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.

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.

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.

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.

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.

Chapter 2: The Business Plan: Road Map to Success

I believe it is safe to assume that almost every entrepreneur has had to develop a business plan before starting his/her new venture. A business plan is a document or "book" that includes the elements that will support the success of your venture. It is a broad over-look of all of the key components of a business and they include: Marketing strategy and plan, management and operations plan, financial analysis and projections, and the ever-important funding request and exit strategy.

For this chapter, I thought it would be appropriate to talk to a good friend of mine. His name is Steven Heard and he is the owner of Anytime Fitness in Germantown. Steven (who I will call Steve because "Steven" is weird to me being as that's what he really goes by) is an alumni of the University of Memphis and he holds a degree in marketing. I asked Steve a few questions pertaining to this chapter and his own experiences in formulating a business plan. Assuming that most new entrepreneurs have never developed a business plan before, I asked Steve about how he went about creating his own. I did not know rather or not Anytime corporate provided a template, or if they let the franchisee do it on their own. His answer follows:

"Anytime you are asking for money you better have one.  The franchise has a template for us to use that includes things like national market data that are applicable across the board.  I was responsible to get all of my individual numbers.  AF has connections with several financial institutions that it has worked with in the past that are familiar with our business model and our success.  AF also has a financial aid dept. that basically helps make sure we have everything in order then they help broker the deal with a lending institution."

Steve is in a very good location. He is in a brand new, high-end shopping center smack-dab in the center of Germantown. For a business like his, location is very important and is something that would be a key detail to include in a business plan. So I asked Steve why he chose the location he is in and if he would have done anything differently. Steve responded:

"Location, location, location.  Germantown is the wealthiest city in East TN.  We chose this shopping center because it was new and thought that would help create excitement.  If I could do it again I would want my gym right on Poplar as opposed to being in the corner."

Finally, I was wondering what a franchise like Anytime Fitness would use as a marketing plan. According to Steve, he only runs promos when he knows it is gym "season." His busiest months are in January, March (for bikini season), and October (when people get in shape for the holidays).  Also, he markets by using print direct mail. He has had the best results from that, even though it is the most expensive.

Chapter 1: Entrepeneurs Recognize Opportunities

Chapter one covers the basics of entrepreneurship. It covers a few of the costs and benefits of being an entrepreneur, and more simply, the essence of an entrepreneur. To me, an entrepreneur represents someone who is possibly tired of being "just an employee." They are people who believe that they can do something or make something better or more efficiently, or they have something completely new that they believe will fulfill a need or desire of consumers. For many people, thinking about someone taking on such extreme risk warrants them being labeled as "crazy." However, I believe this "craziness" is what has made many of these people as successful as they are. It's that crazy-gene that drives them to keep on going, even when the odds are against them.

For this blog entry, I thought it would be appropriate to talk to my father. He is the owner of a nationwide construction company for which I plan on taking over some day. It started out as a Servpro franchise that he ran out of our garage. Then, it grew and years later he decided to sell the franchise. According to my father, Servpro was turning into something like the government. "They were growing, but there was no value-added. All they were doing was placing too much bureaucratic control on their franchisees." In short, I believe it is safe to say that a franchise like Servpro is enough to fulfill many people's entrepreneur drive. However, it was not enough for my father. He wanted complete control of his own business. So, he opened up Restoration Systems, Inc. At first, the company did a bit of everything: residential, small commercial, fire-rebuilds, and mold mitigation. I asked him what the biggest challenges in growing the business were. According to him, the hardest thing was marketing and developing a client base. In addition to that, there was licensing that he needed to get that Servpro did not require. After some time, the company began to lean in the direction of multi-family renovation and restoration. Simply stated, he specializes in apartment construction. Even more, the company has developed a reputation as experts in fire damage reconstruction.

Intro

For my blog, I am going to be getting information from two companies. The first one is Anytime Fitness in Germantown. The owner, or "entrepreneur," of the business has agreed to help me out. In addition to the owner of Anytime, I may call upon an officer of our family business (Restoration Systems, INC.). We are a nationwide construction company specializing in multi-family renovation and fire restoration.