Wednesday, November 28, 2007

Should you Buy an Existing Business?

When we think about going into business for ourselves usually we are thinking about starting from scratch. We may have a special product in mind, or perhaps a unique service. But sometimes an opportunity comes along where an existing business is for sale, and the chance is hard to pass up.

When you buy an established business you don’t have to spend a lot of time with start-up activities, such as getting equipment, acquiring the various licenses, etc.; there is a considerable amount of savings in time and energy. You will also have immediate cash flow because the business already has inventory, receivables, and clients. In addition, you will have goodwill and name recognition, and this will probably make it easier to obtain financing.

But one serious disadvantage is the cost of acquisition. You may have to come up with a large amount of money because the previous owner has already done the basic work. He or she has already bought the equipment, developed the business concept, acquired licenses and permits, developed a customer base, hired and trained employees. You may also get unexpected baggage. Perhaps the equipment is old, or there are ornery employees that have nowhere else to go. It is also possible that instead of goodwill, you are getting a bad reputation attached to the business, and it may be difficult to overcome. Another issue to consider, depending on the type of business, is environmental problems that can be costly to resolve.

There is much to think about, and significant matter on both sides, so weigh the pros and cons very carefully before you decide to acquire an existing business.

Friday, November 23, 2007

Tip of the Day: Gifts to Thank Your Clients

This is the time of the year to thank your clients and referral sources with a holiday gift. It can be treacherous road, since you may not know that your client suffers from diabetes or high cholesterol when you proudly deliver that yummy cake. And that bottle of wine may be wasted on someone who just gave up drinking. So what is a business owner to do? Here are a few ideas beyond calendars and pens.

Why not give a flash (or USB) drive or a staple-less stapler. These are items that your client will use every day. Other items that may be appreciated and a bit out of the ordinary are back massagers and lip balms.

My personal favorite is books, and for this you need to know a little bit about the recipient. If your client likes mystery novels, give him or her the latest Sue Grafton. Also, there are many beautiful coffee table books on the sale tables at your local book store, find one that appeals to your client. For example, I have a client who took a trip to India. She was absolutely captivated by the country, and she cannot stop tell you about her great experience. I have found a lovely book about India that I plan to give her, and I know that this gift will not add inches to her waist!

If you do not know your clients’ tastes, but you like the idea of giving books, you can give those that reflect your industry, or the region where your business is located.

Wednesday, November 21, 2007

Giving Thanks

Tomorrow is Thanksgiving Day in the United States. A great thing about this holiday is that it compels us to take a good look at our lives and see the things that we should be thankful for.

Perhaps you were watching television this weekend, as I was, and maybe you saw interviews with celebrities, where they were asked what they were grateful for. Maybe you heard the standard answer, “I am grateful for my family”. Perhaps you were groaning as you heard them, and you wished that they would come up with something a little more creative.

But I find that, in my case, though I wish I could be more creative, indeed it is true; more than anything, I am grateful for my family, and for very selfish reasons. It is my family who has made me who I am. In my early years my parents and siblings taught me how to live a good life. They instilled a sense of fairness. They also taught me that life is infinitely varied and interesting, and it is all there for us to enjoy. As Rosalind Russell said in the movie Auntie Mame, life is a banquet (though alas she followed up with “and most poor suckers are starving to death”)

This view of life is such a gift to me because it has allowed me to try new things just because they are intriguing and might be enjoyable. I learn about something interesting and I want to take a crack at it, and why not? There is no Don’t Dream police that is going to tell me I cannot do it (And if there is such a police, I will ignore it!) If it doesn’t work out, well then, I have learned new things in my attempt, and that is wonderful because it will lead me down other exciting roads.

My parents are now gone, and so is my beloved brother, who passed away this summer, but my two sisters, my dear husband, my daughter, my son, and my son-in-law, and also my granddaughters and siblings-in-law, continue to give me their love and support. The whole lot is always there for me, cheering me on, telling me to go for it. Without them I would not be who I am, and I would not feel so free to try new things.

I know there have been people like that in your life; those who have given you support and freedom to attempt new things. Probably they have been members of your family, though maybe not. Perhaps it was a neighbor, or your first boss. In any case, be thankful for them; and if you have the opportunity, thank them in person. You would not be a business owners, or an aspiring business owners, if someone had not taken the time to teach you about exploring the world, taking risks, being willing to share with others. This is the nature of a business owner, and that is what a business owner does every day. Sometimes it feels like the weight of the world, but mostly it is a great gift to be enjoyed, so lets say thank you.

Have a very happy Thanksgiving Day.

Tuesday, November 20, 2007

Between Dream and Reality

We are cruising along, living perfectly ordinary lives, and suddenly an idea comes into our mind. At the beginning is seems absolutely crazy. “How can I possibly turn this idea into a profitable business?” We begin to dream about the business, selling your jewelry to Saks, writing the great American novel, or becoming a lawyer. And it is our little secret, that outrageous dream that no one but us has to know about. We take it out and dust it off for our own amusement. We think about it when we are cleaning the kitchen floor. But deep down we know that it will probably never happen. It is too scary; it may even be silly!

And do you know something? We are probably right, it will never happen. Not because it is too difficult, scary, and silly, but because as long as we don’t talk about it out loud, it is easy to avoid turning the dream into reality.

So how do we overcome that block; how do we shush that little voice that tells us it is a crazy idea? More specifically, how do you turn the dream into reality? The first step is to say it to yourself, use your most authoritative voice to tell yourself “I am going to start writing right now”. Be convincing, because you are the person that needs convincing the most. Don’t tell yourself that it is possible; tell yourself that it will happen.

Next, tell those closest to you. Here it will probably not be necessary to be quite so authoritative because they almost certainly believe in you already. Maybe they have been waiting for years to hear you say the magic words. Then, tell the world. Be matter of fact, ‘I am a writer”. No need to be defensive, or to go into a long explanation explain, just say it.

Why the talking exercises? Because once you say it out loud you commit yourself to actually doing it. It becomes real.

That is how I talked myself into becoming a lawyer. When my daughter graduated from college I decided that it was my time to go back to school. I knew that if anything happened to my husband, I had few skills that would get me a job that paid above the minimum wage.

I was taking a class in which we had to write about what I call “what do you want to be when you grow up”. At 48 years of age, it was a bit late to be thinking about this, but an assignment is an assignment, and I was going to give it my best shot. I wrote about becoming a court interpreter because I was fluent in English and Spanish, and I had always been interested in the law. I had grown up in a small town in Mexico, at a time when girls did not think about being lawyers. Girls were going to grow up to be mommies, not attorneys. And most certainly I wanted to be a mommy, but deep down I had also wished that things had been different for women of my age.

A few days latter the professor called me in for a chat. Her name is Glenda McGee, a great lady; and she told me that no, I was not too old to be a lawyer, and if I really wanted to do it, I could. At first it sounded silly, but the more I thought about it the more intrigued I became. Still, I wasn’t about to make a fool of myself by telling others what the professor had said to me.

Well, it took me a while to begin to say it to myself out loud. The sound of my voice saying “I am going to be a lawyer” was a bit shocking, but also affirming. After I convinced myself, or perhaps I just got used to hearing the words, I decided to tell my husband about what the professor had said. He looked at me, and with assurance that I did not feel he said, “of course you are not too old to become a lawyer”. And it was still silly, also scary and crazy, but someone who I respected very much had supported me, and I had to believe. After that, I just told everyone in a natural way, “I am going to law school”.

By telling others and myself I made a commitment to taking the necessary steps to reaching the goal. If I had kept it as my deep dark secret, I could always back out. But once I told everyone, I could not go back on my word.

Seven years later, I graduated from law school. That summer I took the California bar exam and passed on the first attempt. In December of 2002 I was sworn in as an attorney at the age of 55. I still have the posters that my daughter and son made for my graduation. One of them says, “Mom shows it is never too late to dream”.

The telling became the first step in turning the dream into reality. So don’t be afraid, tell yourself and then the world “ I will do it”.

Dream Big

Sunday, November 18, 2007

Focus on Your Core Business

The temptation to add products or services to your core business can be great. It can come from your own expectations about what a business such as yours “should” be like; or it can come from your clients, who may be pushing you to fill their every need.

When I first started my law practice, and even today, there was great pressure to be all things to all people. The main reason is that I am one of the few attorneys in our area who is fluent in Spanish. I soon realized that as a solo practitioner I could not help everyone, no matter how meritorious the case.

I knew that I would be doing a disservice to my clients and to myself if I took on every case that comes through my door. I cannot possibly be proficient in every area of the law, so my clients would suffer by not having the best attorney for their case. By the same token, I cannot take every case and keep my sanity.

I how do you choose? You probably came into the business with a strong idea about what your main products or services would be. And this is the case because you are probably quite passionate about those products or services. It doesn’t mean that you should keep your eyes and ears closed to new opportunities. But I am sure that you will come to the same conclusion that I did. The type of case that is most enjoyable, and the one that is the most profitable, should be the focus of the business. No, I am not a genius for having come up with this nugget, but sometimes we get overwhelmed and forget to be practical.

Friday, November 16, 2007

Tip of the Day: Don’t Sabotage Your Marketing Efforts

When it comes to marketing, do what feels comfortable to you and what fits your personality. If you are shy, don’t participate in a huge networking event; instead, stick to one on one networking such as a coffee or luncheon appointment. If the idea of public speaking makes you break out in a cold sweat, don’t offer to give a presentation to the local Rotary Club, the discomfort will show through. As an alternative, if you like to write, offer to write an article for the Club’s newsletter, or a local newspaper. Pick the method that will be most effective for you. Don’t sabotage your marketing efforts by trying to be someone you are not. Marketing should be a daily activity in your business, so make it an enjoyable one.

Thursday, November 15, 2007

Tip of the Day: Why Should Your Customer Believe You?

As a business owner you believe that you offer a terrific product, and you probably think that your potential customers will also believe that you offer a wonderful product because your mother and your compadre believe you do. But it isn’t enough to say that you have the best vanilla ice cream in the county; tell them why it is so. Explain that your vanilla ice cream is made with the freshest milk and cream, that the milk comes from California cows; and as everyone knows from the ad, they are the happiest cows in the world! Tell your customer that you use the finest vanilla beans that Madagascar has ever grown. Explain how you manufacture your ice cream, the care that you take with each ingredient and each step of the process. In other words, explain, explain, explain why your product is the best. Give your customer a reason to believe, and to buy.

Wednesday, November 14, 2007

Pricing Your Product or Service

Pricing your Product or Service

One of the hardest things to do when you are a business owner is coming up with a fair price to charge for your product or service. I can tell you that it was the hardest thing for me when I started my law practice. I had worked for a non-profit law office where we provided legal services for the indigent. The lawyers did not have to consider billable hours or thinking about how much to charge for our services. The survival of the law office was the headache of the executive director, the lawyers worried about the legal work. Our salaries were rather modest, to say the least; but the lights were always on, and there was always paper and ink for the printer.

When I decided to strike out on my own I had no idea how to charge a fee that was fair to the client and to me. Now I am the one who has to keep the lights on and the ink flowing! And even today I struggle with the question of fees when I am doing legal work that is open ended. The billable hours can add up very quickly! For this reason I always try to charge a flat fee, even if it isn’t always possible. With a fee that I quote before I start the work, the client doesn’t have a nasty surprise; though I sometimes do, if the client is calling me at all hours of the day and night!

The pricing strategy is essential for the success of your business. You need to price your product within a range called the Price Ceiling and Price Floor. The Price Ceiling, as the name suggests, is the highest price that you can charge. The Price Floor, obviously, is the lowest price that you can charge and stay in business. You want to be between these two boundaries. “Well, that sound great”, you may tell yourself, “but what do I need to consider in order to achieve that goal?”

Lets start with the price floor, since this is easier to quantify. In order to come up with your lowest price you must consider all your costs, and I mean all. You will start with the cost of the raw materials, your office overhead; which will include utilities, employees’ salaries and benefits; insurance, loans and interest, the cost to operate your company’s vehicles, shipping charges, and taxes to name a few.

Determining your pricing ceiling is not quite as simple, as you must consider factors that are not easily quantifiable. Some questions that need to be answered are: How much is a client willing to pay for this product or service? What is the quality of this product? Why are people demanding this product or service? Do they need it, or do they merely want it very badly? How much does the competition charge for a similar product? What image am I trying to project? These questions are not always easily answered. Some clients always think that the fee is too high. On the other hand, I once had someone question how efficient could I possibly be, based on the fact that my fee was considerably lower than another attorney he had consulted.

But I want to be an attorney that a small business can afford, and I am happy to give up the image of the powerful lawyer; and in the eyes of at least one person, an efficient one. In that particular case, there was no contest, I didn’t really want to work with a client who forms his opinion of the value he receives based on whether I can charge three times my usual fee. I rather work with many clients who believe they are getting value for their money. That is my niche, and it is the business decision that I am comfortable with. You will make your own choice about niche and price. The important thing to remember is that your decision must result in profit for your business; otherwise you won’t be in business very long.

Tuesday, November 13, 2007

Tip of the Day: Your Referral Sources

You may be lucky enough to have a group of friends and acquaintances that regularly refer clients to you. Don’t forget that every time they send a customer to you, they put their reputation on the line. Show your appreciation, and keep the referrals coming, by staying in contact with your referral sources. Call them or email them regularly. It doesn’t have to be a long phone call or message. A “Hi, how are you” and a bit of small talk will suffice. And definitely call if you have something of interest to one of your referral sources, he or she will appreciate the information. Also, you may invite them, on a rotating basis, for lunch or coffee; or if both of you are too busy, send a gift card from a coffee house or restaurant. You don’t have to spend a great amount of time making these phone calls, two of them a week should be enough. As long as you rotate the names on your list, and you do this consistently, they will not forget.

Friday, November 9, 2007

Tip of the Day: “What Do You Do?”

When you are asked, “What do you do?” do you go into a long explanation that makes your listener’s eyes glaze over? You should develop what is commonly called the “elevator pitch”. This is an explanation of your business that you can deliver in 30 seconds or less. Why would this be useful? Well, not boring your listeners is the first reason that comes to mind; but beyond that, the short explanation will focus the attention of your audience. This way they will quickly know if they can buy from you, or if they know someone who can. Another reason for developing the elevator pitch is that you will better understand what your business is about. This may sound crazy; of course you know what your business is all about! But you would be surprised at how unfocused some business are. And lack of focus leads to lack of success.

Thursday, November 8, 2007

Legal Structure of a Business: Limited Liability Company

A Limited Liability Company (LLC) is a relatively new type of legal structure. It has only been in the last 15 to twenty years that states have enacted statutes that allow the formation of this type of entity. At present, all states allow the formation of LLCs, though the laws vary from state to state.

An LLC is comparable to a Corporation in that it gives its members liability protection. But unlike a corporation, an LLC does not impose double taxation. Members of a Limited Liability Company have the same tax treatment as a partnership.

Other advantages of an LLC are that it is flexible to operate, and it doesn’t have as many levels of administration as a corporation. For example, an LLC does not have a board of directors; it is managed by all the members, or by one manager chosen by the members. It is important to note, though, that the formation of both entities is very much alike, and it is done with authority of the Secretary of State.

In an LLC members can be foreign nationals without losing the tax treatment similar to a partnership; this is not the case with an “S” corporation.

Some of the drawbacks are: In some states, such as California, professionals cannot form an LLC. In California in particular, anyone who must be licensed under the Business and Professions Code cannot form an LLC. This includes; not only Doctors, Lawyers, Dentists; but also contractors, real estate agents, and many other types of businesses. Another disadvantage is that it is not as easy for a member of an LLC to sell his or her interest in the company because ownership in an LLC is not as universally recognized as ownership of shares of stock in a corporation. Still another disadvantage is that in many states there must be at least two members to an LLC, though this is not the case in all states.

These are only some of the advantages and disadvantages of an LLC. If you are interested in forming one, consult your attorney, as the statutes and requirements vary greatly from state to state. Still, it is well worth taking a close look into this type of entity because of its flexibility and relative ease of management.

Tuesday, November 6, 2007

Legal Structure of a Business: Corporation

A corporation, unlike a sole ownership or partnership, is a legal entity that is separate and distinct from the individual owners/shareholders. This type of entity is complex, and can only be formed with the authority of the Secretary of State or the Government of your state.

Once a corporation is formed, the shareholders must apply for a Tax Identification number, as well as licenses and permits, in the name of the corporation.

There are several advantages to forming a corporation. The first one is that because the corporation and the owners are distinct, the owners are not personally liable for the debts of the corporation. It is also a more stable business structure because the corporation doesn’t end when the owners die. It is also easier to transfer ownership by selling shares of the business.

Additionally, it is not as difficult to obtain financing because lenders feel more confident in the stability of the corporation. There is depth of skills and talents, since the business can draw upon the experiences of the shareholders and directors of the corporation.

But the disadvantages can sometimes scare off business owners who might consider this type of entity. First, there is quite a bit of government control in the formation and management of the company. There are many requirements, such as holding regular meetings, and drafting minutes of those meetings. The tax filing requirements are considerably more complex than those for sole proprietorships and partnerships. There is double taxation, as the corporation pays taxes, and the shareholders pay taxes as well. Also, in many states there is a minimum tax that a corporation must pay. Additionally it is more expensive to form and manage this type of entity because of the many requirements.

In order to avoid double taxation many corporations elect to be a subchapter “S” corporation. In this case the corporation is taxed as a partnership, so the corporation itself does not pay taxes. But a subchapter “S” corporation cannot have more than 35 shareholders, nor can any of the shareholders be foreign nationals. Additionally, if the corporation offers benefits to its employees, such as health insurance and 401K programs, the shareholders often cannot participate, depending on their percentage of ownership in the company.

These are some of the advantages and disadvantages of forming a Corporation. If you are interested in this type of entity, make sure that you consult your lawyer so that she can fully explain the requirements in your state as well as at the federal level.

Monday, November 5, 2007

Legal Structure of a Business: Partnership

A partnership is a business that is owned and operated by more than one person. Often two or more friends find out that they have similar passion for a particular product or service, and they decide to form an alliance. As with a sole proprietorship, it is relatively easy to form a partnership. There are no major requirements to form this type of entity.

But the fact that there are no legal requirements doesn’t mean that it is advisable to be informal and nonchalant about this type of business ownership. It is prudent and very wise to have a written partnership agreement because it can prevent, or at least minimize, headaches down the road.

A partnership agreement will spell out who will contribute what, and how much of it; how the business will be managed, under what circumstances someone else can join the partnership, as well as how the partnership will be dissolved if and when the time comes.

Some advantages of a partnership are: it is easy to start, given that there are fewer legal formalities than starting a corporation or LLC; there is flexibility, though not as much as with a sole proprietorship; there is depth of experience and perspective, as there are several owner with various talents, skills, and points of view. There is also more ability to obtain capital, since there is more than one person to contribute money to the enterprise. Additionally, there are tax benefits; as the profits will be go directly to the partners and become the partners personal tax liability.

But, as with almost everything in life, there are disadvantages to this type of business ownership. The main one is that in a general partnership, each partner has unlimited liability for the debts of the business. Many believe that each partner is responsible according to the percentage of ownership, but this is not the case. Each partner is wholly responsible for everything. Another drawback is that there isn’t much stability because the illness or death of a partner can severely affect the business. It is also difficult for a partner to sell his or her share of the business because the other partners may not have the capital to buy him out at the time that he wants to sell, and they may not be willing to have that share of the business go to someone they do not know nor feel comfortable with, so the options are limited. And, if a partner dies, the other partners may resist giving the heirs of the deceased partner much say or control, with ensuing tension.

If you are considering this type of business ownership, it is imperative that you consult an attorney for advice, and to prepare a detailed written partnership agreement.

Saturday, November 3, 2007

Legal Structure of a Business: Sole Proprietor

A sole proprietorship is a business owned and operated by one person. The majority of businesses are sole proprietorships; the reason being that it is very easy to establish. You do not need to file documents with the Secretary of State, you don’t have to agree with someone else, you do not need anyone’s permission; all you need to do is open the doors, and you are in business. Of course, it is a little more elaborate than that, as there are several licenses and permits that you will need, depending on your type of business. Baring those requirements, a sole proprietorship is indeed the easiest form of business ownership.

But the ease of business formation is not the only advantage. As a sole proprietor the owner makes all the decisions for the business. He or she has complete control over the management and decision-making of the enterprise. There is also a great deal of flexibility because the owner can respond quickly to any problems, and can make changes without having to consult anyone else. In addition, there are no special taxes to be paid, as there are with corporations, LLCs, and other types of entities. The profits become the owner’s personal income, and are part of his or her tax liability.

But there are disadvantages. One of the most important ones is that the owner has total liability for the debts of the business, as well as any lawsuits filed against the business. This means that the owner can lose not just all his investment, but also all his assets, including his or her personal residence. Another disadvantage is that there are limited business deductions for health insurance and workers’ compensation insurance to name a few.

Other drawbacks include difficulty in obtaining capital for the business, risk to the business if the owner becomes ill or dies, and lack of depth in experience and perspective since only one person has the responsibility and control.

If you are considering a sole proprietorship for your business, talk to other business owners who run their companies as sole proprietors, and weigh carefully the advantages and disadvantages. Additionally, make sure that you consult your attorney for more information.

Friday, November 2, 2007

Tip of the Day: Is There a Market for your Product?

Often a motivation for starting a particular business is the excitement of offering a product or a service that we are interested in. But is there a market for this product or service?

If you are in the planning stages of your business, find answers to the following questions:

Do people really want what you are offering?
Who are your potential customers?
Will they want the product or service at the price that you are offering it?
Do your potential customers live or work near your business?
Can you create a demand for your product or service?
Who are your competitors?
How will you differentiate yourself and your business from them?
Will your business be able to compete effectively in price and in product?
What marketing methods are your competitors using?