As you may have noticed, it's been awhile since my last post. This was due to what we all call "technical difficulties" -- and what I call "piling" on technology. So you have an internet connection that works, a phone that works, and cable TV that works. Then you decide to put in a cable modem and change your phone to Voice over IP (because it's cool new technology and much cheaper). So your cable modem goes out and you've lost your internet and your phone. Fortunately your cell phone works! When you call to get it fixed, all parties point to one another as the source of the problem. As a non-technical person, this is incredibly frustrating and causes you to lose hours of productivity! The issue with my blog was simliar in nature -- a separate web hosting company, blog site, and two technical resources; and finally, a solution after hours of "technical support"! Unfortunately, I can't provide any real insights as to how to overcome the "piling" of technology issue except to have a great technical resource you know and trust! I am happy to have my blog back online to share small business news and insights!
I recently attended a seminar sponsored by the Washington State Hispanic Chamber of Commerce where Carolyn Logue from the National Federation of Independent Businesses (NFIB) http://www.nfib.com/ spoke about the organization and key issues they are lobbying for in the upcoming legislative session. The NFIB is a membership organization for small businesses that surveys its members to determine the key issues that should be addressed by the State and Federal legislatures. They then lobby on their members' behalves to affect change. The key issues on the agenda right now are affordable health care for small businesses and employment costs. The impact of a slight change in employment costs at the national or state level has a much more dramatic impact on small businesses. Let's take minimum wage as an example. Small businesses often employ unskilled workers and train them to be more productive members of the workforce. An increase in minimum wage requires the small business to obtain a higher level of productivity from each worker due to the overall higher costs of employment. Unskilled workers, therefore, never get the opportunity to get in the door and get the training. Another scenario is when a new worker is brought on and minimum wage increases. The small business often does not have the cash to pay the increase in minimum wage for the brand new employee who isn't as productive and to compensate employees with longer tenure and higher productivity. The end result is that the lower skilled employees lose out with the minimum wage increases. A similar effect occurs with any employment related increase such as payroll taxes, health insurance requirements, etc. Analysis such as this is eye opening. Impacts such as these should be considered by small business owners when choosing candidates and legislation to support -- not simply how a position will impact your business but its overall impact to the small business community.
When my web designer suggested I add a blog to my website, my reaction was "Why? Do businesses use blogs?" As I have learned through my quest to better understand blogging, many companies use it to share employee viewpoints and sometimes to obtain opinions from customers on various topics. REI recently began a blog for REI managers to share their views on various topics which was highlighted in the Puget Sound Business Journal.
So what is a blog and how does it work for business? Blogs are traditionally personal and regular postings by an individual commenting on a particular topic and adding their own personal views. More recently, though, blogs have become more mainstream in the corporate world. See article. Interestingly enough, much of the focus is on how big businesses such as Microsoft are using it; but the small business probably has more oppotunity to leverage the blog's power of one-to-one marketing and loyalty and community building.
The Blog Business Summit is in Seattle on October 29 for those interested in learning more.
In continuing with the Business Plan theme, many people find the most difficult aspect to be building the predicted financial performance of a new company (also known as pro-forma financial statements). Where do you start and how do you 'guess-timate' these figures? Financial statements, in general, always consist of at least three inter-related documents, the Income Statement, the Balance Sheet, and the Statement of Cash Flows. To an entrepreneur, the two most important financial documents are the Income Statement and the Cash Flow Statement. The Income Statement tells you whether your operations are profitable. The Cash Flow Statement tells you how much cash you need to start up and get to profitability -- to be 'cash flow positive'. The Balance Sheet is a third financial statement tracking assets, liabilities, and stockholder equity, and is a check and balance of the other two. If all the numbers on the first two documents are correctly linked, the Balance Sheet should, well, balance.
So where do you start? The good news about estimating expenses is that many of them are consistent within or across industries -- you just have to do the research to find the numbers. Key expenses for your specific industry may be found through industry associations or similar publicly traded companies' (comparables) financial statements. Other categories such as cost of employees may be estimated by contacting various departments within the State. Washington State has a website that outlines key salaries and other costs associated with various types of employees (http://www.workforceexplorer.com/). Another key cost element is taxes -- local, state, and federal. All these can be found with some research online or through an accountant. Taxes also often drive the type of business structure you decide to set up.
On the revenue side, the analysis is more complex and a bit more subjective. The numbers are driven primarily by comparables and your market research. Look at similar industries or companies. You must determine clearly who your target market is, what the size of that market is, and what percent of the market you will penetrate. Most importantly, you need to understand what the market need you’re satisfying is, how customers are currently addressing this need, and how your product is better than the alternatives. As part of this analysis, you will identify who your competitors are -- think broadly about how customers currently satisfy the need your product or service provides. You can then determine the appropriate price for your product. From all this, you will understand which customers in the target market will choose your product to satisfy their needs. Then multiply the estimated sales over the time period (month or year) by the predicted price (remember to include bulk discounts, if applicable) and you have your top line revenues.
Once you've performed this analysis, you'll have the core information necessary to build your pro-formas. Samples of pro-formas are provided in most books on writing business plans and on many websites for entrepreneurs. Good luck and happy business planning!
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