Monday, December 6, 2010
Chapter 9: Cash Flow and Taxes
In my previous post, I spoke about a problem that many small business owners have. One of those problems was that many small business owners do not understand the value of a cash flow statement. The cash flow statement, in my opinion, is the most important statement. Given they are all necessary to keep a business running, the cash flow statement is what should be used day-to-day. The cash flow statement shows the amount of cash coming in, relative to the amount of cash going out. Your income statement can show a high net profit, but, until the money is actually paid to your business, that profit is not worth anything. There are situations where companies have had good net profits, but had to shut down because they had a horrible cash flow problem. That is why it is important to monitor the flow of cash in and out of your business. Make sure you maintain a level of cash that is enough for you to pay any bills or taxes that come due.
Chapter 8: Using Financial Statements to Guide a Business
This chapter, to me, covers what I believe is the root of many small business failures. Like I stated before in my last post, there are many ideas that are good ideas that are simply not feasible. In this case, we will say that an idea is feasible and the business has already started, things look promising. If the owner of this business does not know how to make or understand an income statement, cash flow statement, or balance sheet, this "great idea" is doomed to fail.----Of course, after typing that last statement, I rememberd a tool that many small business now use to keep track of all three of these statements...Quickbooks. Quickbooks has really taken the guess work out of using these statements. The software is so easy to use, and it can really meet all of your regular accounting needs. Now, with that being said, I know from personal experience that there are still many small business owners to don't keep accurate records. Since the creation of Quickbooks and the other slew of programs that do the same thing, there is really no excuse for a "mom-n-pop" business to fail because they had cash flow problems that could have been addressed had they known the severity of.
Chapter 7: Understanding and Managing Start-up, Variable, and Fixed Costs
Chapter 7 covers one of the most important topics in starting a new and running an existing business: Costs. There are people that come up with great ideas every day. Rather it be an invention, service, or something completely new, there are many times when a new idea is simply not feasible. If you come up with an idea that is going to incur astronomical costs, you need to ask yourself: "Will investors see the value in my idea and be willing to take on the risk of a new venture?" If you don't foresee investors agreeing in your vision, then the idea is either a bad idea that you think is great, or the idea is ahead of its time and maybe, at some point in the future, your idea will be more feasible.
I know this is a common example of small business owners and the costs they face, but Anytime Fitness is a perfect example to look at. If you think about the initial investment of an anytime fitness, there are some steep costs associated with starting the franchise. First, you have franchise fees. Some franchisers are more reasonable then others; Anytime happens to be one of those franchises. Next, you have to lease, buy, or rent a space to house your gym. In the case of Anytime Fitness in Germantown, the gym is located in a prime area. There are many high end salons and stores around the gym, so, on average, the lease is more expensive then most gyms of comparable size. Finally, you have equipment financing. The equipment is typically bought as a package deal that is arranged through partnerships of Anytime Fitness corporate. The equipment packages vary depending on the size of the store, but, on average, you can look to spend around $200,000 easily on a good equipment package. Now, take all of those costs and take into the account that when you start a gym, you essentially have ZERO members which equals ZERO income. Every gym has a break even point in terms of the number of members needed to cover the costs for the month.
I know this is a common example of small business owners and the costs they face, but Anytime Fitness is a perfect example to look at. If you think about the initial investment of an anytime fitness, there are some steep costs associated with starting the franchise. First, you have franchise fees. Some franchisers are more reasonable then others; Anytime happens to be one of those franchises. Next, you have to lease, buy, or rent a space to house your gym. In the case of Anytime Fitness in Germantown, the gym is located in a prime area. There are many high end salons and stores around the gym, so, on average, the lease is more expensive then most gyms of comparable size. Finally, you have equipment financing. The equipment is typically bought as a package deal that is arranged through partnerships of Anytime Fitness corporate. The equipment packages vary depending on the size of the store, but, on average, you can look to spend around $200,000 easily on a good equipment package. Now, take all of those costs and take into the account that when you start a gym, you essentially have ZERO members which equals ZERO income. Every gym has a break even point in terms of the number of members needed to cover the costs for the month.
Wednesday, November 10, 2010
Chapter 6: Smart Selling and Effective Customer Service
Chapter 6 focuses on selling and customer service. Selling is vital to the success of any company. If you have something to sell, but are unsuccessful in selling that item or service, your business will undoubtedly fail. Contrary to the beliefs of many people, selling is a type of art form. Some people are natural born sellers, while other people can be trained to become great sales people. On the other side of the spectrum, there are those who may be great innovators or be very intelligent, but simply can not sell anything. There are a few steps you can take in order to be the most effective salesperson possible. First, you must make a good personal impression. When you go visit a potential client, be sure to portray professionalism the whole time. Next, know your product or service. This is a give away; if you don't know what you are selling, then how can you ever expect to sell anything? Also, you must know your field. What are competitors doing? What is going on in the industry? You must also know your customers. While you may not have a personal relationship with the customers, do your research and be as familiar with them as possible. This will help YOU help THEM identify their needs. In addition to doing your homework about your customers, you most also prepare a sales presentation. Remember, you want them to see a need in your item or service. During the presentation, you should also think positively. If you think positively, you will naturally be more confident and give off a good "vibe." During and after the presentation, be sure you take good notes. Try to remember and write down as much as you can about the work and personal life of your customers. You want to try and connect with your customers as much as possible. Finally, treat your customers like gold. Do not ever come off as "cold," as this is a surefire way to lose a customer.
Monday, October 25, 2010
Chapter 5: Developing the right marketing mix
This chapter, I believe, is the most important chapter we have covered thus far. The essence of chapter 5 is about how you define and describe your marketing mix. More specifically, an entrepreneur needs to define and establish his company's 4-P's in order to be successful. The 4 P's are: Product, Price, Place, and Promotion. For this chapter, I thought it would be fitting to look at Anytime Fitness in Germantown and to look at Anytime's four P's.
First, we will look at the product that Anytime offers. Anytime Fitness locations typically fall into the category of a small gym. They cater to people who would rather workout in a more private setting. They use the highest quality equipment, where as large gyms typically have cheaper equipment because they face a higher level of wear and tear. Also, the people who go to Anytime typically are not interested in swimming pools, climbing walls, and karate classes. All they want to do is work out...
Next, Anytime's prices is typically lower then memberships at large gyms. This is because members are only paying to use weights and cardio equipment. Members are not being forced to pay for features that they may not use.
The location of an Anytime Fitness is key to their success. Big gyms have the ability to attract people from farther distances from the gym then small gyms do. Therefore, franchisees have to be absolutely sure that the location they choose will support their business. This is probably the riskiest part of opening an Anytime.
Finally, Anytime Fitness offers a few corporate promotions. These include: 7 day passes, discount coupons, and apparel that are offered at all locations. In addition to the corporate promotions, individual Anytime owners are able to run promotions as they please.
First, we will look at the product that Anytime offers. Anytime Fitness locations typically fall into the category of a small gym. They cater to people who would rather workout in a more private setting. They use the highest quality equipment, where as large gyms typically have cheaper equipment because they face a higher level of wear and tear. Also, the people who go to Anytime typically are not interested in swimming pools, climbing walls, and karate classes. All they want to do is work out...
Next, Anytime's prices is typically lower then memberships at large gyms. This is because members are only paying to use weights and cardio equipment. Members are not being forced to pay for features that they may not use.
The location of an Anytime Fitness is key to their success. Big gyms have the ability to attract people from farther distances from the gym then small gyms do. Therefore, franchisees have to be absolutely sure that the location they choose will support their business. This is probably the riskiest part of opening an Anytime.
Finally, Anytime Fitness offers a few corporate promotions. These include: 7 day passes, discount coupons, and apparel that are offered at all locations. In addition to the corporate promotions, individual Anytime owners are able to run promotions as they please.
Tuesday, October 12, 2010
Chapter 4: Exploring Your Market
Chapter 4 deals with the process of defining your target market through market research and using that information to develop your marketing plan. In order for marketing to be successful, entrepreneurs must perform market research, through primary and secondary means, to identify their target market(s) and competition.
For this chapter, I chose to look at Restoration Systems, Inc. I want to use Restoration Systems as an example and show that, while the book gives good generic guidelines on how to do research and discover your market, situations can be different depending on the nature of the business and the individual characteristics of the business itself. While reading through the book, I have noticed that the textbook seems to be angled more towards retail businesses, or selling physical goods in some way. In fact, this is something that I have noticed about most college classes and textbooks. While there is simply not enough time to teach specifically every type of business, it seems that business school in general is angled more towards industries that manufacture or sell physical goods. Understandably, if you were to open a retail store from scratch, you would have to make 100% sure that you are going to meet your target markets needs and expectations.
Restoration Systems began a little different then normal. In it's beginning, RSI was another company that was in a similar, but different business. It started out as a fire, water, mold remediation and emergency service company. The target market then was insurance companies. Think about it, as soon as people get off the phone with 911 or the fire department to get them to come put their fire out, who do they call? As soon as they end the call with 911, they dial their insurance company! So, the obvious choice was to market to insurance agents and insurance adjusters (both independent and employed), not individuals. In that type of business it is a little different, you are serving the property owner, but you are working for the insurance company.
When Restoration Systems began, the marketing boundaries that were in place for the franchise were lifted. RSI was created to be a multi-family construction specialist. The previous franchise was only able to do small scale, local jobs. The owner of RSI set out to build a business that had limitless capability in handling any size job. He no longer wanted to do fire clean-ups that lasted 3 days and water damages that lasted 1 day; he wanted to take on full apartment interior and exterior renovations, apartment to condo conversions, and large scale apartment disaster rebuild. This meant that RSI had to get away from only marketing to insurance companies (still responsible for apartment disasters, of course), but also marketing to management companies and property owners. This was a different level of customer. Dealing with local insurance agents, it was easy to develop relationships with them because you have more in common with them: small business owners, live in the same city or area, etc. Management groups and apartment owners, on the other hand, meant large corporations with CEOs, departments, millionaires and even billionaires. "It was a complete change in market for us," explains Darral Simmons, owner of RSI.
Relating this back to the text, you can see that RSI really did not have a clear marketing plan upon starting the business. Construction companies can have many different markets that come and go. As for RSI, it grew to become a multi-family construction company from a company that dealt primarily with residential construction. I believe that the vision of RSI is what lead it to where it is today.
For this chapter, I chose to look at Restoration Systems, Inc. I want to use Restoration Systems as an example and show that, while the book gives good generic guidelines on how to do research and discover your market, situations can be different depending on the nature of the business and the individual characteristics of the business itself. While reading through the book, I have noticed that the textbook seems to be angled more towards retail businesses, or selling physical goods in some way. In fact, this is something that I have noticed about most college classes and textbooks. While there is simply not enough time to teach specifically every type of business, it seems that business school in general is angled more towards industries that manufacture or sell physical goods. Understandably, if you were to open a retail store from scratch, you would have to make 100% sure that you are going to meet your target markets needs and expectations.
Restoration Systems began a little different then normal. In it's beginning, RSI was another company that was in a similar, but different business. It started out as a fire, water, mold remediation and emergency service company. The target market then was insurance companies. Think about it, as soon as people get off the phone with 911 or the fire department to get them to come put their fire out, who do they call? As soon as they end the call with 911, they dial their insurance company! So, the obvious choice was to market to insurance agents and insurance adjusters (both independent and employed), not individuals. In that type of business it is a little different, you are serving the property owner, but you are working for the insurance company.
When Restoration Systems began, the marketing boundaries that were in place for the franchise were lifted. RSI was created to be a multi-family construction specialist. The previous franchise was only able to do small scale, local jobs. The owner of RSI set out to build a business that had limitless capability in handling any size job. He no longer wanted to do fire clean-ups that lasted 3 days and water damages that lasted 1 day; he wanted to take on full apartment interior and exterior renovations, apartment to condo conversions, and large scale apartment disaster rebuild. This meant that RSI had to get away from only marketing to insurance companies (still responsible for apartment disasters, of course), but also marketing to management companies and property owners. This was a different level of customer. Dealing with local insurance agents, it was easy to develop relationships with them because you have more in common with them: small business owners, live in the same city or area, etc. Management groups and apartment owners, on the other hand, meant large corporations with CEOs, departments, millionaires and even billionaires. "It was a complete change in market for us," explains Darral Simmons, owner of RSI.
Relating this back to the text, you can see that RSI really did not have a clear marketing plan upon starting the business. Construction companies can have many different markets that come and go. As for RSI, it grew to become a multi-family construction company from a company that dealt primarily with residential construction. I believe that the vision of RSI is what lead it to where it is today.
Sunday, September 26, 2010
Chapter 3: Creating Business from Opportunity
This chapter deals with the reasons why you may decide to start a business and questions to consider when you think you have a business idea. Before you start a business, you must know who the business will serve, what the business will offer, and how the business will provide a service or product. It's also very important to know who your target market is. If you have a great business that you know will provide the best service or product. but you have no idea as to who will use your business...then you have a big problem. Also, you need to be aware of your competitive advantage, or the "What" that makes you different from your competitors.
Our family construction business seemed ideal to talk about for this chapter. The company has grown very rapidly since we opened about 9 years ago. I believe it is because we have a competitive advantage that causes us to soar over competition. We are small and easy to get a hold of. When a customer has a problem it is very easy for them to get a hold of the owner of the company, my father. Other companies that have the volume that we do are set up like large corporations. Good luck getting a hold of the "President" or "CEO." We have a small staff, but that has worked to our advantage. Our project managers, superintendents, construction managers, and marketers have all been hand-picked by the owner because they are the best of the best. To put it all into perspective... On one hand, you have a large, mega-corp that has a massive office building with hundreds of employees, many of which are not adding much value. On the other hand, you have a small company with about 20 employees and a small building with about 5 cubicles and two offices. Now, they both have the ability and resources to take on a large, multi-building renovation on one of your properties. Who are you going to choose? While it may seem that a large corporation that has things like "employee of the month parking" is the way to go, consider this: If you have an emergency or problem of any scale, you can forget going "to the top" for help....the "top" is cruising in his yacht. This is where our customers recognize our value. We are fast, mobile, and easily accessible. The company, Restoration Systems, has been able to successfully compete and beat out the big guys all while staying a relatively small company.
Our family construction business seemed ideal to talk about for this chapter. The company has grown very rapidly since we opened about 9 years ago. I believe it is because we have a competitive advantage that causes us to soar over competition. We are small and easy to get a hold of. When a customer has a problem it is very easy for them to get a hold of the owner of the company, my father. Other companies that have the volume that we do are set up like large corporations. Good luck getting a hold of the "President" or "CEO." We have a small staff, but that has worked to our advantage. Our project managers, superintendents, construction managers, and marketers have all been hand-picked by the owner because they are the best of the best. To put it all into perspective... On one hand, you have a large, mega-corp that has a massive office building with hundreds of employees, many of which are not adding much value. On the other hand, you have a small company with about 20 employees and a small building with about 5 cubicles and two offices. Now, they both have the ability and resources to take on a large, multi-building renovation on one of your properties. Who are you going to choose? While it may seem that a large corporation that has things like "employee of the month parking" is the way to go, consider this: If you have an emergency or problem of any scale, you can forget going "to the top" for help....the "top" is cruising in his yacht. This is where our customers recognize our value. We are fast, mobile, and easily accessible. The company, Restoration Systems, has been able to successfully compete and beat out the big guys all while staying a relatively small company.
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