Tips
for a Successful Small Business
Write a business plan, any business plan
You have a passion, and you'd
like to make it your profession. No matter how enthusiastic you are about your
small business, though, it won't be successful unless you have a plan in place for how you're going
to start and run it.
It doesn't matter how long or
detailed your plan is, as long as it covers a few essential points. Most
successful small businesses will need to have a break-even
analysis, a profit-loss forecast and a cash-flow analysis. A
cash-flow analysis is especially important since you could be selling your
products like hotcakes, but if you won't be paid for six months, you could
still run out of money and have to close your doors.
A business plan is essential
because it allows you to experiment with the strategy for your business on
paper, before you start playing for keeps.
Determine how you'll make a profit
Profit is, after all, the
ultimate goal of any successful small business. You should examine your
business' expenses (rent, materials, employee compensation, etc.) and then
figure out how much you will need to sell to cover those costs and start
generating a profit. This is known as a break-even analysis.
Start with as much of your own money as possible
Many small business owners cover their start-up costs entirely
through loans, with the expectation that they will begin paying back the loans
with the profits from their new business. New businesses can take months or
years to generate a profit, however, and loan payments can really become a millstone around the neck of a fledgling operation.
If you can save up as much of the
start-up capital yourself before you open your doors, you will help ensure that
loans won't sink your new business. Remember, also, that there's an outside
chance that a lender will call a loan or add unfavorable terms if your business
isn't as successful as you initially planned. If you provide as much of the start-up
money as possible, it will lessen the odds of a nasty surprise like this
hindering your business.
Protect yourself
Most
small businesses are sole proprietorships or partnerships. While these types of
businesses are nice and easy to form, they also expose their owners to
liability for business debts and judgments. Creditors and judgment holders can
come after the owners' personal assets, like savings accounts and homes, once
the business' money is depleted.
While insurance can
reduce this liability somewhat, it's worth it to consider forming a corporation or limited
liability corporation (LLC). These business structures will shield
owners from personal liability, but there are more rules and requirements
associated with them.
Start small
Everyone
wants their small business to be successful, with multiple locations, lots of
employees and loads of revenue, but you have to learn to walk before you can
run. Don't spread yourself too thin or take on too many expenses at the
beginning, especially if your income might take a while to catch up to your
ambitions.
By
starting small, you ensure that you can survive the inevitable hiccups
associated with running a small business. Those entrepreneurs who begin with
modest operations can recover and learn from their mistakes without taking on a
lot of debt. Starting small will help your small business grow into a
successful enterprise.
Get it in writing
While it's nice to do business with a handshake, there's no substitute for a well-written contract. Indeed, many
contracts are not valid unless they are in written form. The exact number of
this type of contract varies between states, but here are a few common
examples:
·
Sales
of goods worth more than $500
·
Contracts
lasting more than a year
·
A
transfer of ownership in copyrights or real estate
While
contracts can be valid when orally made, they are much harder to prove and
enforce. Make sure you get all agreements in writing -- it will save you
headaches down the line, and could even save your business.
Keep your edge
There
are many ways to gain a competitive edge over other businesses in your
industry: you could have a better product, more efficient manufacturing or
distribution process, a more convenient location, better customer service, or a
better understanding of the changing marketplace.
The
best way to hold onto your competitive edge is to protect your trade secrets. A trade secret is that
information that isn't known to others that gives you a competitive advantage
in the market. There are many kinds of trade secrets, and trade secrets receive
legal protection as long as their owners take steps to keep them secret. Those
steps could be anything from marking confidential documents to requiring
partners and employees to sign nondisclosure agreements.
Another
way to hold onto your competitive edge is to stay proactive. If you know that
your business is going to face challenges or encroachment by a competitor,
don't wait to react -- plan ahead and you'll stay ahead.
Hire the right people
Don't
just hire the first person to come along with the basic qualifications you
need. Look for someone with motivation,
creativity and the right kind of personality to make it in your industry and
fit in with your business. Then, once you've found that person, treat them
well, engage them and make sure that you create the environment that they will
thrive and give their all in.
Make sure you create the right kind of employee relationship
Lots
of businesses try to save money by hiring people as independent contractors rather
than full-time employees. The IRS will impose large penalties on businesses
that do not withhold and pay taxes for workers that it considers full-time
employees rather than independent contractors. Here are some things the IRS
will look at to determine whether a worker is an independent contractor or a
full-time employee:
·
The worker performs tasks that are essential for your business
·
The worker only works for your business
·
The worker works 40 hours a week, or nearly 40 hours
·
The worker receives instructions and training from you, and you exercise control
over how the worker does their job
Also
be sure to create an "at-will" relationship with your
employees. Employers can terminate at-will employees for any reason, which is
essential if an employee isn't working out. There are many ways to make it
clear that the employment relationship is at-will, including in employee
handbooks and through offer letters. Don't make any promises to employees about
the length or terms of their employment, as these could become binding on you
later.
Pay your bills and taxes on time
It
should go without saying, but it's important to pay what you owe -- especially
when dealing with the IRS. The IRS can impose harsh
penalties and even come after a business owner's personal assets if the owner
doesn't remit payroll taxes on time.
It's
also important to pay your regular debts in a timely fashion. If
you get a reputation for stalling on a debt, you could find it difficult to
form business relationships in the future. Plus, if you stay current on your
debts and pay them as you incur them, it will help you avoid being overwhelmed
by cash flow problems if several debts come due simultaneously.
Get Your Business Off to a Strong Start: Talk to an Attorney
It
should go without saying that entrepreneurs wear many hats -- but
"attorney" shouldn't be one of them. While you will have to get
acquainted with the laws and regulations that will impact your business,
sometimes it's important to leave the details to the professionals. Give your
business the best chance at success: contact a small business attorney in
your area for help.
