Some new members wrote and asked how to start a retail business. I get these similar questions regularly, and often they are from companies who are in business and want to expand. This became more pronounced over the past couple of years, as I helped grow business globally.
So, I decided a special report is in order. This is designed for the person who wants to either start a new business or needs ideas on how to grow an existing business. Yes, it does cover the basics, but often we need to get back to the basics to succeed -- like...
If you search Google for "success defined" you will find 1,880,000 places to visit. Success means different things to different people. As my kids are now beginning to learn, it is more important to enjoy what you do, than making a lot of money. My definition is:
So what does it take to become successful in business? How do you got about
starting your own business?
Let's approach this in a question and answer forum:
1. Whom in business do you admire?
You need to have somebody who inspires you. Is it your father? A famous successful person? Somebody who overcame adversities to succeed? Think about some of the more successful people and learn what made them successful.
2. What do I need to succeed in a business?
First question to ask is "Are you afraid to fail?" Failure is often the key to success. R.H. Macy, H.J. Heinz, and George Westinghouse all stumbled, and, had they not picked themselves up by the bootstraps, we would not know these famous companies that bear their name. Have I ever failed? Oh yes. If you don't move on you are a failure.
Generally speaking there are four basics of success in business:
a. Sound management practices.
b. Industry experience.
c. Technical support.
d. Planning ability.
Few people have all of these traits. So, what do we do? Find resources - business partners, partners, or key employees to compensate for what you lack.
3. Do you have what it takes to own/manage a small business?
You need to do an objective personal evaluation of your strengths and weaknesses. Get some help from family and friends. Too often we are set on doing something, and our "objectiveness" is slanted. Ask yourself: Are you a self starter? Do you get along with people? Can you make decisions? Do you have the physical and emotional stamina to run a business? Can you plan and organize both long- and short-term? How will the business affect my family?
4. How do I go about starting a business?
First you need to determine which is the best business for you. What are your strengths and how can you apply them to a business? Once you decide on a business, you should consult local experts and business persons about the growth potential of various businesses in your area. Matching your background with the local market will increase your chance of success. For example, if you are starting a gift store in your local town, is there a need for such a store? What is the foot traffic? When do people shop in town? How are other businesses doing? I like to relate starting a business to the time it takes for one to travel to work - it depends on whether you are buying or selling the house!
Time and effort devoted to selecting where to locate your business can mean the difference between success and failure. The kind of business you are in, the potential market, availability of employees and the number of competitive establishments all determine where you should put your business. And, yes you can work from home. Experts estimate that as many as 20 percent of new small business enterprises are operated out of the owner's home.
I did a lot of public speaking at local Chambers of Commerce and the retailers all had the same story: Not enough foot traffic; town government doesn't help them; malls kill them. Yet, when I ask what they do to improve their lot, all they seem to do is grumble! One guy took out a half-page ad for a particular collectors item. A shopper drove 20 miles to his store one Thursday evening, only to find he was closed! So, the guy up the street got the $300 sale for something else.
If folks work during the day, perhaps you need to open from noon to 9:00; or if you are in a commuting city like NYC, perhaps it should be from 7:00 AM to 5:00 PM
5. Do I need a business plan and how do I create one and when?
Yes. The main question you need to ask is "What business am I really in?" Too many people try many different things hoping something will stick. The better approach is to establish one focus and create your business plan based on that focus, i.e., a giftware retailer, a software house, an advertising agency.
A business plan defines your business, identifies your goals and serves as your company's road map. The business should be divided into four distinct sections: 1) the description of the business, 2) the marketing plan, 3) the financial management plan and 4) the management plan. You should have a two page summary of the business, and a detailed 20-30 page plan, complete with supporting documents, i.e.,the executive summary, supporting documents and financial projections. A business plan helps you allocate resources properly, handle unforeseen complications, and make the right decisions. And it will help you obtain the necessary financing to operate.
6. How do I fund my business?
You need to determine what it will cost to start and operate a business. Identify one-time capital expenditures, i.e., building and equipment, then identify cash outlay (i.e., operating expenses, loan payments, etc) for one year. One of the leading causes of business failure is insufficient start-up capital. Consequently, you should work closely with your accountant to estimate your cash flow needs.
Once you decide what it will take to fund your business, you now need to find the financing. Don't be fooled into thinking you need one year's funding in the bank before you start. Cash flow is important - the money coming in vs going out. There are many ways to find funds to successfully finance a business:
a. Your savings.
b. Family and friends
c. Borrowing against assets, i.e., home equity loan.
d. Banks and finance companies
e. Small Business Association loans
f. Credit card advances
i. Venture Capitalists
j. Government grants and assistance
Obviously, some are more dangerous than others, but they will provide funds. A friend of mine started two very successful businesses with credit card advances. He had 20 or so cards, each with $5,000 credit limit, which gave him a line of credit of $100,000. So he took cash advances and funded. Home equity loans can work, but if the business fails, you can risk losing your home.
Risking your own money gives other confidence to invest in your business. Often outside investors will want to know how much you have in the business.
You can also use other peoples money. Perhaps your supplier will give you favorable terms - 120 days - to pay for merchandise, which means you could sell before you have to pay. And don't forget leasing for capital equipment - why tie up precious capital.
7. Can I get a loan and what do I need?
Anybody can get a loan. The cost of the loan may be high, but you can get one. The lender will ask three questions:
a. How much do you want?
b. How will you use the loan?
c. How will you repay the loan?
You will need to provide projected financial statements and a cohesive, clear business plan as identified above. A clear description of your experience and management capabilities, as well as the expertise of other key personnel, will also be needed.
8. What are the legal issues that I need to consider?
Your local chamber of commerce will provide you with general information, but you will need to consult your attorney for advice specific to your enterprise and area. You will need advice on licenses required, zoning laws and other regulations, which vary from business to business, from state to state and from country to country. You also must decide about on your form of organization (corporation, limited liability corporation, partnership or sole proprietorship) and your tax status (e.g., should you opt for a Subchapter S status?).
If you have some business experience you can always form your own organization. Sole proprietorships are the easiest and usually means filing with your local county or town. Partnerships usually mean a partnership agreement, which you can often find online, or can obtain from your attorney. LLCs and corporations can also be done yourself. I use The Company Corporation and have filed many corporations and LLCs through them. They act as a registered agent, even if you don't live in a particular state, i.e., you live in NY and want to register a corporation in Delaware or Nevada.
Be absolutely sure you have the licensing issues covered, as the fines can be steep for non-compliance. And, be sure you have any insurance or bonding issues covered, i.e., workmen's compensation, bonding for money transfer, etc.
9. Is technology important?
As my friends in the Minnesota say "u betcha!" Technology is the key to success in most, if not all businesses. It is especially critical in retailing where you can manage inventory, track sales, control costs and perfect customer satisfaction. Technology will provide information which leads to better return on investment and help offset intense competition.
Technology can include back end computers, warehouse control systems, point of sale (POS) systems, Web sites, EDI, telecommunications and hand-held computers. Technology was the most important factor in Wal-Mart's growth, and they had great technology early on.
Technology is no a cure-all, however, and considerable care should be given to which will give you the greatest return on investment for your business. Always try to buy a little more than you need to allow room for growth, and don't think you need the latest and greatest. In fact, many excellent POS systems still operate in the ancient DOS environment.
At the very least I would have a computer to control inventory, ring up sales and track customer purchases.
10. What do I need to know about accounting?
It is absolutely critical that you keep adequate records! You need to see how well your business is doing and where it is going. You need them to run your business successfully and to increase your profits. At a minimum, you need records to substantiate:
- Your tax returns under Federal and State laws, including income tax and Social Security laws;
- Your request for credit from vendors or a loan from a bank;
- Your claims about the business, should you wish to sell it.
The last one is a Catch 22, as many business owners report to reduce taxes, and then suffer when they want to show higher profits on a sale of the business.
You can obtain accounting help from outside sources. Your local CPA should provide you with ANALYSIS of your business and not merely bookkeeping. You can hire outside bookkeepers for 10% to 25% of what you may pay a CPA.
And you can obtain software that will handle your books which you can then give to your CPA in electronic form for him/her to produce financial statements.
You will need as a minimum:
- A General Ledger which is a detail record of all financial transactions which are organized in financial account number sequence.
- A balance sheet, which is a record of assets, liabilities and capital on a given date.
- Profit and Loss Statement, which is a summary of your income and expenses over a given period of time.
- Sources and Uses of Funds or Cash Flow Analysis which shows where your cash originates and where it goes. Cash rules! Without it, you are out of business.
11. What is involved in marketing?
Marketing encompasses much more than just advertising or selling.There are four basic aspects of marketing, often called the "four P's":
- Product: The item or service you sell.
- Price: The amount you charge for your product or service.
- Promote: The ways you inform your market as to who, what and where you are.
- Provide: The channels you use to take the product to the customer.
A major part of marketing involves researching your customers: What do they want? What can they afford? What do they think? Your understanding of your customers needs, and your solutions will play a major role in the success or failure of your business.
The principles of determining market share and market potential are the same for all geographic areas. First determine a customer profile (who) and the geographic size of the market (how many). This is the general market potential. Knowing the number and strength of your competitors (and then estimating the share of business you will take from them) will give you the market potential specific to your enterprise.
You must be creative with your advertising as it is one of the major influencers of your business' image. It must be well planned and well budgeted. Like anything else, interview local advertising agencies and select the one who fits best into your plans and budget. And DO NOT select an ad agency who brags about the awards they have won! Rather look at those who can tell you how effective their ads were for the client!
12. How do I find out about suppliers/manufacturers/ distributors?
Most suppliers want new accounts. however, they do want to be sure you can pay. A prime source for finding suppliers is the Thomas Register, which lists manufacturers by categories and geographic area. Check your local library, or online using Google or a similar search engine. Or use the resources we have on E-Tailer's Digest. Trade shows are an excellent source - you see the products and talk to the reps at the same time. It will save you untold hours of time.
Obviously, this list can go on and on, but this is a start. We have listed some resources at the end of this report.
About the author: George Matyjewicz is Managing Partner at GAP Enterprises, Ltd., a marketing and management "solutioning" firm and C.E.O. of Global Pay Systems, LLC a global, digital payment company with customers in 190 countries worldwide. He is also moderator of "E-Tailerís Digest," an Internet retail discussion forum which reaches 3,000 retailers worldwide plus 100,000 in print in Gifts & Decorative Accessories magazine. Mr. Matyjewicz was a partner at one of the top 20 CPA firms in the U.S. He is presently completing his doctoral studies in Global Marketing.
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