SalesHQ

Easy Ways to Reduce Business Costs

Dani Babb | Entrepreneur — Wed, 14 Oct 2009 22:59:00 -0700

What business owner isn't trying to save money today? While online businesses often don't have the overhead that comes with a big office and lots of staff, we are often hit with lower profit margins that come with online competition and numerous businesses out there competing with our goods and services. We find ways to get creative about getting our message out there and letting people know about our website, but without coupling the advertising with lower costs, survival is difficult.

So what are some technologies online business owners should be looking at to save money? We'll explore a few of them and what benefits -- and potential drawbacks -- they bring to you in your online business.

First, let's look at faxing. Multi-function high quality fax and copy machines are pretty inexpensive today; so many businesses choose to have one around anyway. But if you want to go purely online and have fax files sent to you in PDF format, lots of people know about eFax. But the lesser known product myFax, one I have been using for years, also allows you to very inexpensively purchase a toll-free number for your faxing needs.

What about video conferencing? We all see the commercials for gotomypc.com, but what about some other options? Skype allows you to hold conference calls and bring in multiple participants, significantly cutting down on telephone costs. You can use Skype for phone calls, and if you travel a lot, their international package is second to none.

Another solution out there is k7.net, which is an online messaging system that allows you to create your own private voice mail system and have the voice mail forwarded to your e-mail. If you are willing to have a 206 area code, you can get the service for free. Signing up is easy and there are other paid options there as well. Check out Google Voice too--while it isn't as tested yet, it is another option.

Check out the latest product your wireless service provider, including my favorite, Sprint's AIRAVE. Not only does it solve coverage issues for those of us working in areas with high call-drop rates, but it also allows your employees and contractors to jump on the system and not be charged anything for calls while they're within the range of the AIRAVE. This can be a huge cost savings for your team and a nice service to offer them, but it isn't available in all areas yet.

Another great product is Yousendit. Rather than paying for a server to sit in your office or host a large FTP server and pay for hosting and bandwidth, YouSendIt has a range of solutions--free and paid--that allow you to send files to others through their system by sending an e-mail with a link to the files to download. It stores the files for seven to 14 days depending on the level of service you have.

Are you still mailing out newsletters or updates to your customers? Consider using systems that not only integrate with your website so new customers can sign up (and you don't have to manage any subscription updates, freeing you up for content), but also provide you with business-savvy templates that go out in HTML and non-HTML format. My favorite one is Your Mailing List Provider, which has many options for inexpensive mailing lists. There are many solutions out there so look for one that will save you time and money.

Last but not least, I want to touch a bit on online stores and product fulfillment. Who wants to have warehousing costs or storage fees or use up office space (to save us money of course) on inventory? Consider third-party tools like the beta of ShopIt for Facebook, and look at tools like fulfillment from Amazon.com. You can send your products to one of 20 Amazon warehouses around the country and as orders come in. All products will be in Amazon branded boxes, but the packing slip will also have your business name on it. Monthly storage fees are 45 cents per cubic foot plus an extra 15 cents per cubic foot during the fourth quarter. Shipping charges depend on the item, but are usually between $3 and $6 including fulfillment fees for a one-pound item.

Dani Babb is the founder of The Babb Group, an online entrepreneur, a professor, an author, public speaker and consultant. She has a Ph.D. in Organization and Management with a Technology emphasis, as well as an MBA with a technology emphasis. She is featured regularly on top networks such as CNN, MSNBC, Fox News, Fox Business and the Today show. She is also the author of The Online Professor's Practical Guide to Starting an Internet Business, available from Entrepreneur Press.

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Keeping Healthy: Tips for Businesses

The Daily Gazette, Sterling, IL — Mon, 12 Oct 2009 10:47:00 -0700

Although Raynor Garage Doors in Dixon doesn't have any special plans for an H1N1 outbreak, it does have a plan to handle seasonal flu.

The company offers seasonal flu shots and has posters hanging around the factory reminding people how to stay healthy, for example, by covering their mouths with their sleeves when they cough or sneeze, Human Resources Director Mary Whelan said.

She's happy area health departments are offering the H1N1 vaccine in schools. When children get sick, it could hurt the company because employees might need to stay home to care for them.

In addition to providing or subsidizing flu vaccines, here are ways employers can help keep their workers healthy:

Develop policies that encourage ill workers to stay at home without fear of any reprisals.

Whenever possible, allow them to work from home so they can care for sick family members, or for children if schools close.

Create a work environment that promotes personal hygiene: Provide hand sanitizer, disinfectants, disposable towels, no-touch trash cans and tissues.

Provide flu education and training materials in an easy-to-understand format.

Let employees who are well but have an ill family member know that they can come to work as usual, but they should monitor their own health every day and and stay home if they become sick.

Encourage workers in the priority group to obtain a seasonal flu vaccine and an H1N1 flu vaccine.

Provide workers with up-to-date information on flu risk factors and protective behaviors, such as proper cough etiquette, hand hygiene, and to avoid touching their eyes, nose and mouth.

If needed, implement practices that minimize face-to-face contact between workers, such as expanded use of e-mail, Web sites and teleconferences.

If an employee becomes sick while at work, place them in a separate room or area until they can go home. Have them use a mask or a tissue to cover coughs and sneezes if they must pass through a common area before they leave the workplace.

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A Stinky Problem Means a Big Opportunity

Stacey Burling | The Philadelphia Inquirer — Mon, 28 Sep 2009 14:34:00 -0700

It is soccer season, which means that millions of families are coping with early weekend games, fragile egos, and a smell so vile that words can barely do it justice - the smell of soccer cleats and shin guards cured in wet grass and sweat.

Some exude an odor remarkably like one of the most repulsively acrid, tenacious scents on earth: cat urine. Others, said one dad, are more like rotting vegetables.

Or worse.

"I called the exterminator," confessed Diane Price, of Upper Dublin, as she sat on the sidelines at the Al Perlini Soccer Tournament in Montgomery County this month. One of her three soccer-playing sons was on the field. "I thought there was a dead mouse in my garage, and it turned out to be the shoes."

A quest to find the source of this awful scent, and a solution for it, quickly devolved into a game of pass-the-buck: It's the growing popularity of synthetic shoes. No, it's the leather. It's the kids; some of them just smell. It's parents, who don't take care of the shoes or the kids.

Finally, two experts on sweat - George Preti, a chemist at the Monell Chemical Senses Center, and James Leyden, an emeritus professor of dermatology at the University of Pennsylvania - shed some light. The source of the nasty smell in cat urine is volatile sulfur compounds. Bacteria that colonize some people's feet also produce sulfur compounds. What you think it smells like depends on your experiences, Leyden said, but it is "almost universally perceived as offensive."

Whether some shoes make the problem worse they couldn't say, but the bacteria thrive where it's wet.

This stinky-shoe situation is a great example of what Richard Lancioni, chair of Temple University's marketing department, calls "unrecognized need." Shoe manufacturers may put tons of research into producing lighter, faster shoes without worrying enough about what happens when their technology meets adolescent perspiration.

Voila. A chance to make money.

Read on→

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Some entrepreneurs, including a pair of New Jersey soccer moms and giant Procter & Gamble, have recently tackled the problem. Athletic stores say they're seeing more built-in antimicrobial treatments in shoes. Hockey and football uniforms are also big olfactory offenders. Some hockey bags now include fans to dry out the smelly equipment. Win detergent promises to remove embedded odor from clothing.

The most cynical among us may wonder if this isn't all a plot to make us buy more shoes and shin guards, although it's hard to imagine how making stuff we come to detest can be a good business strategy.

Not all that surprisingly, the real experts - the makers of Adidas and Nike boots, the most popular cleats at Perlini - did not respond to a request for information.

So we're left with advice from moms, soccer-equipment salesmen, and coaches. Some of this involves making better use of readily available and free resources: air and sun. Many a mom has a rule that the shoes can't enter the house. Some say they can take the edge off the smell with common household items such as baking soda, dryer sheets, and (we admit there may be a fortuitous conflict of interest here) newspapers, the old-fashioned paper kind.

Diane Mueller, a Warminster mother of four soccer players, said she's solved the problem. She tosses everything, including the shoes, into the washing machine with soap and bleach after a game.

Her appealing idea was typically met with stunned silence, then disapproval, from high school coaches and people who sell shoes.

"Don't do that," said Christopher Hayes, the "resident boot expert" at Angelo's Soccer Corner in Huntingdon Valley.

He thinks the growing popularity of cleats made of synthetic materials has made the problem worse. They don't sop up water like leather, so they're lighter in the rain. They also don't breathe like leather.

But Dori Bryson, who works at Soccer Locker in Voorhees and coaches four girls' travel teams, prefers the synthetics, especially the ones with antimicrobial liners. She says they dry faster. After a while, she said, leather "starts to rot."

The best approach, everyone agrees, is to air out the shoes every time they're worn. Open them up as much as possible. When they're wet, stuff newspapers inside to soak up moisture.

Coaches say kids' shoes have always smelled, but they think equipment care has declined. You can't leave this stuff locked up in a bag and expect it to smell civilized.

"If you are throwing wet cleats in a bag, they are going to get so disgusting it's unbelievable," Bryson said.

Voorhees soccer moms Jill Levin and Annemarie McCartney had their moment of inspiration last October while en route to a soccer tournament with a car full of kids. They asked their passengers to get something out of their bags. "Six kids opened their knapsacks," Levin remembered, "and the smell was so vile, I had to pull over."

She's a fan of Donny Deutch, the former advertising executive who hosts The Big Idea on TV. His message, she said, is to "take your worst problem and try to remedy it and try to make a business out of it."

After the bag incident, Levin told McCartney, "This is the problem."

They tried products already available and were unimpressed. Their low-tech solution is a sachet filled with "proprietary" powder meant to draw out moisture and deodorize. They called it Skunkies. They're available in some soccer stores, Levin said, and the pair are in discussions with national retailers.

"We're sending some over to the troops for their boots. We have camouflage ones," she said. "I have them in all my kids' bags, wrestling, lacrosse. . . . I actually just started putting them in my refrigerator."

She'll have to compete with Procter & Gamble, which decided to make a special sports product after learning how many families were using extra-strength Febreze on shoes and sports equipment. The product wasn't really designed for that challenge. P&G came up with X-Sweat Technology, a formula that seeks out and neutralizes sweat "malodors," said Chad Brizendine, assistant brand manager for the new Febreze Sport. Dick's started selling it this year and it will spread to other retailers in February.

Brizendine said sweat is definitely the problem, but some materials make it worse. "Some fabrics tend to grab on and hold onto odors more than others," he said.

P&G looked for "torture test" items, such as shoes "that mothers will hang out the windows when they're driving kids home from practice," he said. Some soccer shoes made the grade, but they weren't the worst. The real nose torturers were the shoes of barefoot runners, who run cross country without socks, and triathletes, who put shoes on without socks immediately after swimming.

The new spray "works completely," Brizendine promised.

P&G has a deal with the NFL to supply team locker rooms with Febreze this season. "We kind of knew," he said, "that that was the torture test of them all, disgusting football players."

Contact staff writer Stacey Burling at 215-854-4944 or sburling@phillynews.com.

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Plan Ahead for Successful New Business

Laura Petrecca | USA Today — Thu, 24 Sep 2009 17:14:00 -0700

Kelly Newsome is one diverse woman: attorney, birthing assistant, yoga instructor and consultant to non-profit organizations. Next up: launching a stationery business.

Newsome, like dozens of others this month, crammed into an entrepreneur workshop here hoping to glean ideas - and energy - from the speakers and other attendees.

She was further along than others, some of whom introduced themselves to speakers by noting that they had too many and too varied ideas, or ideas that never seemed like the right fit.

Entrepreneurial ambiguity is common, says Escape from Cubicle Nation author Pamela Slim, who co-hosted the forum with Jonathan Fields, author of Career Renegade: How to Make a Great Living Doing What You Love.

The duo counseled the budding entrepreneurs not to panic if their ideas weren't fully realized, but to do some soul-searching. Would-be business owners need to think beyond the types of jobs they want to do, their financial investments and their potential customer bases. They also need to consider the broader lifestyle they want, Slim says.

She asked those in the room to visualize their ideal place to live, how many hours a day they plan to toil and what type of work setting suits them. The answers were incredibly varied, from one woman who wanted to work just two to three hours a day to others who were willing to invest much more time.

Once you determine that, the next step is to pair those personal preferences with a viable business model, Slim says.

Such entrepreneur-focused workshops, as well as programs such as the Ewing Marion Kauffman Foundation's FastTrac classes, can help folks further hone those plans. The Kauffman Foundation is a foundation devoted to entrepreneurship.

There is also a multitude of resources that offer one-on-one help, such as the entrepreneur-training organization Score and the Small Business Development Centers that are dotted across the country.

Those looking for less formal - but just as valuable - education can learn from the school of life.

Last summer, Charlotte Bowen quit her technology-focused job at New York's Columbia University and went to Moscow. Her plan was to earn some money teaching English and eventually start an IT consulting firm there.

Once overseas, however, she realized that the technology in Russia wasn't nearly as far along as she had thought. She was told that it would take three months just to get Internet access to her home. So, after five trying months of dealing with a huge language barrier and incredibly cold weather, she returned to the States and worked on reformulating her plan.

She got a full-time job doing technology work for a hedge fund and also took on some smaller IT clients.

Her last day at the hedge fund is Friday, and on Monday she'll officially launch her U.S.-based consulting firm, InspirIT.

The takeaway from her time in Russia: not to launch a venture without thinking it through and doing more research. "I completely learned my lesson in biting off more than I could chew," she says.

Setbacks like Bowen's are an expected part of the entrepreneurial path, says Slim, who began her own consulting firm in 1996, four months after she left a training manager job at Barclays Global Investors.

She advises potential business owners to think of business creation as a scientific experiment. If the initial steps don't work out, look at it as testing a hypothesis, then make some tweaks.

Some folks may miss the corporate environment - and the predictable paycheck - and ditch entrepreneurial life, she says. Others may discover that with some adjustments, being a make-up artist, dog trainer, yoga instructor or a U.S.-based IT consultant is their ideal vocation.

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What Kind of Business Do You Want to Start?

Laura Petrecca | USA Today — Mon, 14 Sep 2009 14:12:00 -0700

Millions of workers are quietly toiling in their cubicles and dream of breaking free from corporate culture. Almost a quarter of full-time or part-time working Americans have considered leaving a job to become self-employed, according to a USA TODAY/Gallup Poll taken in July.

Many others don't want to ditch their day jobs but want to dabble in side projects to earn extra dough. Still others need to restart their careers after being laid off.

No matter what type of entrepreneurial venture someone undertakes, experts agree that an essential initial step is to research the industry, product or service offered, expected duties and the potential customer base. "Many businesses that open often have not prepared well enough, and they don't understand the challenges," says Ken Yancey, CEO of non-profit entrepreneur mentoring group Score.

To help would-be entrepreneurs get started, USA TODAY has outlined some of the more popular types of businesses that people start, as well as their pros and cons.

	Direct Sales
	Service Companies
	Internet-Based
	Existing Businesses
	Retailing
	Products

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Direct Sales
Face-to-Face is Key

Cosmetics, cutlery, vitamins - even racy adult novelties - fall in here. Most sales in these businesses come from face-to-face interactions such as in-home demonstrations or parties showcasing wares. In the U.S., about 15 million people do direct sales, with the majority working part time, according to the Direct Selling Association. Many think of women when it comes to this job. But 14% of direct sellers were men in 2008.

Pros.Initial costs typically aren't high. Hours are so flexible that many people tap into direct sales as second jobs. Successful salespeople can earn six-figure incomes, with commissions usually pegged at 25% to 50% of a product's retail price.

Cons.Some firms have hidden costs or operate illegal Ponzi schemes. DSA's website, dsa.org, has information on how to avoid scams. While earning potential varies by company and sales ability, DSA says the median annual income for those in direct sales is $2,400.

	Direct Sales
	Service Companies
	Internet-Based
	Existing Businesses
	Retailing
	Products

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Service Companies
Busy Lives Lead to Opportunities

From dog walking to carpentry to dental care, the service industry had the second-highest number of businesses created in 2008, according to entrepreneur-focused group Ewing Marion Kauffman Foundation. Construction ranked first.

The harried lifestyles of many Americans - as well as longer life expectancy - make landscaping and elder care service companies particularly lucrative opportunities, says market research firm IBISWorld. Personal care aides and home health care aides will be two of the fastest-growing occupations through 2016, the Bureau of Labor Statistics says.

Pros.Folks can be extremely creative in the services they offer. George Peresman, for example, is a New York City chiropractor who only makes house calls. Start-up costs can be minimal, and barriers to entry are typically low.

Cons.If a service-based worker gets sick - or takes a week of vacation - he or she often has to do without a paycheck. Initial costs can be high for those who do more specialized work, such as providing medical services. Good service often means being flexible around customers' schedules, so a 9-to-5 day can be uncommon.

	Direct Sales
	Service Companies
	Internet-Based
	Existing Businesses
	Retailing
	Products

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Internet-Based
E-Commerce is Growing Fast

Firms centered on e-commerce or online auctions are among the fastest-growing businesses, says IBIS. The Web makes cash-strapped consumers "better able to research and compare more inexpensive options offering the greatest value," its report says.

This year alone, U.S. online retail sales are projected to rise 11% to more than $156 billion (excluding autos, travel and prescription drug sales), according to Forrester Research. The massive success of shoe-seller Zappos.com, started by entrepreneur Nick Swinmurn, shows the potential of this field.

On a smaller scale, there is Ann Arbor, Mich.-based Michael Psarouthakis, who sells coins and rare books on eBay and other sites. It's a side business for Psarouthakis, who works full time in finance, but he still makes $20,000 to $50,000 a year in those online sales, he says.

Pros.Technology advances continue to make it easier for novices to set up websites and use established online systems such as eBay. Consumers are getting more comfortable with using credit cards online or paying through systems such as PayPal.

Cons.It can be tough to attract traffic. "You have to learn how to get listed so when people do searches on Google, your name comes up," says Bill Dunkelberg, chief economist at National Federation of Independent Business. For more elaborate sites, there can be a "hefty initial capital investment" plus ongoing costs to keep the site running smoothly, IBIS says.

	Direct Sales
	Service Companies
	Internet-Based
	Existing Businesses
	Retailing
	Products

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Existing Businesses
Sometimes Franchising Is Best

Whether it's through a franchisor-franchisee relationship or purchasing an independent company outright, many entrepreneurs feel more comfortable investing in a pre-existing concept. On the franchising front, there's a multitude of choices, ranging from Meineke car care to Maid Brigade cleaning services.

Mike and Shameka Barbosa used a franchise consultant to determine that the kid-friendly BounceU franchise suited them. In July, the couple opened BounceU indoor playground in Queens, N.Y.

Pros.Buyers get an established business model and brand name. Franchisors can provide training, and if an entrepreneur is buying an independent company, they can offer to pay the past owner to provide coaching.

Cons.Costs to buy into an established firm can be high. There are some shady firms that hawk businesses. The Federal Trade Commission's website, ftc.gov, offers some tips on how to avoid unscrupulous sellers. There also can be unknown pre-existing problems with the firm, its business model and its long-term growth potential.

	Direct Sales
	Service Companies
	Internet-Based
	Existing Businesses
	Retailing
	Products

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Retailing
Beware of Start-Up Shockers

Whether an entrepreneur is a Sam Walton wannabe or just interested in a single small boutique, many people feel that owning their own retail store is an ideal business. But there are a lot of start-up shockers. A common one: not realizing how much work it takes to run a shop.

"You have to be prepared to wear a lot of hats," says Dan Butler, vice president of merchandising and retail operations at the National Retail Federation. Most owners take on roles such as head salesperson, marketer and chief financial officer, he says.

Those itching to own should also do some self-analysis: "You have to be brutally honest with yourself about your capabilities and your shortcomings," Butler says.

In addition, store owners need to be adept at customer service.

Pros.Owners have the rewarding experience of building their own business, says Butler. They also get to embrace creative endeavors such as selecting a merchandise mix, picking a retail location and creating a store design to their liking.

Cons.There are often high start-up costs as owners rent or lease a space, as well as purchase merchandise to sell. Small retailers also face big competition from chain stores that can undercut them on prices. Owners must differentiate themselves to remain competitive, Butler says.

	Direct Sales
	Service Companies
	Internet-Based
	Existing Businesses
	Retailing
	Products

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Products
Creating Your Own Merchandise

Imaginative producers can come up with everything from a better-tasting peanut butter to more-entertaining iPhone apps, then sell those creations online, at retail outlets or to wholesalers. Some folks produce goods themselves. For instance Oldsmar, Fla.-based Toni DeFrancesco started her company, The Tile Mural Store, by making her own decorative tiles and selling them. Jessica Marquez of Brooklyn, N.Y., creates embroidery art.

Others opt to outsource: Austin-based entrepreneur Tom Nall found a Mexican distillery to make his all-organic tequila, and the Texas-shaped bottle that it comes in is made in China.

And some entrepreneurs work between the two: Jan Sneed, co-founder of Badgley/Sneed Designs in New York City, initially strings together the stone necklaces she sells, then takes the wired necklaces to a professional to complete the process.

Pros.Owners get to be creative in designing and producing their products. They have control over the quality of the goods that they produce.

Cons.Can be labor-intensive if someone is doing the work themselves. If the product is outsourced, entrepreneurs have to worry about cost controls and quality management.

	Direct Sales
	Service Companies
	Internet-Based
	Existing Businesses
	Retailing
	Products

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6 Laws of Effortless Networking

Keith Rosen — Tue, 30 Jun 2009 17:38:00 -0700

1. Bring a Wingman

Rather than flying solo at your next networking event, bring a friend, co-worker, or business associate along with you. This "security blanket" will boost your confidence as well as your comfort level and immediately removes the bulk of reluctance associated with attending a networking event by yourself.

Next Tip>>

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2. You Are Not Alone

If you ask most people who attend networking events, they would tell you that there are certainly some feelings of apprehension and fear when it comes to meeting new people (if they were being honest). Rather than placing yourself in the class of people who you perceive to be the minority, instead, consider that you are amongst the majority of people who feel the same way you do.

Next Tip>>

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3. Keep Your Intentions In Focus

If you expect to go to a networking function and walk out with a handful of business cards from people who want to buy from you, think again. To maximize your networking efforts, detach from the outcome of having to generate new business. Your only focus should be on having a good time, relaxing, and enjoying yourself as you meet new people and foster new relationships. If you do, the other stuff will take care of itself as a byproduct of how effectively you are managing this mindset.

Next Tip>>

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4. Lighten Up!

Who doesn’t want to have fun? Lets face it. When you go to a networking event, there's often food, music, even a keynote speaker. They are supposed to be fun. Don't take yourself or these events so seriously. Besides, people rather do business with those who are fun to be around and extroverted, not the wallflower sitting in the corner. And if for some reason, you’ve forgotten how to have fun, you’re not alone. However, if you want to learn how to have fun again, you may want to speak with a coach.

Next Tip>>

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5. Make A Friend First, A Client Second

"Okay Keith,” Cindy said. “So I go to a networking event and I begin talking with someone. What do I talk about? I never know what to talk about at these functions.” I asked Cindy, "When you go out with your friends do you have trouble finding things to discuss?" Cindy replied with an absolute "No." When I asked her what some of the typical topics of conversation were, she said, "Family, work, kids, school, travel, weather, leisure, current events, hobbies, sports, shopping, and movies." I then asked her, "So, why would it be any different to discuss these things when meeting new people?" "Because they are strangers!" Cindy declared.

I then shared with her the one belief I had that made networking so much fun, "Strangers are simply friends that are waiting to be met." At one point, all of your friends were strangers too! So, when does a stranger become a friend? Aside from liking the person's initial disposition, it's when you have enough mutual interests. It's when you find that their life often parallels yours with the same challenges, joys, and experiences you are going through or have gone through. Most of all, it's when you realize that you enjoy being around them because they make you feel good. They enrich your life and add value to your existence. If this is true, then it really doesn't matter where or how you meet them. Just think about the friends you have now. Where did you meet them, at the "Friend Shop?" After all, it is often easier to develop a friendship than it is to develop a client. (Less pressure to perform or to generate a measurable result.)

Next Tip>>

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6. Make It About The Other Person

Rely on the pull approach to networking rather than pushing for the result. To build off the concept I mentioned in number five, Cindy now has a bevy of topics to discuss with the lucky person who she begins to talk to at her next social event. However, instead of talking about yourself, talk about them. Often, when people are nervous they try to find a safe haven, a topic they are used to and comfortable discussing. So they wind up talking about themselves. Use this as a leverage point. Take the topics I mentioned earlier and craft some questions around them that you can ask another person to stimulate conversation and get them talking about themselves. Inevitably, they will eventually start asking you questions, especially as it relates to your career. Now, you've just created the opening to discuss what you do without even trying.

Finally, instead of asking yourself, "Why would that person want to talk to me?" change the question you are asking yourself to, "Why would I want to talk with them?” “How can I deliver value or assist them?" "What can I learn from them?" These questions shift your balance of power back to you so that you are at choice rather than being on the defensive or feel as if you have to come up with reasons as to why someone would want to talk to you. Now that you are in the mode of inquiry, this change in your mindset will stimulate some questions you can ask them as they relate to the topics I mentioned in number five.

After taking the time to adopt this new philosophy and approach, Cindy said that changing her thinking about networking helped tremendously. She developed a more positive outlook and feels comfortable striking up a conversation; making small talk even bigger.

Effective networking will expand your bandwidth and position you in front of more targeted prospects.

To maximize your networking efforts, remember, don’t take yourself so seriously. You will be amazed what you attract when you detach from the outcome of having to generate new business and just have fun.

How Do I Raise Money for a Business?

Dani Babb and John Rutledge | MainStreet.com — Tue, 30 Jun 2009 16:35:00 -0700

Inquisitive entrepreneurs and small business owners can find inspiring insights and common sense answers from two industry pros on MainStreet.

Each week Dani Babb, a small business expert and the dean of Andrew Jackson University’s College of Business in Hoover, Ala., and Dr. John Rutledge, the chairman of private equity investment firm Rutledge Capital, offer their advice to scores of entrepreneurs and small business owners. They are also frequent commentators on Fox Business News.

This week they respond to a question about small business startup funds.

“How do I get money to start my business?”

Babb and Rutledge: There are many ways to get money to start your business!

Even though credit is tight there are still lots of options. The right source of money for each entrepreneur depends on the business, the amount of money needed and the potential return.

Try the Small Business Administration for starters. We always recommend that a business check into the SBA, which has a lot of options for individuals wanting to start businesses. They offer loans of up to $500,000 with 10% collateral under the new rules.

However, getting money these days isn’t as easy with tightening lending standards. If you do go the SBA route, be sure you have the business documents required by the SBA before you hit the bank.

If you’re starting a business as a sole proprietorship, you’ll need good credit. If your personal credit score isn’t so hot, consider creating a new LLC that will let you “start over” in many respects with regard to your financing options.

Another option is to BYOB, or be your own bank. Do you have an attic, closet or garage full of stuff you aren’t using? Many businesses, particularly online businesses, can be started with less than $5,000. Sometimes you can sell enough stuff on eBay to start your new venture and avoid owing money to anybody.

Do this before you approach other sources of capital—it’s always your lowest cost source of money. We helped a business owner two weeks ago that found more than $7,000 worth of “knick knacks” in her closest was able to get her online business started. In about three months she will have an e-commerce store!

Continue reading on the next page ->

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Be careful when you approach family and friends. Many business owners say their first round of funding started with friends and family, and yours may too. Those who are closest to you may be the best chance to raise capital; but its cost can be much more than the interest rate.

To avoid family tensions, be sure to get an agreement in writing because even the best of businesses can be derailed rather quickly if family money issues come into play. Family holidays can become unenjoyable events. Keep business about business!

If you have a home with equity, you have yet another option—to take out a mortgage. There are a few ways you can do this. One is to get a home equity line of credit. The interest rate is usually variable but you can draw from the line as you need it.

Another option is to take out a second mortgage on your home to finance your business, and a lot of people do. Usually, you’ll have the money up front, which means you will need to pay interest from Day One. Money is fairly inexpensive these days. Just be prepared to pay this loan back, whether your business is successful or not.

Credit cards are another option. More than 15% of businesses, including both of ours, started at least in part with personal credit cards. This is OK if you expect to be able to pay it back quickly or can lock in a good deal (a low rate for 12 months or longer) from the bank.

If you have an LLC, be sure you take the credit cards out in the name of the LLC and use its employee identification number (EIN) instead of your personal Social Security number. But for startups, banks will want a promise that you as an individual will pay off the balance, even if your business cannot.

Many people believe that venture capitalists (or VCs) are the answer. In fact, while VC money gets all the press, it’s not right for most simple businesses. VCs work with less than 1% of businesses and primarily invest in “bugs and drugs:” software, biotechnology, pharmaceuticals and green technology. The best way to get into this community is referrals from others who have received money from a VC. But chances are, if you are starting small and aren’t going green, you won’t get much help from these guys.

Finally, consider angel investors. Angels are usually local rich guys and gals who back early stage ventures for an ownership stake in your business. Angels invest their own money, unlike VCs. They want very high returns and the potential to earn five to 10 times their original investment within five years. Be cautious here: They will want an equity stake in your business, or they will want you to have a plan to take it public. This may not fit your needs.

How to Create a Business Development Strategy

Jonahtan Farrington — Fri, 06 Mar 2009 15:57:00 -0800

The Business Development Strategy is used to underpin your main Business Plan and essentially it sets out a standard approach for developing new opportunities, either from within existing accounts or by proactively targeting brand new potential accounts and then working to close them.

This document highlights the key issues you should consider prior to compiling your own plan and will hopefully guide you logically through a proven framework.

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The key word is Strategy, because you are creating a workable and achievable set of objectives in order to exceed your annual target.

Your Starting Point:

The key words are Who? What? Where? When? Which? Why? How?

For example:

Who - are you going to target?

What - do you want to sell them?

Where - are they located?

When - will you approach them?

Which - are the appropriate target personnel?

Why - would they want to meet with you?

How - will you reach them?

If you have conducted regular account reviews with your key accounts during the previous twelve months, you should be aware of any new opportunities that will surface during the next twelve months. You will also, when assessing what percentage of your annual target usually comes from existing accounts, need to review data over the last two or three years. (It is likely that you can apply Pareto i.e. 80% of your business will probably come from existing accounts and in fact 80% of your total revenue will come from just 20% of your customers/clients)

You will be left with a balance (i.e., 20% of my business next year will come from new opportunities) therefore you can then begin to allocate your selling time accordingly.

h4. Next: Ideal Customer Profiling

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Ideal Customer Profiling:

Pro-active business development demands that we create an ideal target at the front end ñ i.e. an Ideal Customer Profile.

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The essential characteristics you will need to consider are::

• Industrial Sector

• Geographical Location (Demographics)

• Size of organisations (Turnover, number of employees etc)

• Financial Trends

• Psychographics (i.e. Philosophical compatibility)

Many strategic sales professionals merely profile their best existing clients and try to replicate them.There is nothing wrong with doing this but we should always remember that we are seeking an ideal and we can always improve on what we already have.

New Opportunities From Within Old Accounts:

Because it costs approximately ten times as much, to first locate and then sell to a new customer as it does an existing one (although these costs are rarely reflected in the cost of sales), it is essential that we fully develop our existing accounts working upwards, downwards and sideways, thus making the most of the (hopefully) excellent reputation we have developed already.

Most corporate accounts have several divisions, departments, sites, even country offices and you must satisfy yourself that you have exhausted every possible avenue. Donít be afraid to ask the question ìWho else should I be talking to in your organisationî?

Developing New Opportunities:

There are a number of ways in which we can target new opportunities e.g.

• Direct Mail

• Telephone Canvassing

• Researching Archived Files For Customers Who Used To Buy From Your Company

• Exhibitions

• Seminars

• User Groups

• E-Mail Campaigns

• Referrals

• Qualified Leads

• Advertising

Not all of these will be appropriate to your particular industry, but you should not be afraid to experiment, i.e. challenge the paradigm, and do not accept that just because a particular idea has not worked in the past that it will not do so in the future. (Remember when you were learning to walk, it didnít work first time then!)

The important thing is to make an early decision in terms of what you are going to try and then build this (those) ideas into your master plan.

h4. Next: A Typical Business Development Plan

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A Typical Business Development Plan:

You should plan out the whole year and review / revise quarterly.

List your existing accounts and plan what activities / actions need to be completed in order to fully exhaust all opportunities. You may for instance, plan to cover more bases within the decision making unit or contact associated companies or offices. The Strategic Account Profile can be used as a prompt.

Begin to target new accounts using business directories etc. and set targets per week / month / quarter i.e. I normally allow for eight hours per week as a minimum (Don't forget to continually refer back to your Ideal Profile).

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Then build in what assistance you need from your marketing function ñ i.e. qualified leads, seminars, exhibition attendance etc.

Finally share your plan with your manager and then commit to it.

You should also measure it against S.M.A.R.T.E.R. i.e. is it.

*S*.pecific

*M*.easurable

*A*.chievable

*R*.elevant

*T*.imed

*E*.xciting

*R*.ecorded

Linking With Your Commercial Plan:

I have suggested that your Business Development Strategy, would link with your Master Business Plan but logically you should also integrate it into your Commercial Kit(this is a document that outlines your monthly,quarterly and annual targets) specifically the areas that deal with new business generation, account management and development, four tier account lists etc.

These three documents when combined should drive and guide you through the next twelve months and beyond.

Summary:

As I have said often enough "People do not fail because they planned to fail but rather because they failed to plan"

The man who knows where he wants to go is more likely to get there, he just has to decide how to get there. All plans are essentially maps and guides; the strategic element is the How.

Do be prepared to change course, flexibility is key, and don't be afraid to experiment, look outside the square.

Forms of Ownership

SBA.gov — Mon, 02 Mar 2009 17:13:00 -0800

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One of the first decisions that you will have to make as a business owner is how the company should be structured. This decision will have long-term implications, so consult with an accountant and attorney to help you select the form of ownership that is right for you.

h4. In making a choice, you will want to take into account the following:

• Your vision regarding the size and nature of your business.

• The level of control you wish to have.

• The level of structure you are willing to deal with.

• The business' vulnerability to lawsuits.

• Tax implications of the different ownership structures.

• Expected profit (or loss) of the business.

• Whether or not you need to reinvest earnings into the business.

• Your need for access to cash out of the business for yourself.

h4. Next: Sole Proprietorships

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h4. Sole Proprietorships

The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibilities for running the business. Sole proprietors own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, you are one in the same with the business.

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h4. Advantages of a Sole Proprietorship

• Easiest and least expensive form of ownership to organize.

• Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.

• Sole proprietors receive all income generated by the business to keep or reinvest.

• Profits from the business flow directly to the owner's personal tax return.

• The business is easy to dissolve, if desired.

h4. Disadvantages of a Sole Proprietorship

• Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.

• May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.

• May have a hard time attracting high-caliber employees or those that are motivated by the opportunity to own a part of the business.

• Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income).

h4. Federal Tax Forms for Sole Proprietorship

(only a partial list and some may not apply)

• Form 1040: Individual Income Tax Return

• Schedule C: Profit or Loss from Business (or Schedule C-EZ)
• Schedule SE: Self-Employment Tax

• Form 1040-ES: Estimated Tax for Individuals

• Form 4562: Depreciation and Amortization

• Form 8829: Expenses for Business Use of your Home

• Employment Tax Forms

h4. Next: Partnerships

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h4. Partnerships

In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, and what steps will be taken to dissolve the partnership when needed. Yes, it's hard to think about a breakup when the business is just getting started, but many partnerships split up at crisis times, and unless there is a defined process, there will be even greater problems. They also must decide up-front how much time and capital each will contribute, etc.

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h4. Advantages of a Partnership

• Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement.

• With more than one owner, the ability to raise funds may be increased.

• The profits from the business flow directly through to the partners' personal tax returns.

• Prospective employees may be attracted to the business if given the incentive to become a partner.

• The business usually will benefit from partners who have complementary skills.

h4. Disadvantages of a Partnership

• Partners are jointly and individually liable for the actions of the other partners.

• Profits must be shared with others.

• Since decisions are shared, disagreements can occur.

• Some employee benefits are not deductible from business income on tax returns.

• The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

h4. Types of Partnerships that should be considered:

*1. General Partnership*

Partners divide responsibility for management and liability as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.

*2. Limited Partnership and Partnership with limited liability*

Limited means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decisions, which generally encourages investors for short-term projects or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.

*3. Joint Venture*

Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such as well as distribute accumulated partnership assets upon dissolution of the entity.

h4. Federal Tax Forms for Partnerships
(only a partial list and some may not apply)

• Form 1065: Partnership Return of Income

• Form 1065 K-1: Partner's Share of Income, Credit, Deductions

• Form 4562: Depreciation

• Form 1040: Individual Income Tax Return

• Schedule E: Supplemental Income and Loss

• Schedule SE: Self-Employment Tax

• Form 1040-ES: Estimated Tax for Individuals

• Employment Tax Forms

h4. Next: Corporations

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h4. Corporations

A corporation chartered by the state in which it is headquartered is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed, it can be sued, and it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

h4. Advantages of a Corporation

• Shareholders have limited liability for the corporation's debts or judgments against the corporations.

• Generally, shareholders can only be held accountable for their investment in stock of the company.
(Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.)

• Corporations can raise additional funds through the sale of stock.

• A corporation may deduct the cost of benefits it provides to officers and employees.

• Can elect S corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.

h4. Disadvantages of a Corporation

• The process of incorporation requires more time and money than other forms of organization.
• Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus it can be taxed twice.

h4. Federal Tax Forms for Regular or "C" Corporations
(only a partial list and some may not apply)

• Form 1120 or 1120-A: Corporation Income Tax Return

• Form 1120-W Estimated Tax for Corporation

• Form 8109-B Deposit Coupon

• Form 4625 Depreciation

• Employment Tax Forms

• Other forms as needed for capital gains, sale of assets, alternative minimum tax, etc.

h4. Next: Subchapter S Corporations

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h4. Subchapter S Corporations

A tax election only; this election enables the shareholder to treat the earnings and profits as distributions and have them pass through directly to their personal tax return. The catch here is that the shareholder, if working for the company, and if there is a profit, must pay him/herself wages, and must meet standards of "reasonable compensation". This can vary by geographical region as well as occupation, but the basic rule is to pay yourself what you would have to pay someone to do your job, as long as there is enough profit. If you do not do this, the IRS can reclassify all of the earnings and profit as wages, and you will be liable for all of the payroll taxes on the total amount.

h4. Federal Tax Forms for Subchapter S Corporations
(only a partial list and some may not apply)

• Form 1120S: Income Tax Return for S Corporation

• 1120S K-1: Shareholder's Share of Income, Credit, Deductions

• Form 4625 Depreciation

• Employment Tax Forms

• Form 1040: Individual Income Tax Return

• Schedule E: Supplemental Income and Loss

• Schedule SE: Self-Employment Tax

• Form 1040-ES: Estimated Tax for Individuals

• Other forms as needed for capital gains, sale of assets, alternative minimum tax, etc.

h4. Next: Limited Liability Company (LLC)

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h4. Limited Liability Company (LLC)

The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership.

The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued, if desired, by a vote of the members at the time of expiration. LLCs must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets, continuity of life, centralization of management, and free transferability of ownership interests.

h4. Federal Tax Forms for LLC

Taxed as partnership in most cases; corporation forms must be used if there are more than 2 of the 4 corporate characteristics, as described above.

In summary, deciding the form of ownership that best suits your business venture should be given careful consideration. Use your key advisers to assist you in the process.

Business Incorporation

Business.gov — Mon, 02 Mar 2009 15:56:00 -0800

When beginning a business, you must decide what form of business entity to establish. Your form of business determines the amount of regulatory paperwork you have to file, your personal liability regarding investments into your business, and the taxes you have to pay. The most common business structures include:

*Sole Proprietorship* - A business owned and managed by one individual who is personally liable for all business debts and obligations.

*Partnership* - Two or more people share ownership of a single business.

*Corporation* - A legal entity owned by shareholders.

*S Corporation* - A special type of corporation created through a tax election. An eligible domestic corporation can avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S corporation.

*Limited Liability Company (LLC)* - A relatively new, hybrid-type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership

*Non-Profit* - An organization engaged in activities of public or private interest that are not motivated by making a profit. Some non-profits are exempt from paying federal taxes.

*Cooperative* - A business or organization owned by and operated for the benefit of those using its services. Cooperatives are not a legal structure.

h4. Registering Your Business

If you decided to create a corporation, a non-profit, a limited liability company or a partnership (limited, or limited liability), you will have to register your business and file certain documents with your state government. If your business is a sole proprietorship, you do not need to register your business with the state. However, many states require a sole proprietor to use their own name for the business name unless they formally file another name as a trade name, or a fictitious name.

h4. Changing Your Business Type

Your initial choice of a business type is not permanent. You can start out as a sole proprietorship, and if your business grows and your risk of personal liability increases, you can convert your business to an LLC.

If you change your business structure, follow the Internal Revenue Service's instructions for Changes in Ownership or Organization.

You will also need to file new documents with your state government, and, depending on state and local laws, you may also need to obtain new business licenses.

Tips for Choosing a Business Location

Business.gov — Mon, 02 Mar 2009 15:52:00 -0800

h4. Determine Your Business Activity

Do your customers come to you, or do you go to your customers? Do you have employees? Do you manufacture products for distribution?

Answers to these questions can quickly narrow down your location choices.

If your type of business depends heavily on pedestrian or drive-by traffic, such as a florist, gift shop, or clothing boutique, you'll want to seek out popular retail locations, such as a downtown area or a mall, where there are few restrictions on signage that can help attract passing customers.

If customers typically seek out your type of business, such as a child care service, beauty salon, or fitness center, you'll want to seek out a space that easily accessible from population centers, major roads and public transportation.

If your customers do not typically come to you, other location factors may be more important than physical proximity to your customers. For example, if you conduct much of your business online, establishing a home-based business might be more desirable and economical than leasing commercial office space. If you are manufacture products for distribution, an ideal location might be an industrial park near major transportation ports.

h4. Ease of Access

If your business is a customer destination, consider how people get around in the area where your business will be located. For example, if you are scouting out a location in a suburban area, most people may get around by car. You'll need to make sure you close to major streets, and have plenty of parking. If you are scouting a location in an urban area, consider areas around public transportation hubs or areas of the city where there is a lot of foot traffic.

h4. Proximity to Your Competitors

While it may seem counter-intuitive, operating a business close to your competitors is often very beneficial. This is especially true if you have a retail business that relies heavily on foot traffic. Shopping malls are a good example of why proximity to your competitors is an important factor. Most major pedestrian malls are chocked full clothing shops, and cost of retail space is often very high. The reason for this is that the number of potential customers increases exponentially on a per-store basis around a concentration of similar businesses. For example, while one store might attract 50 customers, two stories might attract 200 customers, and three stories might attract 1,000 customers.

h4. Zoning and Signage

Before setting up shop, check with you local zoning authority to make sure you will not break any city ordinance or zoning policy in your preferred location. Also, consider you signage requirements, and compare them to signage regulations set by your local government. Many communities set restrictions on the size and appearance of signs.

You can find out how property is zoned by contacting your local planning agency; or use the state and local search engine to find if your city or county has zoning ordinances online.

h4. Home Based Business

Home based businesses make up roughly half of all U.S. businesses. Convenience and low start-up costs are just few of the reasons that make a home office an attractive business location. However, running a home based business isn't for everyone. Because most residential areas are not zoned for commercial businesses, your local government may have tight restrictions on the types of businesses permitted to operate out of a home. Check with your local zoning authority for rules that apply to you. If you plan to hire employees and have customers come to you, a home based business is probably not the best business location for you.

Do You Have What It Takes?

SBA.gov — Mon, 02 Mar 2009 15:48:00 -0800

Many successful entrepreneurs have similar traits and characteristics. Learn what these are and what you can do to improve on your own.

*FICTION*: To be an entrepreneur, you must be born that way.

*FACT*: Anyone can learn to operate like an entrepreneur.

h4. What are the similarities of successful entrepreneurs?

• Persistence

• Desire for immediate feedback

• Inquisitiveness

• Strong drive to achieve

• High energy level

• Goal-oriented behavior

• Independent

• Demanding

• Self-confident

• Calculated risk taker

• Creative

• Innovative

• Vision

• Commitment

• Problem solving skills

• Tolerance for ambiguity

• Strong integrity

• Highly reliable

• Personal initiative

• Ability to consolidate resources

• Strong management and organizational skills

• Competitive

• Change agent

• Tolerance for failure

• Desire to work hard

• Luck

Many entrepreneurs also had a role model to influence them early on and parents who were entrepreneurs Two traits necessary for successful entrepreneurs are creativity and innovation.

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h4. What is Creativity?

Creativity is being able to create new ideas and ways to solve problems that provide cool opportunities.

*Characteristics of Creative People*

• Bright

• Adaptable

• High self esteem

• Challenge-oriented

• Idea-oriented

• Inquisitive

• Curious

Can you improve your creativity? YES! How?

Gather as much information as you can (read, talk with experts, etc.); brainstorm over time. Just think about the problem or issue until an idea comes to you.

Is the solution reasonable? If so, try it. If not, keep thinking. Did it work? If so, great. If not, begin the process over again. Don't put barriers on your mind. Put these steps to use.

*Left Brain*: Analytical; Rational

*Right Brain*: Intuitive; Artistic

You need both sides of your brain when being creative, as they compliment each other.

h4. What is an Innovation?

Something that is invented (ex. CDs), or

Something that is created from an existing idea or product (ex. Super Wal-Mart).

*Where do innovative ideas come from?*

Unsatisfied customers

Demographic changes in society

Luck

Imagination

Vision

Problem-solving

h4. Remember:

Look for new ideas

Keep it simple

Start small

Try, try, try again

Answering the Knock of a Business 'Opp'

FTC.gov — Mon, 02 Mar 2009 15:32:00 -0800

It's not so hard to see why consumers would be drawn to ads for business opportunities that trumpet "be your own boss," "set your own hours," "work from home," and "earn money quickly." But the Federal Trade Commission (FTC) says that business opportunity promotions like these often are scams that take consumers' money and fail to deliver on the promises.

Before investing in any "biz opp," the FTC suggests that consumers:

*Look at the ad carefully.* If it claims buyers can earn a certain income, it also must give the number and percentage of previous purchasers who achieved the earnings. If an earnings claim is there - but the additional information isn't - the business opportunity seller is probably violating the law.

*Get earnings claims in writing*. If the business opportunity costs $500 or more, then the promoter must back up the earnings claim in a written document. It should include the earnings claim, as well as the number and percentage of recent clients who have earned at least as much as the promoter suggested. If it's a work-at-home or other business opportunity that involves an investment of under $500, ask the promoter to put the earnings information in writing.

*If the business opportunity is a franchise, study the disclosure document*. Look for a statement about previous purchasers. If the document says there are no previous purchasers but the seller offers a list of references, be careful: the references probably are fake.

*Interview each previous purchaser in person, preferably where their business operates*. The FTC requires business opportunity promoters to give potential purchasers the names, addresses and phone numbers of at least 10 previous purchasers who live the closest to the potential purchaser. Interviewing previous purchasers helps reduce the risk of being misled by phony references.

*Contact the attorney general's office*, state or county consumer protection agency and Better Business Bureau both where the business opportunity promoter is based and where you live to find out whether there is any record of unresolved complaints.

* If the business opportunity involves selling products from well-known companies*, call the legal department of the company whose merchandise would be promoted. Find out whether the business opportunity and its promoter are affiliated with the company. Ask whether the company has ever threatened trademark action against the promoter.

*Consult an attorney*, accountant or other business advisor before you make the deal.

*Take your time*. Promoters of fraudulent business opportunities often use high-pressure sales tactics. But, if the business opportunity is legitimate, it'll still be around when you're ready to decide.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Buying a Franchise: A Consumer Guide

FTC.gov — Mon, 02 Mar 2009 15:13:00 -0800

Buying a Franchise: A Consumer Guide

When you buy a franchise, you often can sell goods and services that have instant name recognition, and get training and support that can help you succeed. But purchasing a franchise is like every other investment: there’s no guarantee of success.

The Federal Trade Commission, the nation’s consumer protection agency, has prepared this booklet to explain how to shop for a franchise opportunity, the obligations of a franchise owner, and questions to ask before you invest.

I. The Benefits and Responsibilities of Franchise Ownership

II. Advance Work: Before You Select a Franchise System

III. Selecting a Franchise

IV. Finding the Right Opportunity

V. Investigating Before You Invest

VI. Before You Sign the Franchise Agreement

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h4. I. The Benefits and Responsibilities of Franchise Ownership

A franchise enables you, the investor or franchisee, to operate a business. You pay a franchise fee and you get a format or system developed by the company (franchisor), the right to use the franchisor’s name for a limited time, and assistance. For example, the franchisor may provide you with help in finding a location for your outlet; initial training and an operating manual; and advice on management, marketing, or personnel. The franchisor may provide support through periodic newsletters, a toll-free telephone number, a website, or scheduled workshops or seminars.

Buying a franchise may reduce your investment risk by enabling you to associate with an established company. But the franchise fee can be substantial. You also will have other costs: for example, you may be required to give up significant control over your business while you take on contractual obligations with the franchisor.

h4. Typically, franchise systems have several components.

h4. Costs

In exchange for the right to use the franchisor’s name and assistance, you will pay some or all of the following fees.

h4. Initial Franchise Fee and Other Expenses

Your initial franchise fee, which will range from several thousand dollars to several hundred thousand dollars, may be non-refundable. You may incur significant costs to rent, build, and equip an outlet and to buy initial inventory. You also may have to pay for operating licenses and insurance, and a “grand opening” fee to the franchisor to promote your new outlet.

h4. Continuing Royalty Payments

You may have to pay the franchisor royalties based on a percentage of your weekly or monthly gross income. Often, you must pay royalties even if your outlet isn’t earning significant income. As a rule, you have to pay royalties for the right to use the franchisor’s name. Even if the franchisor doesn’t provide the services they promised, you still may have to pay royalties for the duration of your franchise agreement. Indeed, even if you voluntarily terminate your franchisee agreement early, you may owe royalties for the remainder of your agreement.

h4. Advertising Fees

You also may have to pay into an advertising fund. Some portion of the advertising fees may be allocated to national advertising or to attract new franchise owners, rather than to promote your particular outlet.

h4. Controls

To ensure uniformity, franchisors usually control how franchisees conduct business. These controls may significantly restrict your ability to exercise your own business judgment. Here are a few examples.

Continued...

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h4. Site Approval

Many franchisors pre-approve sites for outlets, which, in turn, may increase the likelihood that your outlet will attract customers. At the same time, the franchisor may not approve the site you’ve selected.

h4. Design or Appearance Standards

Franchisors may impose design or appearance standards to ensure a uniform look among the various outlets. Some franchisors require periodic renovations or seasonal design changes; complying with these standards may increase your costs.

h4. Restrictions on Goods and Services You Sell

Franchisors may restrict the goods and services you sell. For example, if you own a restaurant franchise, you may not be able to make any changes to your menu. If you own an automobile transmission repair franchise, you may not be able to perform other types of automotive work, like brake or electrical system repairs.

h4. Restrictions on Method of Operation

Franchisors may require that you operate in a particular way: they may dictate hours; pre-approve signs, employee uniforms, and advertisements; or demand that you use certain accounting or bookkeeping procedures. In some cases, the franchisor may require that you sell goods or services at specific prices, restricting your ability to offer discounts, or that you buy supplies only from an approved supplier even if you can buy similar goods elsewhere for less.

h4. Restrictions on Sales Area

A franchisor may limit your business to a specific territory.While territorial restrictions may ensure that you will not compete with other franchisees for the same customers, they also could hurt your ability to open additional outlets or to move to a more profitable location. In addition, a franchisor may limit your ability to have your own website, which could restrict your ability to have online customers. Moreover, the franchisor itself may have the right to offer goods or services in your sales area through its own website or through catalogs or telemarketing campaigns.

h4. Terminations and renewal

You can lose the right to your franchise if you breach the franchise contract. Franchise contracts are for a limited time; your right to renew is not guaranteed.

h4. Franchise Terminations

A franchisor can end your franchise agreement for a variety of reasons, including your failure to pay royalties or abide by performance standards and sales restrictions. If your franchise is terminated, you may lose your investment.

h4. Renewals

Franchise agreements may run for as long as 20 years. At the end of the contract, the franchisor may decline to renew. Renewals are not automatic, and they may not have the original terms and conditions. Indeed, the franchisor may raise the royalty payments, impose new design standards and sales restrictions, or reduce your territory. Any of these changes may result in more competition from company-owned outlets or other franchisees.

Next: Before You Select a Franchise System

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h4. II. Advance Work: Before You Select a Franchise System

Before you invest in a particular franchise system, think about how much money you have to invest, your abilities, and your goals. Be brutally honest.

h4. Your Investment

• How much money do you have to invest?

• How much money can you afford to lose?

• Are you purchasing the franchise alone or with partners?

• Do you need financing? Where’s it coming from?

• What’s your credit rating? Credit score?

• Do you have savings or additional income to live on while you start your business?

h4. Your Abilities

• Does the franchise require technical experience or special training or education (for example, auto repair, home and office decorating, or tax preparation)?

• What special skill set can you bring to a business, and, specifically, to this business?

• What experience do you have as a business owner or manager?

h4. Your Goals

Write down your reasons for buying a particular franchise:

• Do you need a specific annual income?

• Are you interested in pursuing a particular field?

• Are you interested in retail sales or performing a service?

• How many hours can you work? How many are you willing to work?

• Do you intend to operate the business yourself or hire a manager?

• Will franchise ownership be your primary source of income or a supplement to your current income?

• Do you get bored easily? Are you in this for the long-term?

• Would you like to own several outlets?

Next: Selecting a Franchise

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*h4. III. Selecting a Franchise

Purchasing a franchise is like any other investment: it comes with risk. When you think about a particular franchise, think about the demand for the products or services it offers, competitors that offer similar products or services, the franchisor’s background, and the level of support you will receive.

h4. Demand

Is there a demand for the franchisor’s products or services in your community? Is it seasonal or ever- green? Could you be dealing with a fad? Does the product or service generate repeat business?

h4. Competition

What’s the level of competition—nationally, regionally, and locally? How many franchised and company-owned outlets are in your area? Does the franchise sell products or services that are easily available online or through a catalog? How many competing companies sell similar products or services? Are they well-established or widely recognized by name in your community? Do they offer a similar product at a similar price?

h4. Your Ability to Operate the Business

Sometimes, franchise systems fail. What will happen to your business if the franchisor closes up shop? Will you need the franchisor’s ongoing training, advertising, or other help to succeed? Will you have access to the same suppliers? Could you conduct the business alone if you have to cut costs or lay anyone off?

Before you invest in a particular franchise system, think about how much money you have to invest, your abilities, and your goals. Be brutally honest.
*
h4. Name Recognition

Buying a franchise gives you the right to associate with the company’s name or brand. The more widely recognized the name, the more likely it is to draw in customers.

h4. Consider:

• name and brand recognition for the company and its product or service

• whether the company has a registered trademark

• how long the franchisor has been in business

• whether the company’s reputation is for quality products or services

• whether consumers have filed complaints against the franchise with the Better Business Bureau or a local consumer protection agency

h4. Training and Support Services

What training and continuing support does the franchisor provide? Does the franchisor’s training measure up to the training for workers in the particular industry? Can you compete with others who have more formal training? What backgrounds do the current franchise owners have? Is your education, experience, or training similar?

h4. Franchisor’s Experience

Many franchisors operate well-established companies with years of experience both in selling goods or services and managing a franchise system. Some franchisors started by operating their own business. There is no guarantee, however, that a successful entrepreneur can successfully manage a franchise system. Find out:

• how long the franchisor has managed a franchise system

• whether the franchisor has enough expertise to make you feel comfortable. If the franchisor has little experience managing a chain of franchises, take any promises about guidance, training, and other support with the proverbial grain of salt.

h4. Growth

A growing franchise system increases the franchisor’s name and brand recognition and may enable you to attract customers. But growth alone doesn’t ensure successful franchisees. Indeed, a company that grows too quickly may not be able to support its franchisees with the support services it promises them. Investigate the franchisor’s financial assets and resources; are they sufficient to support the franchisees?

Next: Finding the Right Opportunity

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h4. IV. Finding the Right Opportunity

There are many, many ways to find franchise opportunities. Some franchisors have websites with information about their franchises. Franchise expositions are another good source of information, as are franchise brokers—companies or people that specialize in matching individuals with franchise companies. It’s always a good idea to visit franchised outlets in your area and talk to the owners about their experience with particular franchisors.

h4. Shopping at a Franchise Exposition

Attending a franchise exposition allows you to see and compare a variety of franchise possibilities under one roof. Before you attend, research the kind of franchise that may best suit your budget, experience, and goals. When you attend, visit several franchise exhibitors who deal with the type of industry that appeals to you. Ask questions.

• How long has the franchisor been in business?

• How many franchised outlets exist? Where are they?

• What is the initial franchise fee? What additional start-up costs can you expect? Are there continuing royalty payments? How much? What do other franchisees pay?

• What management, technical, and other support does the franchisor offer?

• What controls does the franchisor impose?

Exhibitors may offer you incentives to attend a promotional meeting to discuss the franchise in greater detail. These meetings can be another source of information and another opportunity to raise questions. Be prepared to walk away from any franchise opportunity—and promotion—that doesn’t fit your needs.

h4. Using a Franchise Broker

Franchise brokers—who also refer to themselves as “business coaches,”“advisors,”“referral sources,” or “sales consultants”—help people who want to buy a franchise. They often advertise on the Internet and in business magazines that they will help you select among various franchise options.Typically, a broker reviews the amount of money you have to invest and then directs you to opportunities that match your interests and resources.A broker also may help you complete applications and the paperwork to consummate the sale. Remember that franchise brokers often work for franchisors, and get paid only if a sale is completed.

h4. Limited Opportunities

Some franchise brokers may claim to be able to match you with “the perfect opportunity” because they represent a wide range of business sellers. That may be true—or not. In some instances, franchise brokers represent only a few franchisors, and, as a result, their suggestions may be limited.

h4. Selection Standards

Some franchise brokers may claim that they will suggest only those franchises that meet certain standards. You may think this means that your financial risk is limited because the broker is weeding out the poor investments. In fact, some brokers represent any franchisor willing to pay them a commission for a sale. If you rely on a broker, be skeptical: you may be directed to a franchise that is failing or that doesn’t have a track record.

h4. Upselling

Some brokers earn a flat fee regardless of the price of the franchise they sell; others earn a commission pegged to the price of the franchise the broker sells. The more costly the franchise, the bigger the broker’s commission. Some brokers may steer you toward a more costly franchise to beef up their own commission.
Unauthorized or Misleading Earnings Representations

To convince you to buy a particular franchise, a broker may make certain representations about income. Earnings claims may not be true, and sometimes, can be misleading even if literally true. For example, the figures may be based on earnings in an area where demand for the business’ goods or services is high. Or the earnings claimed may be based on outdated industry data. In some instances, earnings claims may be gross sales figures: when you factor in likely expenses, actual earnings can be far less. Because earnings representations may be misleading, many franchisors prohibit their sales representatives from making them.

Before using a franchise broker, ask yourself:

• whether you need the services of a franchise broker. Can you get enough information shopping online or reading trade magazines?

• whether the broker is paid by the franchisor. Are there any fees you must pay the broker? If so, how much you are willing to pay?

• whether the broker’s commission depends on the price of the franchise. If it does, consider the fact that the broker may be leading you toward a higher-priced franchise. Ask about alternatives in the same field that may cost less.

• how many franchisors the broker represents. If it’s a small group, the potential match-ups may be limited.

• how the broker selects franchisors to represent. Are the selection criteria in writing? Ask to see them. How many franchisors has the broker turned down in the recent past?

• about potential earnings claims. Verify whether the franchisor has authorized the claims. Ask the franchisor for the written documentation that lays out the basis for the claims. Think about consulting an accountant to determine whether the claims are reasonable and if they are applicable to where and how you intend to operate your business.

You should receive the names and contact information for other buyers of the franchise— current and former franchisees. Talk to them, rather than relying on information from the broker alone.

* Speak to them about their experience within the franchisor.

Next: Investigating Before You Invest

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h4. V. Investigating Before You Invest

The All-Important Disclosure Document

Before you invest in any franchise system, get a copy of the franchisor’s disclosure document. Under the Franchise Rule, which is enforced by the FTC, you must receive the document at least 14 days before you are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor. You have the right to ask for—and get—a copy of the disclosure document once the franchisor has received your application and agreed to consider it. Indeed, you may want to get a copy of the franchisor’s disclosure document before incurring any expenses to investigate the franchise offering.

The franchisor may give you a copy of its disclosure document on paper, via email, through a web page, or on a disc. The cover of the disclosure document should have information about its availability in other formats. Make sure you have a copy of the document in a format that is convenient for you, and keep a copy for reference.

Read the entire disclosure document. Don’t be shy about asking for explanations, clarifications, and answers to your questions before you invest. Among the key sections in a complete disclosure document are:

h4. Franchisor’s Background

This section tells how long the franchisor has been in business, likely competition, and any special laws that pertain to the industry, like any license or permit requirements. This will help you understand the costs and risks you are likely to take on if you purchase and operate the franchise.

Read the entire disclosure document. Don’t be shy about asking for explanations, clarifications, and answers to your questions before you invest.
* Business Background

This section identifies the executives of the franchise system and describes their experience. Pay attention to their general business backgrounds, their experience in managing a franchise system, and how long they’ve been with the company.

h4. Litigation History

This section discusses prior litigation—whether the franchisor or any of its executive officers have been convicted of felonies involving fraud, violations of franchise law, or unfair or deceptive practices law, or are subject to any state or federal injunctions involving similar misconduct. It also says whether the franchisor or any of its executives have been held liable for—or settled civil actions involving—the franchise relationship. A number of claims against the franchisor may indicate that it has not performed according to its agreements, or, at the very least, that franchisees have been dissatisfied with its performance.

This section also should say whether the franchisor has sued any of its franchisees during the last year, a disclosure that may indicate common types of problems in the franchise system. For example, a franchisor may sue franchisees for failing to pay royalties, which could indicate that franchisees are unsuccessful, and therefore, unable or unwilling to make their royalty payments.

h4. Bankruptcy

This section discloses whether the franchisor or any of its executives have been involved in a recent bankruptcy, information that can help you assess the franchisor’s financial stability and whether the company is capable of delivering the support services it promises.

h4. Initial and Ongoing Costs

This section describes the costs involved in starting and operating a franchise, including deposits or franchise fees that may be non-refundable, and costs for initial inventory, signs, equipment, leases, or rentals. It also explains ongoing costs, like royalties and advertising fees. In addition, ask about:

• continuing royalty payments

• advertising payments, both to local and national advertising funds

• grand opening or other initial business promotions

• business or operating licenses

• product or service supply costs

• real estate and leasehold improvements

• discretionary equipment, such as a computer system or a security system

• training

• legal fees

• financial and accounting advice

• insurance

• the costs of compliance with local ordinances, such as zoning, waste removal, and fire and other safety codes

• health insurance

• employee salaries and benefits

* Starting your business may take several months. Estimate your operating expenses for the first year and your personal living expenses for up to two years. Compare your estimates with what other franchisees have paid and with competing franchise systems. You may be able to get a better deal with another franchisor.An accountant can help you evaluate this information.

Continued...

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h4. Restrictions

This section tells whether the franchisor limits:

• suppliers from whom you may purchase goods

• the goods or services you may offer for sale

• your customers

• where you can sell goods or services

• your use of the Internet to sell goods or services to customers in and out of your territory and the right of the franchisor (or other franchisees) to use the Internet to solicit customers or to sell in your territory

These kinds of restrictions may limit your ability to exercise your own business judgment in operating your outlet. That said, if the franchisor does not limit the territory where each franchisee can sell, the franchisor and other franchisees may compete with you for the same customers, either by establishing their own outlets, or by selling to customers in your area through the Internet, catalogs, telemarketing, and the like.

h4. Terminations

This section spells out the conditions under which the franchisor may end your franchise and your obligations to the franchisor after termination. It also defines the conditions under which you can renew, sell, or assign your franchise to others.

h4. Training

This section explains the franchisor’s training and assistance program. Check for information about:

• who is eligible for training

• whether new employees are eligible for training and, if so, at what cost. Who pays?

• how long the training sessions take. How much time is spent on technical training, business management training, and marketing?

• who conducts the training and their qualifications

• whether the company offers ongoing training and at what cost

• support staff available for trouble-shooting: Are they assigned to your area and how many franchisees they are responsible for?

• whether on-site individual assistance is available and at what cost

The training you need will depend on your business experience and your knowledge of the franchisor’s goods and services. If you have doubts about whether the training offered is sufficient to give you the tools you need to handle day-to-day business operations, consider another franchise opportunity.

h4. Advertising

This section has information on advertising costs. Franchisees often are required to contribute a percentage of their income to an advertising fund. Find out:

• what part of the advertising fund is devoted to administrative costs

• what other expenses are paid from the advertising fund

• whether franchisees have any control over how the advertising dollars are spent

• what advertising promotions the company has already engaged in and what’s on the drawing board

• what percentage of the fund is spent on national advertising

• what percentage of the fund is spent on advertising in your area

• what percentage is devoted to selling more franchises

• whether all franchisees contribute equally to the advertising fund

• whether you need the franchisor’s consent to develop and buy your own advertising

• whether there are rebates or advertising contribution discounts if you do your own advertising

• whether the franchisor gets any commissions or rebates when it places advertisements, and who benefits from those—you or the franchisor

h4. Current and Former Franchisees

This section has very important information about current and former franchisees. Many franchisees in your area may mean more competition for customers. The number of terminated, cancelled, or non-renewed franchises may indicate problems.

*Some companies may repurchase failed outlets and list them as company-owned outlets.

Look for contact information for current franchisees and franchisees who have left the system within the last year; talking to them may be the most reliable way for you to verify the franchisor’s claims. Visit or phone as many of the current and former franchisees as possible to chat about their experiences, and the volume and type of business they’re doing. Note that some of them may have signed confidentiality agreements that prevent them from speaking with you. If that’s the case, try contacting others on the list.

Continued...

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If you buy an existing outlet that was reacquired by the franchisor, the franchisor must tell you who owned and operated the outlet for the last five years. Several owners in a short time may indicate that the location isn’t profitable or that the franchisor hasn’t supported that outlet as promised. Consider contacting several previous owners to learn more about their experience operating the particular outlet. You will want to learn:

• how long the franchisee operated the franchise

• where the franchise was located

• whether they were able to open the outlet in a reasonable time

• their total investment, including any hidden or unexpected costs

• how long it took them to cover operating costs and earn a reasonable income

• whether they were satisfied with the cost, delivery, and quality of the goods or services they sold

• their backgrounds before becoming a franchisee

• If you have doubts about whether the training offered is sufficient to give you the tools you need to handle day-to-day business operations, consider another franchise opportunity.

• * whether the franchisor’s training was adequate

• whether the franchisor provided ongoing help

• their satisfaction with the franchisor’s advertising program

• whether the franchisor fulfilled its contractual obligations

• whether the franchisee would invest in another outlet

• whether the franchisee would recommend the investment

Some franchisors may give you a separate reference list of franchisees to contact. To ensure that you get the full picture, you may want to contact at least some references listed in the disclosure document that are not on the separate list.

h4. Associations of Franchisees Operating Similar Outlets

There’s no question that the disclosure document is critical reading for potential franchisees. Associations of franchisees who are operating similar outlets are another important source of information. Whether or not these associations are sponsored or endorsed by the franchisor, they can provide information about the state of the relationship between the franchisor and its franchisees. You may want to ask a franchisee association about:

• its membership

• its history

• its goals

• its relationship with the franchisor

• any benefits in buying from one franchisor versus a competitor

• any problems franchisees are facing in the operation of their outlets

h4. Earnings Information

You may want to know how much money you can make if you invest in a particular franchise system. Be careful. Earnings information can be misleading. Insist on written substantiation for any information you may receive that suggests your potential income or sales.

Franchisors are not required to disclose information about potential income or sales, but if they do, the law requires that they have a reasonable basis for their claims and that they make the substantiation for their claims available to you. When you review any earnings claims, consider:

h4. Sample Size

Say a franchisor claims that franchisees in its system earned $50,000 last year. The claim may be deceptive if it doesn’t represent the typical earnings of franchisees. The disclosure document should tell the sample size and the number and percentage of franchisees who reported earnings at the level claimed.

h4. Average Incomes

A franchisor may claim that the franchisees in its system earn an average income of, say, $75,000 a year. Average figures tell very little about how individual franchisees perform. An average figure may make the overall franchise system look more successful than it is because just a few very successful franchisees can inflate the average.
*
h4. Gross Sales

5 Some franchisors provide figures for the gross sales revenues of their franchisees. These figures don’t really tell about the franchisees’actual costs or profits. An outlet with a high gross sales revenue on paper may be losing money because of high overhead, rent, and other expenses.

h4. Net Profits

Franchisors often do not have data on net profits oftheir franchisees. If you get net profit information, ask whether it includes information about company- owned outlets; they often have lower costs because they can buy equipment, inventory, and other items in larger quantities, or they may own, rather than lease, their property.

h4. Geographic Relevance

Earnings may vary with geography. If it’s reported that a franchisee earned a particular income, ask about the franchisee’s location. The disclosure document should note geographic or other differences among the group of franchisees whose earnings are reported and your likely location.

h4. Franchisees’ Backgrounds

Keep in mind that franchisees have different skill sets and educational backgrounds. The success of some franchisees doesn’t guarantee success for all.

h4. Reliance on Earnings Claims

Franchisors may ask you to sign a statement— sometimes presented as a written interview or questionnaire—that asks whether you received any earnings or financial performance representations during the course of buying a franchise. If you heard or got any earnings representations, report it fully during an interview or on a questionnaire or other statement. If you don’t, you may be waiving any right to contest the earnings representations that were made to you and that you used to make your decision to buy.

h4. Financial History

The disclosure document gives important information about the company’s financial status, including audited financial statements. You can find explanatory information about the franchisor’s financial status in notes to the financial statements. Investing in a financially unstable franchisor is a significant risk; the company may go out of business or into bankruptcy after you have invested your money.

It’s a good idea to hire a lawyer or an accountant to review the franchisor’s financial statements, audit report, and notes. They can help you understand whether the franchisor:

• has steady growth

• has a growth plan

• makes most of its income from the sale of franchises or from continuing royalties

• devotes sufficient funds to support its franchise system

Next: Before You Sign the Franchise Agreement

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h4. VI. Before You Sign the Franchise Agreement

The company’s disclosures may change between the time you receive the disclosure document and the time you sign the franchise agreement. For example, the company may have updated its disclosures; it is required to do that at least annually after its fiscal

year ends. You have the right to ask for a copy of any updated information before you sign the franchise agreement. An updated disclosure document may indicate the filing of new suits by or against the franchisor, changes in the franchisor’s management team, new financial data, and more current financial performance data, among other information.
Additional Sources of Information

h4. Accountants and Lawyers

In addition to reading the company’s disclosure document—including any updates—and speaking with current and former franchisees, consider talking to an accountant and a lawyer. An accountant can help you understand the company’s financial statements, develop a business plan, assess any earnings projections and the assumptions they’re based on, and help you pick a franchise system that is best suited to your investment resources and your goals.

A lawyer can help you understand your obligations under the franchise contract. These contracts usually are long and complex. A contract problem that arises after you have signed the contract may be very expensive to fix—if it can be fixed at all. Choose a lawyer who is experienced in franchise matters, but rely on your own lawyer or accountant for a recommendation, rather than the franchisor’s recommendation.

h4. Banks and Other Financial Institutions

These organizations can offer an unbiased view of the franchise opportunity you are considering. They should be able to get a Dun and Bradstreet report or similar financial profile of the franchisor.

h4. Better Business Bureau

Check with the local Better Business Bureau (BBB) in the city where the franchisor has its headquarters. Ask whether there are complaints on file about the company’s products, services, or personnel.

h4. Government

Several states regulate the sale of franchises. Check with the state office that regulates franchising—it may be the Office of the Attorney General—for more information about your rights as a franchise owner in your state.

The Federal Trade Commission (FTC) enforces the Franchise Rule. The FTC publishes a number of business guides—for example, Getting Business Credit , Dot Com Disclosures, Business Guide to the Mail and Telephone Order Merchandise Rule, and Complying with the Telemarketing Sales Rule that may be helpful to your business.

Don't Fall Victim to the Triangle of Entrepreneurial Finance

Peter Sander and J. Jeffery Lambert, Entrepreneur — Mon, 02 Mar 2009 13:52:00 -0800

This article has been excerpted from Ultimate Guide to Personal Finance for Entrepreneurs by Peter Sander with J. Jeffrey Lambert, available from Entrepreneur Press.

Business operations, business finances and personal finances are inexorably linked in the triangle of entrepreneurial finance. Decisions and actions at one point in the triangle will most likely-in at least some way-affect a decision made in another. Some of these influences are obvious; others are more subtle. But like a balance equation in chemistry or physics, there will always be an effect. The question is how large an effect?

For example, the effect of an operational decision to hire employees has an obvious effect on business finances-wages or salaries paid, benefits paid, insurance covered, facilities required. But does this decision affect your personal finances as an entrepreneur? Obviously it might affect the cash flow you take from the business, but hopefully not much, as the ROI of these new employees should be positive. But more subtly, the number and kind of employees you have can affect the choice of retirement plans and employment benefits and, in many cases, open up options and alternatives for your own personal retirement plan. The employees may also help you qualify for group insurance plans or for better plans than you have already. That's the kind of effect we're considering.

Let's take a moment to examine the points of the triangle and how the pieces fit together.

h4. Business Operations

As an entrepreneur you will make hundreds to thousands of operational decisions in setting up an infrastructure and producing your product or service. All decisions that involve money involve the finances of the business, of course, and many, like employment and facility decisions, will affect your personal finances as an owner. And these decisions are never finished: They will adjust and evolve as your business evolves-and so will your business and personal finances. Business operational decisions include the following:

Employment and employees. Whether to have employees, how many, and what kind of compensation to provide are decisions that affect business finances in obvious ways. Decisions about employee benefits and retirement plans will affect you, for whatever you decide to do for them may have consequences for you: You can participate in benefit and retirement plans, often to your advantage. Also, your decision on how to use yourself and your spouse and/or family members as employees can impact your finances.

Facilities and location. Early on, you'll have to decide what kind of location and building your business needs. That decision will likely have to be modified as the business grows and evolves. Naturally, like employee costs, facility costs are a major factor in the finances of most businesses. But key decisions on building ownership-buy vs. lease, owner buys and leases to business-are important to personal finances. Depending on the business, many entrepreneurs look to buy their facilities to build the asset base as part of a retirement or other exit strategy for the business. In addition, the use of a home or other personal space in a business has important personal finance consequences.

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Growth strategy and plans. Every viable business has a strategy and a plan to grow and evolve. Decisions on how to evolve and how fast must be made in the context of both business and personal finances. Many good businesses fail because they grow beyond the asset base and working capital required to support them.

Organization. Every entrepreneur must decide how to organize his or her business. Not only are we talking about organizing facilities and human resources, but also the basic legal structure of the business. The decision of whether or not to incorporate is important. If the decision is not to incorporate, important decisions must be made between or among partners, if there are partners, and contingency plans must be in place in case things change. Like most operational decisions, the organization decision is never finished.

Risk. Every business has risk and there are several kinds of risk. Operational risks-the risk of accident, mistake, or omission-produce potential liability for the business and can produce liability for the owners, depending on how the business is structured. Continuation risks concern the ability of the business to function in the case of unexpected catastrophe or unavailability of a key employee or owner. Financial risks concern the capital structure and the availability of capital and are covered below. Many of these risks are assumed and covered at the business level, but the owner must consider the risks at the personal level as well.

h4. Business Finances

The term business finances refers to the assets, liabilities, capital, revenue and expenses of the business. For you, "expenses" may or may not literally include taxes, but however you want to slice it, taxes and tax considerations obviously have a big impact on how businesses are organized and run. These financial components are tightly intertwined with each other and with the operational decisions made by the business.

Capital purchases and assets. Almost all businesses need to acquire and use fixed assets. That acquisition, of course, can be through purchasing or through renting or leasing. Purchase and lease decisions in turn require ROI analysis and financing decisions. Then, once an asset is acquired, it must be recovered, or expensed, over time to reflect its depreciation and plan for its replacement. The financing and cash flow decisions involved in acquiring assets will affect both business operations and owner finances, especially in proprietorships, partnerships and closely held corporations.

Capital structure.Capital structure refers to how much of the business financing is through owner equity and how much is through debt or other liabilities and how it is done, that is, the mix of financial instruments and ownership vehicles. Business capital requirements and owner decisions influence the capital structure, which in turn influences the owner's personal finances. Entrepreneurs must decide how much of their own capital to invest in the business, how they will be "paid" for that capital (in profits, wages, interest, or other ways) and how procuring capital through loans will affect their own financial well-being.

Working capital. This is a tough concept for many entrepreneurs to grasp. It is capital used to finance the flow-through, what goes into the business and what goes out of the business-not the fixed or tangible assets of the business. It is used to pay for inventory and to provide cash for other items necessary to the day-to-day running of the business. Any business that must pay a supplier or an employee before providing a product or a service to its customers or must provide a product or a service to customers before receiving payment needs working capital to make this happen. Working capital is part of the total capital required to run a business-and the most dynamic part. Insufficient working capital can choke business operations-insufficient inventory, inability to offer satisfactory customer purchase terms, inability to pay employees or suppliers. It is very common for a business and its entrepreneurs to underestimate its need for working capital. The usual result is that the owner must kick in more capital from personal finances-or accumulate more debt. Working capital mismanagement is a common cause of personal financial failure for entrepreneurs.

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Cash flow. This is the bigger picture for working capital. Does the business have enough cash to meet its ongoing business needs? Does it generate enough cash through operations to replace assets, pay its owners, and fund its growth? Poor cash flow leads to inadequate business resources. It can cause an assortment of financial problems, from decreases in owner returns to severe shortages of capital that must be met eventually by the owners. Cash flow becomes especially critical when the owners must replace key assets or as they're implementing important growth and competitive strategies. Many a business has declined or failed because of inadequate cash flow to replace assets or to execute key competitive strategies-and these problems almost always come back to the doorstep of the entrepreneur.

Risk management. We mentioned risk under Business Operations, but needless to say, any business faces various financial risks. Customers don't always pay, interest rates don't always stay the same, tax rules change, sources of funds don't always come through as expected, owners or investors can leave and the list goes on-all with obvious personal financial consequences.

h4. Personal Finances

For now it's sufficient to say that personal finances include the income and expenses and the assets and liabilities of the individual entrepreneur and his household. Within those parameters, individual personal finance includes managing cash and money, setting short- and long-term goals, and putting plans in place to achieve those goals. Here are some important pieces to the personal financial puzzle and how they relate to the operations and especially the finances of the business:

Cash and money management. Just as in the business, the key to a financially healthy and secure household lies in managing day-to-day money flows-income and expenses. Here we talk about the use of personal budgets and banking and credit to manage family finances and lay bricks in place to achieve longer-term goals.

Income from business. Every entrepreneur has to decide when, how, and how much to be paid from the business. This key decision obviously impacts personal finances, but it is also important to the financial health of the business. The amount and timing of such payments should be right for both the entrepreneur and the business. Also, it should generally-but not always-be done in a way to minimize tax impact. The amount and regularity of income from the business must, of course, be accounted for in the personal financial budget. "Payment" may be in forms besides cash-benefits, retirement savings, or use of assets. However entrepreneurial compensation is structured, it must be thought through carefully.

Management and growth of personal wealth. We mentioned income, but income most surely doesn't translate directly to wealth. Just ask the thousands (millions?) of entrepreneurs and other individuals with substantial incomes but little to show for them. The slogan is "Make it, keep it, grow it"-but many never get past "make it." Why? Poor money management-lack of awareness, commitment and control-gets in the way of keeping it, and poor or inattentive use of investing and savings vehicles gets in the way of growing it. Now, we know that most entrepreneurs are too busy to be very active investors, but we will offer some investing basics to help savvy entrepreneurs figure out where to stash their cash.

Risk management. Just as in business, your personal life involves risks, including loss of income, health problems, liability, and loss of property. Risk management isn't just about insurance, although insurance is an important tool used to manage risk. Entrepreneurs and their families incur the same risks as other people, but business owners may face some additional risks-and may also have some other alternatives to help manage them.

Benefits. If you're a corporate or public service employee, your fringe benefits-insurance coverage, retirement, bonuses, discounts, use of facilities, etc.-are usually fairly well defined upfront or at least defined as a set of choices. When you're an entrepreneur, the sky's the limit, at least within the law. The business can provide your benefits; if it is large enough, it can take advantage of group plans and rates. Good entrepreneurial personal finance means choosing the right combination of benefits to get you the most personally, while not compromising the business and while minimizing total taxes.

Retirement planning. "Retirement planning" means figuring out how much you need for retirement and how you will achieve that "number" or goal; "retirement plans" refer to the specific savings vehicles you use to move toward achieving that goal. The first is a matter of pure planning and number crunching; for the entrepreneur, it must include an exit strategy, a way out of the business. The second is really part of the "benefits" package-choosing the right retirement savings package to maximize savings and tax advantages for both you and your business. There are many choices, complex choices that depend on both the finances and the operations (specifically, number and type of employees) of the business.

Transition and distribution planning. Sooner or later, for financial or other personal reasons, every entrepreneur needs to figure out an exit strategy from the business. Needless to say also, sooner or later, we all die. In personal finance, estate planning concerns the preparation to transfer assets and decision-making authority to others. When a business is involved, the process is first more complex and second should usually start earlier. If something happens to you, what happens to the business? If something happens to one of your partners or key employees, what happens to the business? And what happens to your personal finances as a result of these events? Should you sell your business? When and why? How do you maximize your personal wealth as you close the doors? Again, many, many choices-all begging for careful planning.

_(c) YellowBrix 2009_

h4. Read More Sales & Marketing News

Test Your Business Idea

Paul Greenberg / Monster.com — Fri, 27 Feb 2009 15:08:00 -0800

Charlie Tyler had a surefire solution to many companies' problems -- or so he thought.

Determined to strike out on his own, this Baton Rouge, Louisiana, CPA saw businesses struggling with tracking and collecting their employees' attendance records. So he and a partner dove right in to become value-added resellers of software designed to streamline those functions. But Tyler's “can't-miss" solution missed -- big time.

“We went about six months and didn't sell much of anything,” he says. Fortunately, he and his partner still had other sources of income, so they went back to the drawing board.

As Tyler's story shows, even the best business ideas can fall short because of poor planning and a lack of testing the commercial waters. Follow these tips before jumping to invest in your idea:

h4. Find the Best Product

The next time Tyler attempted to start his own business, he focused on finding the right products. “The first time we were dealing with products that really were not far enough along in development, and we hadn't gone out there to find out the level of need among potential customers,” Tyler says. “You must spend time investigating what other products are out there and what it takes to become a value-added reseller of existing products.”

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The second time around, Tyler and his business partner determined their product “by knocking on a lot of doors and asking,” he says. They found that “the cornerstone of a lot of security and automation products is a single card that could control several applications -- building access, attendance and even a photo ID.”

h4. Test Your Product

Once you've chosen your product, research its feasibility in a commercial context and then lay out a strategy that includes determining your competition, says Tony Martinez, director of the Louisiana State University Small Business Development Center. “Who is the consumer who would use your product? What is the potential market for it? What are the trends in the related industry?” are questions Martinez says you should look to answer.

"Talk to users of similar products,” suggests Tyler. “Ask why they are happy with the product they are using and how they would improve it.”

According to Martinez, your research must also identify your competitive advantage. “Ask yourself: What expertise do you have that qualifies you to enter this business?” he says.

h4. Market Your Product

“Write a business plan that starts with marketing,” Martinez says.

Tyler agrees. “You can have the greatest product in the world, but if you don't figure out how to get it to the marketplace first, it goes nowhere,” he says.

h4. Get Outside Help

To further develop his business plan, research the market and systematically get the business up and running, Tyler turned to a business incubator, the Louisiana Business and Technology Center.

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Incubators make it possible for budding businesses to obtain essential startup services they otherwise would not be able to afford. Within the incubator, Tyler's company, Time Solutions Inc., had a phone answering service, a conference room, office space, mail service, a computer network, fax and telephone service -- all at reduced rates.

h4. Consider Gaining Experience First

Paul Dunn, PhD, director of entrepreneurship studies at the University of Louisiana at Monroe, counsels his potential business owners to go to work for someone else in their chosen business before starting their own. Learning the field from the inside out often helps prospective business owners determine the viability of their intended product or service.

h4. Take Your Time

Rushing is the deal killer. “Entrepreneurs are often in a hurry, afraid someone's going to do it before they do, so they jump in and shoot without researching the implications of their idea,” Dunn says.

h4. Love Your Product

Finally, it is important that you follow your gut when deciding whether to invest in your business idea. “You better be sure you like what you're doing,” says Tyler. “There's no use in testing the waters if you don't love what you're doing.”

Buying A Franchise FAQs

SBA.gov — Wed, 25 Feb 2009 17:31:00 -0800

h4. Why should I purchase this particular franchise?

A franchise may need to be looked at from a product or service comparison prospective. While one franchise’s product or service may be suitable in a geographic area, another may not be. When evaluating a franchise, close attention needs to be spent evaluating: the strength of the franchiser, the franchiser’s long-term goal, the uniqueness of its product or service, the type of consumer response the product or service is achieving, the amount of fees it charges, the type of support it provides: 1) startup 2) operations 3) marketing, and the length of the contract you will be signing.

h4. Does the franchise agreement contain a duty of good faith and fair dealing provision?

A duty of good faith and fair dealing provision allows the franchiser and the franchisee to work together in a good faith manner and puts into place a duty to act honestly with each other and observe standards in fair dealing. This provides a degree of protection from false statements and empty promises.

h4. Does the franchise company offer an area of protection (AOP) in writing?

Exclusive Territory means that the franchiser and/or another franchisee will not compete for the same business within the same geographic area; a related issue is encroachment. Is the franchiser limited from placing or licensing another business in unreasonable proximity to an existing franchisee that is engaged in a similar franchise business?

h4. What does it cost to get out of the Agreement?

Many franchise agreements require enormous liquidated damages exceeding several hundred thousand dollars if you try to exit the system before the term expires. Try to minimize your damages in the event you have to exit the system.

h4. Can I sell my business and allow the franchise to be transferred?

There may come a time during your franchise that you would like to sell out to another party. Most agreements limit or outright prohibit a transfer of your franchise to another person or company. Request a provision allowing you to transfer your rights under the franchise agreement as long as the interested party is creditworthy and capable of taking over the business.

h4. Does your franchise limit or restrict the franchisee from joining a Trade Franchisee Association?

Some franchise agreements restrict a franchisee from joining an Independent Trade Association formed by other franchisees like you. These associations are created for the purpose of protecting franchisees' interests and rights and allow franchisees to state a unified voice on concerns and issues.

h4. Does the franchise company restrict you from competing after the franchisee/franchiser relationship ends?

Some franchise agreements restrict a franchise owner or his/her business from competing within the same industry upon leaving the system. A franchisee should not agree to any restrictions that are not directly related to the same place and type of business.

h4. Does the franchiser provide accountability for the advertising marketing fund?

Franchisees within a system frequently pool their money for general advertising and marketing purposes or to handle bookkeeping functions. Some franchisers use these funds at their own discretion, even for purposes not associated with marketing & advertising, without providing a full disclosure of accounting to its franchisee. Requesting audited statements for these fund will disclose where your money is spent.

h4. Does the franchise allow a cure period in the event of a default?

In some franchise systems, when a franchisee fails to comply with system standards the franchiser has the immediate right to terminate the franchisee and demand liquidated damages. However, some franchisers allows the franchisee to cure the default within a period of time (for instance, 30 days) so the franchisee can comply within the required standards. If the default is not cured within the allocated time, the franchisee then may be terminated.

h4. Does the franchiser require me to sign a General Release upon the end of our relationship?

Whether it be a voluntary or default termination, many franchisers require a General Release Agreement to be signed by the franchisee when the relationship ends. While there may be nothing wrong with signing such an agreement, these agreements tend to be one-sided and in the favor of franchisers. They allow the franchiser to be released from any known or unknown obligations and liabilities, yet the franchisee may continue to be responsible for certain obligations and potential liabilities even after the relationship ends. Make sure the release is mutually applicable to both parties.

Buy a Business

SBA.gov — Wed, 25 Feb 2009 17:30:00 -0800

h4. Buying a Business

Many find the idea of running a small business appealing, but lose their motivation after dealing with business plans, investors, and legal issues associated with new startups. For those disheartened by such risky undertakings, buying an existing business is often a simpler and safer alternative.

h4. Advantages

The main reason to buy an existing business is the drastic reduction in startup costs of time, money, and energy. In addition, cash flow may start immediately thanks to existing inventory and receivables. Other benefits include preexisting customer goodwill and easier financing opportunities, if the business has a positive track record.

h4. Disadvantages

The biggest block to buying a small business outright is the initial purchasing cost. As the business concept, customer base, brands, and other fundamental work have already been done, the financial costs of acquiring an existing business is usually greater then starting one from nothing. Other possible disadvantages include hidden problems associated with the business and receivables that are valued at the time of purchase, but later turn out to be noncollectable. Good research is the key to avoiding these problems.

Business Financing Basics

SBA.gov — Wed, 25 Feb 2009 16:53:00 -0800

Before seeking financial assistance, ask yourself the following:

• Do you need more capital or can you manage existing cash flow more effectively?

• How do you define your need?

Do you need money to expand or as a cushion against risk? How urgent is your need? You can obtain the best terms when you anticipate your needs rather than looking for money under pressure.

• How great are your risks?

All businesses carry risks, and the degree of risk will affect cost and available financing alternatives.

• In what state of development is the business?

Needs are most critical during transitional stages.

• For what purposes will the capital be used?

Any lender will require that capital be requested for very specific needs.

• What is the state of your industry?

Depressed, stable, or growth conditions require different approaches to money needs and sources. Businesses that prosper while others are in decline will often receive better funding terms.

• Is your business seasonal or cyclical?

Seasonal needs for financing generally are short term. Loans advanced for cyclical industries such as construction are designed to support a business through depressed periods.

• How strong is your management team?

Management is the most important element assessed by money sources.

• Perhaps most importantly, how does your need for financing mesh with your business plan?

If you don't have a business plan, make writing one your first priority. All capital sources will want to see your business plan for the start-up and growth of your business.

h4. Not All Money Is the Same

There are two types of financing: equity and debt financing. When looking for money, you must consider your company's debt-to-equity ratio - the relation between dollars you've borrowed and dollars you've invested in your business. The more money owners have invested in their business, the easier it is to attract financing.

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If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, experts advise that you should increase your ownership capital (equity investment) for additional funds. That way you won't be over-leveraged to the point of jeopardizing your company's survival.

h4. Equity Financing

Most small or growth-stage businesses use limited equity financing. As with debt financing, additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions. Most specialize in one or a few closely related industries. The high-tech industry of California's Silicon Valley is a well-known example of capitalist investing.

Venture capitalists are often seen as deep-pocketed financial gurus looking for start-ups in which to invest their money, but they most often prefer three-to-five-year old companies with the potential to become major regional or national concerns and return higher-than-average profits to their shareholders. Venture capitalists may scrutinize thousands of potential investments annually, but only invest in a handful. The possibility of a public stock offering is critical to venture capitalists. Quality management, a competitive or innovative advantage, and industry growth are also major concerns.

Different venture capitalists have different approaches to management of the business in which they invest. They generally prefer to influence a business passively, but will react when a business does not perform as expected and may insist on changes in management or strategy. Relinquishing some of the decision-making and some of the potential for profits are the main disadvantages of equity financing.

h4. Debt Financing

There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. State and local governments have developed many programs in recent years to encourage the growth of small businesses in recognition of their positive effects on the economy. Family members, friends, and former associates are all potential sources, especially when capital requirements are smaller.

Traditionally, banks have been the major source of small business funding. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Banks generally have been reluctant to offer long-term loans to small firms. The SBA guaranteed lending program encourages banks and non-bank lenders to make long-term loans to small firms by reducing their risk and leveraging the funds they have available. The SBA's programs have been an integral part of the success stories of thousands of firms nationally.

In addition to equity considerations, lenders commonly require the borrower's personal guarantees in case of default. This ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business. For most borrowers this is a burden, but also a necessity

Breakeven Analysis

SBA.gov — Wed, 25 Feb 2009 16:53:00 -0800

Breakeven analysis is a tool used to determine when a business will be able to cover all its expenses and begin to make a profit. For the startup business, it is extremely important to know your startup costs, which provide you with the information you need to generate enough sales revenue to pay the ongoing expenses related to running your business.

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A startup business owner must understand that $5,000 of product sales will not cover $5,000 in monthly overhead expenses. The cost of selling $5,000 in retail goods could easily be $3,000 at the wholesale price, so the $5,000 in sales revenue only provides $2,000 in gross profit. The breakeven point is reached when revenue equals all business costs.

To calculate your breakeven point, you will need to identify your fixed and variable costs.

Fixed costs are expenses that do not vary with sales volume, such as rent and administrative salaries. These expenses must be paid regardless of sales, and are often referred to as overhead costs.

Variable costs fluctuate directly with sales volume, such as purchasing inventory, shipping, and manufacturing a product.

The formula for determining your breakeven point requires no more than simple arithmetic.

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How Do I Raise Money for a Business?

How to Create a Business Development Strategy

Forms of Ownership

Business Incorporation

Tips for Choosing a Business Location

Do You Have What It Takes?

Answering the Knock of a Business 'Opp'

Buying a Franchise: A Consumer Guide

Don't Fall Victim to the Triangle of Entrepreneurial Finance

Test Your Business Idea

Buying A Franchise FAQs

Buy a Business

Business Financing Basics

Breakeven Analysis

Direct Sales
Face-to-Face is Key

Service Companies
Busy Lives Lead to Opportunities

Internet-Based
E-Commerce is Growing Fast

Existing Businesses
Sometimes Franchising Is Best

Retailing
Beware of Start-Up Shockers

Products
Creating Your Own Merchandise