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2007

You probably already know that starting a small business requires extensive research and analysis of many factors. But the one requiring the most critical assessment is often overlooked by many entrepreneurs. And, it's as close as the nearest mirror.

 

That's because wanting to be an entrepreneur is one thing; being one is quite another. You will take on responsibilities and commitments far different from those of an employee, even if you have management experience. It's a challenge that can be exhilarating and rewarding. Unless you're prepared mentally and emotionally, however, it can also be overwhelming.

 

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Before you study financing options and plan store layouts, sit down and conduct a probing interview with yourself to see if you're the right person for the all important job of entrepreneur-owner-boss.

 

Are You a Self-Starter?
Nothing in business happens by itself. As the owner, you're responsible for everything from establishing your firm's vision to setting the daily work schedule. The fact that you're exploring small business ownership and asking questions is a good sign.

 

Are You a Positive Thinker?
The moment you become a business owner, you represent yourself, your business and your expectations for success. What you say and do must convey confidence and commitment to moving forward. Employees who sense these qualities will share that determination to succeed, even under difficult circumstances. If you work alone, there will be days when you have to be your own cheerleader.

 

Are You Disciplined?
Your days of the "9-to-5 routine" are over. Running a small business requires a continuous commitment to quality and detail. You cannot afford to cut corners, miss deadlines or make promises beyond your capabilities. If you plan to run the business from home, you must be able to resist temptations and distractions in order to get your work done.

 

Are You a Lifelong Learner?
Entrepreneurs who continually seek information, new ideas and sound advice have the best chance for success. Being attuned to market trends and issues makes it easier to adjust products and services to customers' needs and preferences. You're also in a better position to enhance your competitive advantage and efficiency, and address potential problems before they harm your business.

 

Can You Market Yourself and Your Business?
Some people have trouble with this one because of the negative (and often unfair) connotations associated with being a "salesperson." No business, no matter how good, will succeed without some kind of marketing. The good news is that promoting your business is easier than you may think as long as you know what to do and how to do it. After all, we all enjoy saying good things about ourselves. When you craft and tell your story in the right way, more people will be willing and eager to hear it.

 

Can You be Objective?
Your ideas and practices may seem "bulletproof," but reality may be far different. Is there really a need for a particular product or service in your area? Are the hours of operation fair to your employees? Is renting equipment better than owning it? A good business owner knows how to examine an issue from many perspectives and understand that strengths and limitations of each.

 

So how did your "candidate" for entrepreneur-owner-boss do? If every answer was a "yes," your small business dream is on its way to becoming a reality. For areas of concern, the solution may be business counseling, management courses, or a concerted effort to discard some unproductive habits in favor new ones.

 

Finally, make it a point to conduct regular self reviews. Thinking and approaches that worked in the start-up phase may not be as appropriate for a thriving concern, or if a major market shift occurs. When you work for yourself, you want to be confident the entrepreneur-owner-boss knows exactly what he or she is doing.

 


Brought to by SCORE "Counselors to America's Small Business" www.score.org

SBC Team

The 30 Second Commute

Posted by SBC Team Nov 9, 2007
Before you begin a home based business, make sure you're aware of the personal and professional challenges you'll be facing

Although late night commercials on television and unsolicited emails may tell you how easy it is to start your own home-based business, the reality is that you're likely to work as hard or harder at home than you did before you took the leap and went out on your own. The appeal of such independence is obvious: no boss, no commute, no office politics, greater freedom, and more time with your family. You may even be able to take a portion of your home expenses as a tax deduction since you are now using your house or a portion of it as an office. However, with all those benefits come dangers one rarely has to deal with when employed by someone else. Strictly speaking, working from home isn't for everyone.

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According to Millie Szerman, author of A View From The Tub: An Inspiring and Practical Guide to Working from Home (Stairwell Press), the question of whether to open up your own business depends entirely on the person. "Some people need the structure of an office to be happy and successful," Szerman explains, "while those of us who enjoy working independently will be happier on our own."

 

Dollars and Sense
Indeed, there are numerous factors to take into account when deciding whether or not to break away and start working out of your home. The first basic question is whether you can really afford to start your own business. Not only will you have to dip into a large portion of your personal savings in order to get your new company off the ground, but you may also have to go without a salary for at least a little while before you start making a profit. And don't expect to get free health and dental coverage anymore, either. Now insurance costs comes out of your own pocket. By the way, if you're looking forward to not counting up your vacation days, remember that when you run your own business there are no paid vacations and no one to run your business when you're away.

 

There are other matters to ponder. Are you motivated enough to maintain an efficient work style without a higher-up constantly checking up on you? Will you be able to work when your kids and other distractions are around and, on the flip side, can you stop working at night when your desk is only 40 feet away? And do you need the camaraderie of your fellow workers nearby?

 

Know the Law
Once you've decided that you are, in fact, able to work from home, a huge issue is to make sure you can legally operate out of your residence. Zoning laws may prohibit working out of your house, potentially halting your operation before it even gets going. Some believe that it is better to run your office secretly instead of taking the chance of being denied a permit, but Szerman advises honesty.

 

"The fines and penalties may be exorbitant if you keep it quiet, and then someone discovers what you're doing," she warns. "You can do your research first, to be sure that there are no zoning restrictions, without letting on exactly what you're doing. Do your homework before you begin, and you'll never have to worry about getting caught."

 

Consider the Setup
Once this sizable hurdle is crossed, you can finally start setting up your office. Try to find a desk in an area away from distractions, and, if possible, away from the busy places in your house, such as the living room or kitchen. You'll need a place to store records, like a computer and a file cabinet and also ways to communicate with customers and vendors. Internet access is vital these days, along with a phone and a fax machine. Setting a similar structure to being at work is essential to being productive; your family must know that just because you're home doesn't mean you can run errands and play, and you'll have to establish regular business hours and stick to them.

 

In her book, Szerman describes flexibility, motivation, patience, and determination as the key traits an individual must have in order to flourish in a home office setting. It has certainly worked for Szerman. "As an independent worker/thinker, working from home has enhanced my career, and I can't imagine ever going back into someone else's structure."
SBC Team

Opportunity Knocks

Posted by SBC Team Nov 9, 2007
So called "business opportunities" present another way for would be entrepreneurs to strike out on their own

In between starting your own business from scratch and purchasing a franchise, with all its rules and restrictions, is a sort of hybrid category, known as the "business opportunity." In 1979, the Federal Trade Commission (FTC) set out conditions that broadly define a business opportunity. In general, a business opportunity involves the sale or distribution of goods or services provided by a licenser, who must help secure a retail outlet for the goods or services the licensee is selling.

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FTC rules require that a cash transaction of at least $500 must occur between the licenser and licensee within six months of the agreement. Finally, all terms of the agreement between licenser and licensee must be in writing. (Be sure to check on any state rules governing business opportunities: A number of states have imposed additional legal requirements, but most have not.) In most instances, a business opportunity consists of the purchase or licensing of products or services from a company to start a business using the trademark of the products or services purchased

Some business opportunities merely involve the purchase of products for resale, with little or no support; others offer training or other forms of support to get the new business running. Unlike franchises, however, business opportunities usually lack the cumbersome operating rules and policies demanded by many franchisors. Business opportunities also generally call for an attractively low initial investment cost anywhere from $50 to $1,000, usually for products or equipment. This broadens their appeal to would be small business owners, who want the security of selling an already established brand, but prefer to forego the high cost and dictatorial nature of many franchises.

Business opportunities come in a variety of forms. You can become a distributor for a particular company's products or services without adopting their trade name, offering only their goods from your retail establishment, home, booth, or kiosk. In some cases, the business opportunity is a turnkey operation, offering you supplies, marketing materials, varying levels of sales support, and even assistance in setting up your outlet. Vending machine operations are another major area of business opportunities. Investment costs are higher with vending machines, since the vending machines must be purchased (usually at a cost of several thousand dollars each) in addition to fees paid to the property owners of the locations where they will be placed (malls, office buildings, stores, schools). Other business opportunities involve becoming essentially a product salesman, keeping a company's products on specifically assigned shelves of various stores in a given area. The company providing the products generally negotiates the store shelf assignments, but is up to the rack jobber to keep the shelves stocked with the right products.

 

While business opportunities demand less creativity than starting your own business from scratch and more independence than a franchise, they have been notoriously plagued by fraud. In an attempt to combat fraudulent schemes, the FTC has issued mandatory rules governing the issuance of business opportunities, including the provision that an FTC disclosure statement must be provided to the purchaser of a business opportunity a minimum of ten days prior to the close of a contract or binding agreement. If the provider of a business opportunity declines or delays providing an FTC disclosure statement, avoid the deal completely, no matter what other assurances are offered.

 

In addition to lower initial costs, business opportunities offer some significant advantages over franchises. First, business opportunities don't demand a percentage of your monthly sales (in addition to what you already paid to purchase the goods or services) simply for using the company's name. Second, the company behind a business opportunity may leverage its purchasing power to obtain supplies, equipment, and services for its licensees far below normal costs. Finally, larger providers of business opportunities often offer more favorable financing options and lines of credit than could be obtained by an independent business owner from a financial institution.

 

However, many business opportunities come with exclusivity arrangements, offer poor locations to licensees, and little recourse if the company decides to end its support. You should have a lawyer scrutinize any contract with a company offering a business opportunity before it is signed or any investment made. And you should regard any claims of fantastic profits from minimal investment with great skepticism.
SBC Team

Franchising 101 (Part 3)

Posted by SBC Team Nov 5, 2007
Know the Costs

A franchise offers the security of an established brand, but it may come at a steep price

You've decided to step up and become your own boss, but you still want a well-established corporate name to provide your new business a little extra security. So you've decided to purchase a franchise. But how much will that cost you?

 

The answer depends largely on what will be required to get the franchise up and running. For example, some franchise operations can be run from your home, in which case there will be no need to purchase or rent a location. However, if you plan to open a popular franchise store, restaurant, or coffee shop, you are looking at considerable initial cost in addition to whatever franchise fee the franchisor charges.

 


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The franchise fee is the upfront investment in the franchise and gives you the use of the franchise name and its products or services. Fees vary from as little as $2,500 to more than $50,000. While that may sound low, keep in mind that the franchise fee is almost incidental when factoring in all of the other costs associated with opening a franchise, including the following:

 

1. Percentage of Sales
In addition to the franchise fee, most franchisors demand a percentage of your profits, assessed on a periodic (usually monthly) basis. This is the royalty fee for using the franchise name. Domino's Pizza, for instance, charges its franchisees 5.5 percent of weekly sales in addition to its $25,000 one-time franchise fee, and requires additional fees from franchisors for its regional advertising campaigns. In exchange for these fees, and depending on the franchise, you will receive access to marketing and training materials, the right to operate your franchise in a specified geographic location (without competition from other franchisees), training, and other support from the franchisor. To find lists of popular franchises for sale, their startup fees, and the expected minimum investment amounts associated with each, go to franchising.com, franchisedirect.com, or thebusinessmarket.com.

 

2. Rental or Purchase of Location
Some franchisors will help you find a location for the business; others expect you to do that on your own. In either case, you will be expected to pay for the rental or purchase of the location. Some franchisors will help you find financing, if you qualify; most won't. Be warned, some franchisors are very exacting about the appearance of their franchise locations and will demand to inspect and approve your choice of storefronts before finalizing the agreement. To learn more about the franchise experience and read ratings and reviews from folks who have already taken the plunge, check out franchisebusinessreview.com.

 

3. Necessary Products or Equipment
Finally, there will be the cost of acquiring any products or equipment associated with your franchise's operation. This can become quite expensive, depending on the franchise. When considering which franchise opportunity to explore, all of these costs must be taken into consideration. For example, tanning franchisor Desert Sun calculates that, in addition to its $50,000 franchise fee, a franchisee can expect to spend between $193,000 to $388,000 to acquire the needed tanning beds, UV-Spray booths, neon signage, marketing materials, satellite music, lotion, insurance, and cleaning equipment. The Athlete's Foot, a popular sports shoe vendor, estimates a total cost of between $196,000 and $446,000 to open one of its shops, inclusive of storefront, supplies, and equipment costs.

 

Similarly, Ben & Jerry's estimates that opening one of their Scoop Shop franchises will, depending on its location, cost somewhere between $198,000 and $385,000, once all costs, including their $32,000 franchise fee, are counted.

 

Barriers to Entry
The cost of opening a store can be so great that many franchisors set specific financial requirements that would-be franchisees must meet just to be considered for a franchise agreement. Ice cream giant Carvel charges a $30,000 franchise fee to open a full Carvel store, but the cost of purchasing the property and equipment are such that the company will only consider franchisees who can demonstrate a net worth of at least $300,000, with at least a third of that available as liquid cash. The greater the cost of starting up a franchise, the higher the financial requirements will be. Bally's Total Fitness gym franchises will only consider franchisees with at least a combined $800,000 in assets; the International House of Pancakes (IHOP) demands a minimum combined net worth of $1 million and $300,000 in liquid assets.

 

There are, however, less expensive franchises out there. Jackson Hewitt Tax Service says its franchises can be established for between $48,000 and $92,000, including fees. Rival Liberty Tax Service franchises cost even less, estimated at $33,000 to $60,000. RE/MAX real estate franchises run between $25,000 and $200,000, depending on how you operate the franchise. JAN-PRO commercial cleaning franchises cost a remarkably low $4,000-$50,000 to start, again depending on the size of the operation. With more than 2,300 franchises available in the U.S., there are a wide variety of franchise opportunities at almost every level of financial investment.
SBC Team

Franchising 101 (Part 2)

Posted by SBC Team Nov 5, 2007
Do Your Homework

Before you jump into a franchise agreement, be sure you've done extensive research on the franchisor

You want to start a business, but you also want to avoid the risk associated with an untested idea. You've decided that you want the advantages of an established name, and can live with the detailed rules and prescriptions of a franchisor. Now how do you choose a franchise that best fits your talents and interests?

There are literally hundreds of franchises available in almost every major consumer industry. Fast food retailers like McDonalds, Burger King, Wendy's, Carvel, Dairy Queen, and Dunkin' Donuts may be the most familiar, but franchise opportunities exist in industries as diverse as tax preparation, computer repair, medical billing, home renovation, interior design, commercial cleaning, home health care and nursing, and health and fitness. According to FranchiseConsultants.com, there are more than 2,300 franchises currently available in the U.S. In fact, there are so many franchise opportunities available that the choices can be bewildering.

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According to Mike Duessler, a Boston-based business consultant, the choice of franchise begins with you. "You need to find something that you are comfortable doing," he says. "And that may be different from what you think you'd like to do." Duessler suggests taking a job in a similar type of establishment, or even at an outlet of the franchise you are considering before you invest in your own store. "You may think that running a coffee shop is a lot more interesting than that nine-to-five office job you currently have," he warns, "but if you've never run a coffee shop or any type of shop before you may find your expectations are really far off the mark." The more familiar you are with the type of operation you are considering the better off you will be when choosing between franchise opportunities. Working at an outlet of the franchise you are interested in also gives you an insider's perspective on how the franchisor operates. "Do they provide support to their franchisees? Do they provide quality products? How strictly do they regulate their franchisees? The best way to get a firm answer to these questions is to work inside a franchise and see what goes on every day," he adds.

 

Once you've narrowed down the type of franchise in which you'd like to invest, how do you choose between the various franchise offerings in that field? There are a number of considerations, according to Michael Klein, a franchise attorney. "Look for recognizable names, since they will draw the most customers," he says. "Chances are, if you've never heard of the franchise, most of your potential customers won't have either." The more recognizable the franchise name, of course, the higher the initial investment will likely be. "Still, a well known name usually means a track record of success," Klein says. "Or, at worst, it will make researching the franchise's problems easier since bigger names get more media attention."

 

When researching any prospective franchise, look for any past litigation, especially from former franchisees. The presence of litigation against a franchisor isn't necessarily a sign that the franchise isn't worth pursuing," Klein says, noting lawsuits are commonplace for large businesses. However, watch for large numbers of similar type lawsuits, which could reveal a widespread problem with the franchisor's behavior.

 

The most important item in determining whether a franchise opportunity is a good deal for you is the Uniform Franchise Offering Circular (UFOC). The Federal Trade Commission (FTC) requires that a franchisor provide any prospective franchisee a copy of its UFOC within ten days prior to the signing of any contract, or at the first face-to-face meeting between franchisor and franchisee. The UFOC is a standardized disclosure form that describes the franchise in considerable detail, including all policies and requirements applicable to franchisees. The UFOC also must provide audited financial statements from the franchisor and copies of the franchise contract. "Take your time reviewing the UFOC," advises franchise attorney Mario L. Herman. "Compare the claims made in any promotional materials the franchisor has provided against the financial statements in the UFOC and ask about any discrepancies." Herman also suggests contacting current franchisees listed in the UFOC and inquiring if they would invest in the franchise again. "Of course, if they are current franchisees, they may not be inclined to speak negatively of the franchisor, but they may still offer useful information," he adds. Additionally, Herman advises trying to locate former franchisees to ask why they left the franchise. Herman suggests contacting the FTC to see if there have been any complaints filed against the franchisor.

 

Be sure to look for Part III of this article, which will explore the financial realities of the franchise business and offer realistic assessments of the cost of entry associated with the various business franchise categories.

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