It's great that you've decided to start a business! Now you must learn how to effectively manage it. As evidenced by the numerous business that fold in their very first year of operation, starting a business is what one might call "the easy part""not that it is all that easy. A business is an organic, animate thing"it waxes and wanes and changes and plateaus and goes and goes until you are prepared to stop it. More importantly, it doesn't run itself. Not really. It needs good managers who will set goals and determine how exactly to reach them. It requires not just the selling of a product or service"but the purchasing of the materials or employees needed to do so, the marketing to bring in the customers, and the proper pricing to make you a profit and give the public what they need for at a fair rate. A successfully run business mandates properly kept records and savvy business decisions as well as a pool of employees that is hardworking, knowledgeable, well trained and highly motivated.
All businesses have objectives, and just like our personal lives, our businesses must have set goals to go after. Set goals for yourself as the owner or manager as well as for the company itself"and for its employees. Be specific. Write down your goals in measurable terms of performance. Break major goals down into sub-goals, illustrating what you expect to achieve in the next two to three months, the next six months, the next year, the next five years. Use specific dates. Be reasonable, but don't be afraid to be a little ambitious. Just remember that you will need to get your supervisors, partners, creditors, employees and customers on board. Not everyone will be apprised of each individual goal, but people will need to understand what your business stands for and in which general direction it is headed.
Goals are useless, however, without a plan the action. The efforts needed for each sub-goal should be challenging (in the best sense of the word) but not impossible or unreasonable. Setting impossible goals will not necessarily ultimately cripple your business"you can always revise and rewrite them"but doing so can discourage you and those you depend on to help you achieve them. Do not bite off more than you and your company can chew, so to speak"especially not all at once. Prioritize your goals.
Also plan in advance how you will measure results; you'll want to know exactly how you are doing, but you should understand from the get-go how you'll determine just how well you are doing. For this you'll also need to establish your particular definition of success.
Skillful buying is essential for profitable operations. This is true for wholesalers, retailers, manufacturers and service business operators. Merchandise that is carefully, wisely and fairly purchased is easiest to sell.
When buying your merchandise, equipment, materials, etc., there is much to consider: type, kind, quality, brand, size, color, style, accessibility, cost, availability, transportation, supply and demand. Regardless of whether these items will be the final product your customers see or will become part of the finished product in some way, they will in some way represent your company"and thereby represent you. What will sell the best? What will make you most proud of your company? What can you afford?
Consider your options from not only your own viewpoint, but from the viewpoints of your creditors, partners, managers, employees (particularly salespeople), customers and community. Study sales records, study your competition, and avail yourself of the many resources open to you. What qualities or attributes are most important to your customers or potential customers"price, accessibility, quality, style… what?
Locating suitable merchandise sources is not always easy. You may buy directly from manufacturers or producers, from wholesalers, distributors or jobbers. Select the suppliers who sell what you need and can deliver it when you need it"and suppliers who are respected, trustworthy, consistent, fair and reliable.
You may spread purchases among many suppliers to gain more favorable prices and promotional material. Or you may concentrate your purchases among a small number of suppliers to simplify your credit problems. This will also help you become known as the seller of a certain brand or line of merchandise, and to maintain a fixed standard in your products, if you are buying materials for manufacturing purposes. Don't let your eyes get bigger than your company's proverbial stomach. Establish exactly what materials you need and what materials you can afford and start small if you need to. Establishing good relationships with suppliers who can depend on you to pay them in full in a timely fashion is just as important as finding suppliers in the first place.
Consider market trends and expert predictions as well as seasons and other external and internal factors that regularly affect sales. When to buy is particularly important for companies that fluctuate with the seasons or experience more erratic sales. You may need to stock up for certain periods. Perhaps the very nature of your product or service demands that you keep up with the "latest and greatest" products and trends or stock your store with fresh merchandise on a daily, weekly or monthly basis. As sales decline, less merchandise is needed.
At the outset, how much to buy is speculative. The best policy is to be frugal until you have had enough experience to judge your particular needs. On the other hand, you cannot sell merchandise if you do not have it.
To help avoid or solve buying problems, you should begin to keep stock control records at once. This will help you keep the stock in balance and ensure you have what you need when you need it, but don't have excess that is costing you money rather than making you money.
Fundamentally, there are two types of stock control"control in dollars and control in physical units. Dollar controls show the amount of money invested in each merchandise category. Unit controls indicate the number of individual items, by category, as well as when and from whom they were purchased.
Much of your success in business will depend on how you price your products and services. If your prices are too low, you will not cover expenses; too high, and you will lose sales volume. Either way, don't expect a profit.
Before opening your business, you must decide upon the general price level you expect to maintain. What is your product or service and who is your target consumer base? Will you cater to an affluent demographic with higher quality products and tailored services, or will your customers consist of those who buy in lower price ranges? Your choice of location, establishment appearance, quality of goods handled and services to be offered will all depend on the customers you hope to attract"so will your prices.
Next, you'll need to price individual items. As a rule, the price of an item must cover the cost of the item itself as well as all other associated costs (transportation of items, salespeople, and so on)"plus a profit. In a business that sells few items or services, your pricing job is less complex. To allocate costs and determine markups for a wide variety of items, you might need to employ the services of an astute accountant. In retail operations, goods are often marked up by up to over 100 percent just to earn a 5- or 10-percent profit!
To gauge industry markup norms for your products or services, you should be able to contact various wholesalers, distributors, trade associations and business research companies who publish a wide variety of ratios and business statistics. They are useful as guidelines. Another ratio (in addition to the markup percentage) important to small businesses is the Gross Margin Percentage (GMP).
The GMP is similar to your markup percentage but whereas markup refers to the percent above the cost to you that you use to set the selling price, the GMP shows the relationship between sales revenues minus the cost of the item"which is your gross margin"and your sales revenues. The GMP indicates that your markup bears a certain relationship to your sales revenues. The markup percentage and the GMP are essentially the same formula, with the markup referring to individual item pricing and GMP referring to the item prices times the number of items sold (volume). These formulas apply to the pricing of merchandise or services for all types of companies.
Bear in mind that not all items are marked up by the average markup. Luxury articles will take more, staples less. For instance, increased sales volume from a lower-than-average markup on a certain item"a "loss leader""may bring a higher gross profit, unless the price is lowered too much.
Sometimes selling certain items or services at a lower markup"sometimes just a temporary one"increases store traffic, which could thereby increase sales. This is helpful for generating a good number of new customers or contracts. Competitors' prices will also govern your prices. You cannot sell a product if your competitor is greatly underselling you, granted their product or service is relatively equal in quality, style, demand, etc. These and other reasons may cause you to vary your markup among items and services. There is no magic formula that will work on every product or every service all of the time, but average markups are, in general, helpful.
Regardless of your type of business, you will be in the business of sales"you will be selling something. And having a good product or service is not enough"you must be savvy in your sales and marketing techniques.
First you must, of course, be confident in your product or service. Next, you must instill that confidence in those working for you"especially in those who have direct contact with customers. Now you must spread that confidence to customers. Direct selling methods include personal sales efforts, advertising and, for many businesses, displays"including the packaging and styling of the product itself. Establishing a good reputation with the general public through courtesy and special services is an indirect method of selling. While the latter should never be neglected, let's concentrate for a moment on direct selling methods.
Aggressive personal selling is essential"just don't confuse aggressive with offensive or pushy. You may have to overcome some well-established competition, public opinion, or the novelty of your product or service. If you are not a good salesperson, seek employees and associates who are. Quality customer service at the hands of employees who are friendly, polite, considerate, confident and knowledgeable is vital to sales, even if your company is online and you and your employees have no actual face time with customers.
Do not underestimate the value of smart advertising practices, and do not leave it out of your budget. When sales are down, advertising should not be cut"it's what gets customers to set foot in your establishment. There is an assortment of marketing methods available, and they range in effectiveness and cost. Not every advertising method is the best fit for your company, but in order to determine which work best for you, you must find a way to accurately gauge each method's effectiveness"and you must give each method enough time to work. Methods include print (magazines, newspapers, etc.), billboards, radio and television spots, fliers, and other traditional means, but now we have the benefit of technology such as the Internet. Online directories, publications, listings, bulletins, ads, banners, links, tags and so forth are wonderful means of advertising. The media you select will be determined by the customers you wish to reach, the products or services you sell, the cost, and the availability in your area. Prepare and monitor advertising with the help of those who know what they're doing, and do so carefully. Work out a budget and stick to it, then increase, reduce or alter it as necessary.
The appearance of your store, factory, product, employees, displays, and Web sites comprise an advertisement of their own. If what you have, what it's in and who is selling it doesn't look good, people won't take a closer look.
Do you want to be successful? Keep adequate records! Study after study show that many failures can be attributed to inadequate records or the owner's failure to use what information was available to him or her. Without records, how do you expect to keep track of your profits, your sales, your stock, or your overall success? Up-to-date records may forecast impending disaster or back you up with agencies that audit or require an account of your transactions. It may seem like a little extra work, but good records save you work and time as well as stress in the long run.
If you are not prepared or trained in keeping sufficient company records, hire someone who is. At a minimum, records are needed to substantiate:
- Your returns under tax laws, including income tax and social security laws;
- Your request for credit from equipment manufacturers or a loan from a bank;
- Your claims about the business, should you wish to sell it.
Most importantly, however, you need them in order to run your business successfully and increase your profits. With a simple bookkeeping system you can answer such questions as:
- How much business am I doing?
- What are my expenses? Which appear too high? What is my gross profit margin? My net profit?
- What is the condition of my working capital?
- How much cash do I have on hand? How much in the bank? How much do I owe my suppliers?
- What is my net worth? That is, what is the value of my ownership of the business?
- What are the trends in my receipts, expenses, profits, and net worth? Is my financial position improving or growing worse? How do my assets compare with what I owe?
- What is the percentage of return on my investment?
- How many cents out of each dollar of sales comprise net profit?
You can answer these and other questions by preparing and studying balance sheets and profit-and-loss statements. To do this, record information about transactions as they occur and keep this data in a detailed and organized fashion.
The kind of records you keep and how many you need will depend on your particular operation. You may need only a few. As a matter of fact, you should not maintain a record without answering these three questions: How will this record be used? How important is the information likely to be? Is the information available elsewhere in an equally accessible form?
For efficient business operation, use information from records to keep inventory stock in line with sales, to watch trends, and for tax purposes. Use records to plan. A well thought-out business plan as a guide will strengthen your chances for success.
Work up a budget, which helps in determining just how much increase in profit is reasonably within your reach. A budget will answer such questions as: What sales will be needed to achieve my desired profit? What fixed expenses will be necessary to support these sales? What variable expenses will be incurred? A budget enables you to set a goal and determine what to do in order to reach it.
Compare your budget periodically with actual operations figures. With effective records, you can do this! Where discrepancies show up you can take corrective action before it is too late.
Hiring a bookkeeper or an accountant to handle the record keeping for you might be a good idea, but remember to:
Provide the accountant with accurate input. If you don't record it, the accountant won't know about it and certainly cannot enter it. The records the accountant prepares will be no better than the information you provide.
Use the records to make decisions. If an accountant tells you your sales are down this year, don't hide your head in the sand and pretend the problem will go away. It won't.
If your business will be large enough to require outside help, an important responsibility will be the selection and training of employees. Careful selection of personnel is essential.
First you must determine your company needs. What needs to be done? Furthermore, what skills, talents, education, training or experience is needed to get it done? How long will it take? How many people will be needed to ensure the completion of each task? Determine job positions, descriptions, qualifications, salaries, benefits, incentives, and so forth based on your company's needs and financial situation.
Next, seek out applicants to fill these particular needs. In a small business you will likely need flexible employees who can shift from task to task as required. Include this in the description of the jobs you wish to fill. At the same time, look ahead and plan your hiring to assure an organization of individuals capable of performing every essential function.
Recommendations from those you know are sometimes helpful, as it is hoped that people would not suggest those who would easily fail at the job or be irresponsible, but assess these applicants objectively, just as would any other candidate. Placing ads in respectable papers and Web sites are another means of finding potential employees; perhaps you will have a section on your own company Web site for those interested in working for your company. Employment agencies, schools, trade and industrial associations, networking contacts, job fairs and help wanted signs are other popular methods. Depending on your business and your renown"and the job market"you may have applicants (both qualified and unqualified) contacting you.
You'll need to properly screen applicants. If you use an application, whether online or a physical form, you may be able to eliminate unqualified candidates using it. Interviews are a great way to further screen candidates whose applications seemed sufficient. Selecting the right person is extremely important. Ask your questions carefully to find out everything about the applicant that is pertinent to the job. References are a must, and should be checked before making a final decision.
Lastly, be certain that the candidates you select understand the responsibilities and tasks of the job position. It is important that your employees know what is expected of them, and knowing and understanding expectations from the outset can save you time and money you'd have wasted training a candidate who wouldn't want or feel up to the job in question.
A well-selected employee is only a potential asset to your business. Whether or not he or she becomes a real asset depends upon your training. You must allow sufficient time for proper training, and be aware of what you can reasonably expect from each individual candidate as well as what you can expect in general. At least a portion of the training should allow for the employee to learn by performing under actual working conditions"with supervision, of course. And follow-ups on training is necessary"it's the start of a great, open line of communication as well as a means of analyzing an employee's potential and performance in addition to the effectiveness of your particular training program.
Training is a continuous process that turns into constructive supervision, and training should be utilized not only for new hires, but to keep current employees up to date.
Supervision is the third essential of personnel control. Good supervision will reduce the cost of operating your business by cutting down on the number of employee errors. If errors are corrected early, employees will get more satisfaction from their jobs and perform better.
Small businesses sometimes face special problems in motivating employees. In a large company, a good employee can see an opportunity to advance into management. In a small company, you are the management. Evaluate the benefits of working for your company and highlight these, then evaluate your individual employees' motivations and establish perks and incentives that you can afford but that they can also appreciate. Give employees a share of the profits through part-ownership, set up a system of promotion, raises, benefit packages, working environment improvements, etc. And help to establish a mutual respect for each other and for the business, as employees are more apt to work harder to sell a product or service they can believe in and be proud of.