific organization. And it's about driving the behavior that makes the company successful.
Customer service. Simply defined, customer service means taking care of your customers. Many companies integrate customer service into their business culture through training and the design (and frequent redesign) of relevant business processes. In most cases, the business plan dictates how they will provide quality customer service.
Attitude. As the owner of the company, you must have a positive attitude and accept 100 percent of the responsibility for the results of your business. When you accept responsibility, you can act to make the necessary changes to accomplish the desired results. Then, when success is achieved, you're generous in giving credit to others within the organization. Without exception, the most successful business owners understand that it's all about people: hiring and retaining the right people, eliminating ineffective people and providing the necessary resources for employees to master their tasks.
Business strategy. A complex strategy or business plan isn't necessary to achieve success. A simple one-page document will do, but it should be well thought out and well executed. A poorly crafted business plan that's well executed is far superior to the well-crafted business plan that sits on the shelf collecting dust. A good business plan defines and drives the activities and behaviors of the entire organization. Without it, the business becomes a ship without a rudder; it simply can't be steered and ends up going around in circles. A sound strategy should include a financial plan, marketing differentiators, and product strategy as well as a plan for employee retention.
Discipline. Discipline is all about executing the strategies and then staying the course. It's about staying focused on your core markets and measuring success as defined by your business strategy. It's not about overreacting to market changes and adjusting your core strategy to keep up.
Risk. Successful business owners aren't afraid to take calculated risks with clear outcomes in mind. Most owners who take risks do so because they recognize the need to change as the economic climates changes, and they understand it's disastrous not to embrace change. Successful business leaders understand that being in business is about managing and responding to change. Companies that succeed embrace change and respond to challenges presented by the market, the competition or changes in general business conditions.
Financial roadmap. An important attribute is the creation of a financial roadmap and budget--and then having the discipline to follow it. A financial plan reminds owners where and how to spend money, and it provides ways to measure progress or shortfalls. A sound financial plan is the cornerstone of a great business plan.
Business processes. Another frequently credited attribute of success is the streamlining of business processes. We call this "creating predictability." Unfortunately, this is probably the least understood task a small-business owner can take accomplish. Business processes are how things are done within a business. Every company has some processes; some are clearly defined, others are implicit. The intention here is to increase productivity and reduce costs while generating the same (or better) outcomes. Successful businesses understand the need to continuously improve their business processes: to become more efficient and productive, and to respond to market changes faster while providing better service to customers.
Information technology. While technology is important, it doesn't have to be complex or costly to be effective. Effective technology is probably the most important enabler for change that a company can introduce.
Marketing. Effective marketing efforts perform different functions around unique selling environments. For example, business-to-consumer enterprises have completely different marketing needs than business-to-business companies. Having a good understanding of the pains your clients are experiencing and how your product and services stop that pain can help you understand just how to market to your customers--and that's critical to business success.
Sales. Every company's approach to sales is different. Some depend on building referral partnerships and strategic alliances, and this is the extent of their sales process. Others aggressively attack the market with direct-mail campaigns, cold calling and other forms of direct customer contact. The specific selling approach a company uses is usually defined by its marketing plan. Successful owners know that the concept of selling is a process that can be measured and improved, like all business processes. They talk about the importance of having a consistent, measurable and repeatable sales process, and they engage professional sales trainers (with flexibility to customize training to their selling environment) to help create consistency within their selling process.
Training. Because we live in a world of continuous change, it's more important than ever to implement a culture of continuous learning. For many successful owners, continual investment in training is a major contributor to success. For training to be successful, however, there must a direct link back to the business plan and an understanding of how training supports the successful implementation of the business strategy.
Team of advisors. Without exception, every successful business owner I've worked with has talked to about how having trusted advisors is necessary for success. They know they can't know everything and they searched out advisors they could trust. They usually preferred to pay for this advice because they were looking for someone who would challenge them, hold them accountable, ask them important questions and introduce them to others who could help them when necessary.
Work/life balance. Successful business owners understand that every person has just 1,440 minutes in any given day and how they spend this time directly impacts how effective they'll be in growing their businesses. Smart entrepreneurs successfully integrate their social lives into their business lives: The client who purchases a product today gets invited to the lakeside cabin the next weekend. Clients become friends, and co-workers become like family. These entrepreneurs build their lives around their business, and it's almost impossible to distinguish between their social lives and their business lives.
Will the Government Help You Start A New Business?
Will the government help you start a new business? The short answer is yes. There are numerous government-funded organizations out there that can help with many steps of starting or running a business. In particular, the Small Business Development Center (SBDC), SCORE and the Women's Business Center offer free counseling, training seminars and (sometimes) resources like computer labs with business software. (For related reading, see: 8 Tips For Starting Your Own Business.)
The long answer is that while this help is available, you have to seek it yourself. Also,while many organizations offer one-to-one counseling sessions, it's ultimately up to you to determine how you'll implement the advice in your business.
SCORE vs. SBDC vs. Women's Business Centers
There are three main organizations that provide help to entrepreneurs: the SBDC, SCORE and the Women's Business Center. Each of them is funded (in part) by the Small Business Administration (SBA) and has regional offices around the US where anyone can go in for training. They all provide free counseling and free or low-cost training seminars.
They differ, however, in how they procure teachers and mentors for their staff. For example, SBDCs hire full-time employees to train and counsel entrepreneurs, whereas SCORE has volunteers. They also differ in the topics they cover in training and counseling sessions. Generally, each organization has at least one office in almost every mid-to large-sized city. The offices usually work together by specializing in different areas of focus. You might walk into an SBDC looking for HR advice and instead get referred to a SCORE chapter or Women’s Business Center.
Here's a more detailed overview of what each organization offers:
Small Business Development Centers (SBDCs)
SBDCs constitute a wide network of almost 1,000 regional help centers, which you can find in every state. Small business owners can receive free counseling and attend low-cost training seminars. Some SBDCs also have resource centers that give you access to PCs with business software. According to the SBA, the topics of advice include:
Business plan development
Manufacturing assistance
Financial packaging and lending assistance
Exporting and importing support
Procurement and contracting aid
Market research help
8(a) program support (a program that helps minority-owned businesses get government contracts)
SBDCs tend to focus more on developed businesses -- those which have been around for a few years and have 5 to 25 employees. But they can still provide help to entrepreneurs who are just starting out. SBDC advisors are trained, full-time employees, so they can provide advice on a wide variety of topics.
SCORE
Like SBDCs, SCORE has regional offices where entrepreneurs can receive free counseling and attend training seminars. However, unlike SBDC, SCORE also has a lot of resources available on the Web. For example, the Email A Mentor lets you connect with a volunteer business professional who can confidentially advise you on a variety of topics.
SCORE originally stood for Service Core of Retired Executives. The acronym has since been dropped because many volunteers today are not retired. But the model remains the same in that entrepreneurs can receive advice from professionals with “real world” business experience.
This has its benefits and drawbacks. On one hand, you can link up with a mentor who has dealt with the very same issues you’re facing. As Kenneth Yancey, CEO of SCORE, explained to Fit Small Business, “the matching process is driven by what the client wants, their industry, and the particular issues they are facing, etc.. If the business owner is a restaurant owner that wants to increase sales, we might match that person with a food industry professional that has marketing and sales experience.” On the other hand, if that same business owner wants HR advice, he or she will probably have to speak with another mentor. Because each volunteer has specialized knowledge, you’ll have to speak with several different mentors to get the full range of business advice.
Women’s Business Centers
Women’s Business Centers (WBCs) provide many of the same services that SBDCs do. The key difference, however, is that they tend to have more female staff and focus on issues which tend to hinder the success of female entrepreneurs. For example, women entrepreneurs tend not to seek outside capital at the same rate as their male counterparts. (See article: Female Entrepreneurs are Surpassing Their Male Counterparts.)
Despite their focus on helping female entrepreneurs, particularly those who are socially or economically disadvantaged, Women’s Business Centers can also help men. It’s not uncommon for men to seek advice from WBCs because their experts have specialized knowledge they cannot find elsewhere. (For related reading, see: Ten Characteristics Of Successful Entrepreneurs.)
SBA District Offices
Although the Small Business Administration provides funding to these 3 groups, they also have separate offices that provide help for entrepreneurs. Most notably, small business owners can go to the SBA district offices to apply for SBA-guaranteed loans. It must be noted that the SBA does not provide loans, but rather, if a loan from a bank is approved, they can back that loan. (See: Alternatives to Loans.)
The Bottom Line
Whether you’re starting a business or trying to improve an existing business, there are many different government-backed services out there that can give you a boost. Just be aware that, because of the diversity of businesses out there -- and thus, the wide range in types of experience and knowledge mentors have -- it may take a little time to find a match.
You can start here to find a Small Business Development Center, SCORE chapter, Women’s Business Center or SBA district office in your area.
About The Author - Jeremy Marsan is a staff writer for Fit Small Business, a “how to” publication for small business owners.
Disclaimer: The opinions expressed are those of the author and are subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of any individual holdings or market sectors. This material does not constitute any specific legal, tax or accounting advice. Please consult with qualified professionals for this type of advice.
Investopedia and Fit Small Business have or may have had an advertising relationship, either directly or indirectly. This post is not paid for or sponsored by Fit Small Business, and is separate from any advertising partnership that may exist between the companies. The views reflected within are solely those of Fit Small Business and their authors.
Start Your Own Small Business
Wouldn't it be great to be able to quit your job, be your own boss and earn a paycheck from the comfort of your own home? The good news is that with a little planning and some startup money, it is possible!
Let's delve a little deeper into how to start a small business from home and help you decide how much planning and money you'll need to be your own boss.
Creating the Concept
Before quitting their jobs, the potential entrepreneurs must first think of a concept, product or service to generate a steady income. And while that may sound easy, it's not. You should conceive a plan that puts your knowledge, experience and expertise to use but in a way that allows you to make the most amount of your money.
When first thinking of some business ideas, start with areas you already have a great deal of interest, equipment and materials for. This will help cut down on the startup costs for your company and also let you hit the ground running when you do hang out your shingle. Also, peruse the local paper and advertisements to see what other types of businesses are out there. Are there other similar businesses in your neighborhood or is there a business area that is lacking?
Doing something you like isn't the only consideration. You need to get an idea of the prospects for the potential business. Is it a business with a market? Can you make money at it? This will require some research into the marketplace as well as how other similar businesses have fared.
Developing a Work Space
Your home is where you live. This means that its primary function is to serve as a dwelling for you and your family - not as a warehouse or meeting place for your business and its clients. Make certain that if you are considering entering the manufacturing business (for example) that your garage or shed is large enough to handle your work - without forcing your family and your vehicles into stormy weather.
Similarly, if your work will be computer-based, make sure that you have the technology necessary to give your idea a fighting chance. In addition, make sure that you have a dedicated area that's cut off from the rest of the house and that can afford you some privacy. Remember, hearing a barking dog or a crying baby in the background when you are trying to work or meet with a client may not be ideal for you or your family.
Outsourcing Partners/Employees
While it would be great to be the sole owner of your company and have complete control of every aspect, sometimes a lack of funds or experience make it necessary to have a partner. In this case, consider someone that is bright, will represent the company well, and has some sort of expertise in the business you are developing, be it sales, marketing, book-keeping, or other financial matters.
Also, try to define the tasks that you and your partner(s) will be responsible for before opening up shop. That way, there will be fewer disagreements and the business will operate more smoothly. Also, make sure that all partners are legally cared for by the company, and that the proper forms are filed with the regulatory authorities - this may mean filing twice and paying for title changes if you need to find a new partner, but it will protect both of you in the long run.
Next, decide if you'll need employees - whether now or in the future. If so, put some thought into how you will get them and what you will pay them for their work. Also, think about how you'll do payroll, and whether people will want to work from your home, from their own homes or if you'll need to find another facility to house them.
Doing Your Research
Some books on forming a small business suggest that after hatching an idea, an entrepreneur should just "go for it." However, this bold approach could land you in some shaky territory.
Instead, a good first move is to start asking family and friends what they think about your small business idea. Consider asking them specific questions such as:
Would you purchase this particular product and/or service?
What do you think its worth?
What is the best way to market the idea?
Is this something that you think is a fad, or do you feel it could be a viable business for the long term?
Is there anything you can think of to improve this idea?
What other businesses in this field have you heard of or do you currently use for this product/service?
If you're married and/or have kids, you should also be asking your family how they feel about you quitting your job and working from home. This will affect them on a psychological and financial level. If any of their answers are negative, you should spend some time discussing their concerns and decide whether your goal is worth continuing against their wishes.
After obtaining all of this feedback, go back to the drawing board and see if the idea can be improved upon so that your product or service can be differentiated from the competition. Remember, you want to hit the ground running and turn as many heads as possible when first starting off!
Finding Funding
Once you have an idea and the approval of your family, you need to decide how you are going to finance it. Most businesses will need at least a little startup income. This investment will hopefully help you break even after a year, but keep in mind that even successful businesses can remain in deficit for the first few years. Because of this, you will want to tap into a few different sources of funding. Some of these include:
A small-business loan
Savings
Money generated from other investments
Family/friends who will act as investors
Personal loan from the bank
Home equity loan
Credit cards (as a last resort)
Source capital that won't hamper your longer-term security. In other words, try to avoid racking up costly credit card debt that could cost 20% or more in yearly interest fees. Also, try to avoid borrowing against your 401(k) or other similar plans as this may adversely affect your retirement.
Finally, one of the best things you can do before you take the entrepreneurial leap is to build up an emergency fund to fall back on if your company doesn't break even for a few months. Three months of living expenses is a minimum goal for a new business owner, but even more will help take the stress off of you and let you spend your energy on your company.
Covering Your Bases
All business owners should think about what would happen to the enterprise and the revenue streams being generated if health or other issues were to prevent them from being involved in the business. In other words, if the entrepreneur were to become disabled, who would takeover? Could the business survive?
Consider these issues beforehand and determine whether disability income insurance makes sense, or if a partner could fill the void caused by your absence.
Foreseeing the Future
It's great to own a business, but ultimately the entrepreneur will probably want to retire or move on to other challenges. With that in mind, you should create a business plan that discusses how you will transfer, sell or close your company. If your business depends on your unique knowledge and contacts, it may not be able to be assumed by another party.
Conclusion
There are few things more satisfying and rewarding than launching and owning your own home-based business, but before diving in, be sure to do your homework. Making a business work is not an easy task, but proper planning will help to increase its chances of success.
Steps To Creating A Stellar Business Plan
A business plan serves two purposes:
It provides a road map for your business.
It helps you obtain outside financing.
If you're going into business for yourself, you must have a business plan - period. Numerous studies have shown that one of the major reasons new businesses fail is poor planning. (Many people want to start a business, but not everyone has what it takes to succeed. Learn more in Are You An Entrepreneur?)
The good news is that developing a business plan is not as hard as it seems. In order to develop a solid business plan, you need to have a thorough understanding of the business you're entering. Next, you need to determine how you'll use the plan and who your target audience is. Finally, you should create a complete a business plan that is comprehensive and concisely written. We'll explore each of these steps in detail.
Step 1: Know Your Business
In order to prepare a business plan, you must know the business you are entering inside and out. This means lots of research. Research comes in two forms: reading everything you can about the industry and talking to those who are already in it. Learn everything you can about your business and industry.
Step 2: Determine Your Purposes for the Plan
A business plan serves to crystallize your business vision and guide you in fulfilling that vision; it is also frequently used to entice potential investors.
If you are self-financing your business, you design the plan mostly for your benefit, but if you're seeking outside investors, you'll need to target them. As such, before you create your plan, determine whether you will solicit outside investors.
Step 3: Determine Your Audience
If you plan to recruit investors, you need to build a plan to suit them. Outside investors, who range from friends and family members to banks and venture capitalists, will invest through either loaning you the money, buying shares in your company or some combination of the two. Determine their level of sophistication and what they are looking for in a potential business investment. Remember that regardless of their level of sophistication, they are all looking for four things:
Trust in you - You build trust by demonstrating ethics and integrity, so your business plan should demonstrate those qualities. (Read Eight Ethics Guidelines For Brokers for more on gaining a reputation for integrity.)
Understanding of the business - It is your job to clearly articulate your mission statement, your product offerings and how you will make money. Your may have to tailor your plan to suit your audience: less-sophisticated investors may be scared off by industry jargon, while investment professionals will probably expect it. (Read Getting To Know Business Models for further reading on how businesses make their money.)
Financial confidence - Clearly articulate the risks of investing in your business. Also, show investors how they can recoup their money - whether your venture succeeds or fails. (Learn how venture capitalists make their money in Cashing In On The Venture Capital Cycle.)
A good return on investment - Over the period of 1928-2007, the geometric (exponential) return for stocks was 9.8%, while for 10-year Treasury bonds, it was 5%. Historical private-equity returns are more difficult to measure, but, in general, investors will expect a premium of anywhere from 2-5% over public-equity market returns. The return on equity for your new business must be in the private-equity range. (For related reading, see Keep Your Eyes On The ROE.)
Typically, investors will look to beat a certain internal rate of return. Your job is to make sure your projected returns are in line with those of similar industries. (For related reading, see An Inside Look At Internal Rate Of Return.)
Step 4: Create Your Business Plan
First, develop an outline of your business plan. Consider every aspect of your business and how it will affect your business plan. Remember, this business plan is a road map. It must guide you. It must also communicate to investors what you're doing and why they should invest with you.
The order in which your plan is presented should be something like the following:
Mission Statement
Executive Summary
Product or Service Offerings
Target Market
Marketing Plan
Industry and Competitive Analysis
Pro-Forma Financials
Resumes of the Company Principals
Your Offering (what type of financing you're seeking)
Appendix (any other pertinent information)
You'll probably also want to note any personal seed capital you're investing in the venture. Financiers want (and often require) entrepreneurs to put their own funds in the venture, and the greater the portion you invest relative to your net worth, the better.
Now let's review each section of the business plan in detail.
1. Mission Statement
The mission statement is a concise, one- to three-paragraph description of your business objectives, or your business's guiding principles. In this section, you should state your unique selling point, or what separates your company from all the others in the industry that are otherwise just like it.
2. Executive Summary
This is a one- to two-page summary of your business. Potential investors will read this to decide whether they want to look at the rest of your plan.
3. Product or Service Offering
Create a section describing your product or service offerings in detail, as well as how much you'll charge for what you're selling.
4. Target Market
Present your primary and secondary target markets, along with any research that demonstrates how your target market will benefit from and consequently purchase what you're offering.
5. Marketing Plan
Present your marketing plan, which should show in detail how you'll reach your target market. This part of the plan will include advertising and promotional strategies. (Read Advertising, Crocodiles And Moats to learn more about the importance of good advertising.)
6. Industry and Competitive Analysis
Include a complete and thorough industry and competitive analysis that includes all stakeholders in your business. Don't forget to include governmental and regulatory agencies. (Read Competitive Advantage Counts to learn the importance of being different from the pack.)
7. Financial Statements
These must be complete, accurate and thorough. Each number on your spreadsheets must mean something. Don't estimate payroll, for instance; determine what it will actually be. Your income statement must reconcile to your cash flow statement, which reconciles to your balance sheet. Your balance sheet must balance at the end of every period. You must have supporting schedules (e.g., depreciation and amortization schedules) to back up your projections. (To learn more about what investors will be looking for, see Reading The Balance Sheet and Breaking Down The Balance Sheet.)
If you are having trouble building your pro-forma financial models, which should project out for at least five years, seek outside help from a qualified professional. (Learn how to ensure that your business stays afloat in Six Steps To A Better Business Budget.)
Use realistic projections. In estimating the growth of your business, you will make certain assumptions, which should be based on thorough industry research combined with a strategy for how you'll compete. Also, analyze how quickly you'll achieve positive cash flow. Investors vary in their standards, but most like to see positive cash flow within the first year of operation, particularly if this if your first venture.
In order for your projections to be accurate, you must know your business. If you've built an accurate and realistic model, but still project negative cash flow for more than 12 months, rethink your business model. (For related reading, see The Essentials Of Cash Flow.)
8. Resumes of Company Principals
Include the bios and professional backgrounds of all significant employees of your business. You will want to emphasize how their backgrounds have prepared them to take on the challenge of running your new startup. Also, if an employee's business background is in a significantly different industry, you might want to emphasize how this can be an advantage instead of a detriment. (Read more in Evaluating The Board Of Directors.)
9. Your Offering
Present what level of investment you're seeking and for what purposes you will use the funds. If you're selling business units, state the individual price per unit.
Once you've put together all of this key information, make sure to present your plan professionally. It should be typed, margin aligned and neatly bound. Use color graphics and pictures where possible. Do not handwrite changes or corrections. The inside of your business plan should be near book or magazine quality.
After you've finished your plan, have a professional you trust, such as a Certified Public Accountant (CPA) or attorney, look it over. This person may catch details, errors or omissions you've made. They also will be able to give you a more objective opinion of the viability of your business.
Building Your Business Plan Is Just the First Step
Once you've completed your plan, you'll submit it to potential investors, who may ultimately commit to financing. Once you receive those commitments, you'll negotiate terms and then, finally, open your doors for business, which is where theory ends and the real work begins.
It provides a road map for your business.
It helps you obtain outside financing.
If you're going into business for yourself, you must have a business plan - period. Numerous studies have shown that one of the major reasons new businesses fail is poor planning. (Many people want to start a business, but not everyone has what it takes to succeed. Learn more in Are You An Entrepreneur?)
The good news is that developing a business plan is not as hard as it seems. In order to develop a solid business plan, you need to have a thorough understanding of the business you're entering. Next, you need to determine how you'll use the plan and who your target audience is. Finally, you should create a complete a business plan that is comprehensive and concisely written. We'll explore each of these steps in detail.
Step 1: Know Your Business
In order to prepare a business plan, you must know the business you are entering inside and out. This means lots of research. Research comes in two forms: reading everything you can about the industry and talking to those who are already in it. Learn everything you can about your business and industry.
Step 2: Determine Your Purposes for the Plan
A business plan serves to crystallize your business vision and guide you in fulfilling that vision; it is also frequently used to entice potential investors.
If you are self-financing your business, you design the plan mostly for your benefit, but if you're seeking outside investors, you'll need to target them. As such, before you create your plan, determine whether you will solicit outside investors.
Step 3: Determine Your Audience
If you plan to recruit investors, you need to build a plan to suit them. Outside investors, who range from friends and family members to banks and venture capitalists, will invest through either loaning you the money, buying shares in your company or some combination of the two. Determine their level of sophistication and what they are looking for in a potential business investment. Remember that regardless of their level of sophistication, they are all looking for four things:
Trust in you - You build trust by demonstrating ethics and integrity, so your business plan should demonstrate those qualities. (Read Eight Ethics Guidelines For Brokers for more on gaining a reputation for integrity.)
Understanding of the business - It is your job to clearly articulate your mission statement, your product offerings and how you will make money. Your may have to tailor your plan to suit your audience: less-sophisticated investors may be scared off by industry jargon, while investment professionals will probably expect it. (Read Getting To Know Business Models for further reading on how businesses make their money.)
Financial confidence - Clearly articulate the risks of investing in your business. Also, show investors how they can recoup their money - whether your venture succeeds or fails. (Learn how venture capitalists make their money in Cashing In On The Venture Capital Cycle.)
A good return on investment - Over the period of 1928-2007, the geometric (exponential) return for stocks was 9.8%, while for 10-year Treasury bonds, it was 5%. Historical private-equity returns are more difficult to measure, but, in general, investors will expect a premium of anywhere from 2-5% over public-equity market returns. The return on equity for your new business must be in the private-equity range. (For related reading, see Keep Your Eyes On The ROE.)
Typically, investors will look to beat a certain internal rate of return. Your job is to make sure your projected returns are in line with those of similar industries. (For related reading, see An Inside Look At Internal Rate Of Return.)
Step 4: Create Your Business Plan
First, develop an outline of your business plan. Consider every aspect of your business and how it will affect your business plan. Remember, this business plan is a road map. It must guide you. It must also communicate to investors what you're doing and why they should invest with you.
The order in which your plan is presented should be something like the following:
Mission Statement
Executive Summary
Product or Service Offerings
Target Market
Marketing Plan
Industry and Competitive Analysis
Pro-Forma Financials
Resumes of the Company Principals
Your Offering (what type of financing you're seeking)
Appendix (any other pertinent information)
You'll probably also want to note any personal seed capital you're investing in the venture. Financiers want (and often require) entrepreneurs to put their own funds in the venture, and the greater the portion you invest relative to your net worth, the better.
Now let's review each section of the business plan in detail.
1. Mission Statement
The mission statement is a concise, one- to three-paragraph description of your business objectives, or your business's guiding principles. In this section, you should state your unique selling point, or what separates your company from all the others in the industry that are otherwise just like it.
2. Executive Summary
This is a one- to two-page summary of your business. Potential investors will read this to decide whether they want to look at the rest of your plan.
3. Product or Service Offering
Create a section describing your product or service offerings in detail, as well as how much you'll charge for what you're selling.
4. Target Market
Present your primary and secondary target markets, along with any research that demonstrates how your target market will benefit from and consequently purchase what you're offering.
5. Marketing Plan
Present your marketing plan, which should show in detail how you'll reach your target market. This part of the plan will include advertising and promotional strategies. (Read Advertising, Crocodiles And Moats to learn more about the importance of good advertising.)
6. Industry and Competitive Analysis
Include a complete and thorough industry and competitive analysis that includes all stakeholders in your business. Don't forget to include governmental and regulatory agencies. (Read Competitive Advantage Counts to learn the importance of being different from the pack.)
7. Financial Statements
These must be complete, accurate and thorough. Each number on your spreadsheets must mean something. Don't estimate payroll, for instance; determine what it will actually be. Your income statement must reconcile to your cash flow statement, which reconciles to your balance sheet. Your balance sheet must balance at the end of every period. You must have supporting schedules (e.g., depreciation and amortization schedules) to back up your projections. (To learn more about what investors will be looking for, see Reading The Balance Sheet and Breaking Down The Balance Sheet.)
If you are having trouble building your pro-forma financial models, which should project out for at least five years, seek outside help from a qualified professional. (Learn how to ensure that your business stays afloat in Six Steps To A Better Business Budget.)
Use realistic projections. In estimating the growth of your business, you will make certain assumptions, which should be based on thorough industry research combined with a strategy for how you'll compete. Also, analyze how quickly you'll achieve positive cash flow. Investors vary in their standards, but most like to see positive cash flow within the first year of operation, particularly if this if your first venture.
In order for your projections to be accurate, you must know your business. If you've built an accurate and realistic model, but still project negative cash flow for more than 12 months, rethink your business model. (For related reading, see The Essentials Of Cash Flow.)
8. Resumes of Company Principals
Include the bios and professional backgrounds of all significant employees of your business. You will want to emphasize how their backgrounds have prepared them to take on the challenge of running your new startup. Also, if an employee's business background is in a significantly different industry, you might want to emphasize how this can be an advantage instead of a detriment. (Read more in Evaluating The Board Of Directors.)
9. Your Offering
Present what level of investment you're seeking and for what purposes you will use the funds. If you're selling business units, state the individual price per unit.
Once you've put together all of this key information, make sure to present your plan professionally. It should be typed, margin aligned and neatly bound. Use color graphics and pictures where possible. Do not handwrite changes or corrections. The inside of your business plan should be near book or magazine quality.
After you've finished your plan, have a professional you trust, such as a Certified Public Accountant (CPA) or attorney, look it over. This person may catch details, errors or omissions you've made. They also will be able to give you a more objective opinion of the viability of your business.
Building Your Business Plan Is Just the First Step
Once you've completed your plan, you'll submit it to potential investors, who may ultimately commit to financing. Once you receive those commitments, you'll negotiate terms and then, finally, open your doors for business, which is where theory ends and the real work begins.
Tips For Growing A Successful Business
To succeed in business today, you need to be flexible and have good planning and organizational skills. Many people start a business thinking that they'll turn on their computers or open their doors and start making money - only to find that making money in a business is much more difficult than they thought. You can avoid this in your business ventures by taking your time and planning out all the necessary steps you need to reach to achieve success. Read on to find out how.
1. Get Organized
To be successful in business you need to be organized. Organization will help you complete tasks and stay on top of things to be done. A good way to do this is to create a to-do list each day - as you complete each item, check it off your list. This will ensure that you're not forgetting anything and you're completing all the tasks that are essential to the survival of your business.
2. Keep Detailed Records
All successful businesses keep detailed records. By keeping detailed records, you'll know where the business stands financially and what potential challenges you could be facing. Just knowing this gives you time to create strategies to overcome the obstacles that can prevent you from being successful and growing your business.
3. Analyze Your Competition
Competition breeds the best results. To be successful, you can't be afraid to study and learn from your competitors. After all, they may be doing something right that you can implement in your business to make more money.
4. Understand the Risks and Rewards
The key to being successful is taking calculated risks to help your business grow. A good question to ask is "What's the downside?" If you can answer this question, then you know what the worst-case scenario is. This knowledge will allow you to take the kinds of calculated risks that can generate tremendous rewards for your business.
5. Be Creative
Always be looking for ways to improve your business and to make it stand out from the competition. Recognize that you don't know everything and be open to new ideas and new approaches to your business.
6. Stay Focused
The old saying that "Rome was not built in a day" applies here. Just because you open a business doesn't mean that you're going to immediately start making money. It takes time to let people know who you are, so stay focused on achieving your short-term goals and give the rest time to come together on its own.
7. Prepare to Make Sacrifices
The lead-up to starting a business is hard work, but after you open your doors, your work has just begun. In many cases, you have to put in more time than you would if you were working for someone else. In turn, you have to make sacrifices, such as spending less time with family and friends in order to be successful.
8. Provide Great Service
There are many successful businesses that forget that providing great customer service is important. If you provide better service for your customers, they'll be more inclined to come to you the next time they need something instead of going to your competition.
9. Be Consistent
Consistency is key component to making money in business. You have to consistently keep doing the things necessary to be successful day in and day out. This will create long-term positive habits that will help you make money over the long term.
Conclusion
Starting and running and running a successful business can be rewarding and challenging. Success requires focus, discipline and perseverance. However, success will not come over night - it requires a long-term focus and that you remain consistent in challenging environments.
1. Get Organized
To be successful in business you need to be organized. Organization will help you complete tasks and stay on top of things to be done. A good way to do this is to create a to-do list each day - as you complete each item, check it off your list. This will ensure that you're not forgetting anything and you're completing all the tasks that are essential to the survival of your business.
2. Keep Detailed Records
All successful businesses keep detailed records. By keeping detailed records, you'll know where the business stands financially and what potential challenges you could be facing. Just knowing this gives you time to create strategies to overcome the obstacles that can prevent you from being successful and growing your business.
3. Analyze Your Competition
Competition breeds the best results. To be successful, you can't be afraid to study and learn from your competitors. After all, they may be doing something right that you can implement in your business to make more money.
4. Understand the Risks and Rewards
The key to being successful is taking calculated risks to help your business grow. A good question to ask is "What's the downside?" If you can answer this question, then you know what the worst-case scenario is. This knowledge will allow you to take the kinds of calculated risks that can generate tremendous rewards for your business.
5. Be Creative
Always be looking for ways to improve your business and to make it stand out from the competition. Recognize that you don't know everything and be open to new ideas and new approaches to your business.
6. Stay Focused
The old saying that "Rome was not built in a day" applies here. Just because you open a business doesn't mean that you're going to immediately start making money. It takes time to let people know who you are, so stay focused on achieving your short-term goals and give the rest time to come together on its own.
7. Prepare to Make Sacrifices
The lead-up to starting a business is hard work, but after you open your doors, your work has just begun. In many cases, you have to put in more time than you would if you were working for someone else. In turn, you have to make sacrifices, such as spending less time with family and friends in order to be successful.
8. Provide Great Service
There are many successful businesses that forget that providing great customer service is important. If you provide better service for your customers, they'll be more inclined to come to you the next time they need something instead of going to your competition.
9. Be Consistent
Consistency is key component to making money in business. You have to consistently keep doing the things necessary to be successful day in and day out. This will create long-term positive habits that will help you make money over the long term.
Conclusion
Starting and running and running a successful business can be rewarding and challenging. Success requires focus, discipline and perseverance. However, success will not come over night - it requires a long-term focus and that you remain consistent in challenging environments.
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