Step C

Step-C

Run a profitable business

One of your missions, as the business owner, is to maximize the revenue and minimize the expense to make a decent profit. To maximize your income, think strategically to create a marketing plan and operation plan based on the SWOT analysis (see Chapter 3). When it comes to expenses, be frugal. Penny saved is a penny earned. Make your business vibrant, think continuous improvements, carry out changes in how you serve your customers, and run your business. Think about how you market and operate your business in a noticeably more cost-effective way than your competitors. The key to maintaining your profitability in your competitive environment is to innovate continuously. That is making a positive change to your business looks, what you provide and serve, and how you deliver value to your customer without adding high cost to your business. Continuous innovation should be your routine practice to survive for the long-term and outsmart your competitors.

The marketing plan conveys how you reach out to your customers and promote your product or service sales. The operation plan illustrates day-to-day activities to run your business. These are your game plans to win and sustain your growth.

C-1. Marketing plan

This plan spells out how you will reach out to your target customers to promote your product or service. Outline your market promotion strategies and methods of how you create awareness appeals specifically to your target customers. Think strategically about how you will generate sales leads and achieve your sales goals. Validates that your marketing budget aligns with your methods used to reach out to your target customers.

C-1 (a) Promotion

In this section, describe your most cost-effective ways to spread the word out. Explain how you create and increase your business awareness to target customers and articulate which methods use to achieve. Explain any type of marketing communication, if any, to inform or persuade your brand's relative merits, products, or services. Share your industry knowledge and experience will increase your credibility, and educate your customers through your promotional media. Take up on opportunities, such as speaking engagement at industry events and seminars, and blogs.

Promoting your product or service costs money, and it is considered an investment to acquire customers. So, consider ROI (return on investment) to decide how to spread the words to promote your business. Traditional mass media promotion methods are expensive and do not yield many results, by and large, for a micro business. The customer acquisition cost using yellow pages, newspaper ads, classified ads, and TV commercials are very high. Yet, people do not remember your ad when they need your product or service. Nowadays, people are making use of digital media and internet services to find a vendor or a solution provider.

Let's assume you have a leaky water pipe problem. Chances are you would use your device to go online and Google "plumber near me" to find the list of plumbers. And further, you would probably read some customer reviews before deciding to call that plumber. If you think other people would do the same as you do, it goes to show that your business should have a good website and maintain a good customer rating. A good website is a simple design (not fancy and expensive type), making it easy to find useful information. Build rapport by making content with your target customers in mind. Demystify by including what you can do for them, your location, business hours, FAQ (frequently asked questions), and blogs relevant to customer's problems. Be sure to convey that you have expert knowledge in the line of your business.

How do people know your website exists? Make it easy for a web search engine to find you. It searches for particular information specified in a textual web search query, and a website with recent content updates. Do SEO (search engine optimization) to make your website more desirable to search engines like Google to find it, with specific keywords in your website content. The keywords and phrases most likely used by your target customers. Another reason you need to know your target customers well. To address another factor of SEO is to update your content from time to time. Do blog postings to refresh your website content. There are a couple of other ways to promote your website. One of them is to distribute a handout describing your business with your website access information. Distribute flyers at a high pedestrian traffic area or distribute door-to-door in your target neighborhood area. The flyer's purpose would be to create awareness of your product or service and lead customers to your website. Another method is to alert your customer about the website using digital media to your target customers. Get approval from your customer to send any promotional message. Then send email and text introducing your website. Either way, you are making use of online tools to increase awareness and encourage customers to contact you.

However, above all, having your customers tell others what they think about your business is the best way to gain new customers. Providing an excellent customer experience is the most effective way to encourage word-of-mouth and referrals. Customers tend to return and give your business their loyalty if they have a positive experience - more about word-of-mouth marketing in Chapter 3.

C-1 (b) Positioning

In this section, describe how you want to position your business in the minds of the customers. The positioning is a chance to influence the consumer’s perception regarding your offering relative to competitors. The objective is to establish your business's image or identity so that consumers perceive your business in a certain way favorable to you. Explain how you distinguished your business from the competitors. For instance, are you the low-price solution, or provide value-added services at higher prices? Do you offer something that your competitors don't offer, such as product or service with specific characteristics, or with particular beneficial value or specific use? Let's say you run a restaurant. Would you say your restaurant is an "inexpensive" with a low-priced menu, "midrange," or "high-end" with an upscale ambiance fine dining experience? Creating a positioning statement will help you differentiate your business and how you want it to be perceived by consumers. Do a SWOT analysis (see chapter 3) to identify your “strengths”, and use them as your competitive advantage. Leverage your "strengths" and focus on how you can exploit these opportunities. If you fail to develop a crystal clear, unique advantage image in the marketplace, competitors may position your business in a disadvantaged position. While you are building your brand image, think about logos and color to use in your business.

C-1 (c) Customer acquisition

In this section, describe the most cost-effective methods to acquire your new customers. The term CAC (customer acquisition cost) is a financial resource invested in gaining new customers. To calculate CAC, dividing all the costs associated with acquiring new customers, like promotional marketing expenses, by the number of customers acquired in that period. For example, if you spent $2000 on marketing promotions in a year and received 100 new customers in the same year, the CAC is $20 per new customer. Consider it as the ROI (return on investment). It means you need to make more than $20 profit per new customer to pay for the $2000 marketing promotion. Some of the cost-effective ways to spread the words about your business are your business website, word-of-mouth, email marketing, door-to-door sales, and printed brochures such as flyers and pamphlets. Do it a more cost-effective way than your competitors do.

In the example of Jack's Sandwich Shop, he went door-to-door at nearby offices, giving out discount coupons, and having them sign up for a loyalty program. Jack collected customers' contact information when customers sign up for the program, including telephone number and email address. By doing so, Jack sent out further promotional messages about daily specials and upcoming promotions.

C-2. Operation plan

This plan details your daily operations to deliver your product or service. It should align with your business model and the goal statements. Outline what you do, when you do, how you do, and how you make use of human, physical, and financial resources. Put it simply; your operations plan is a manual for operating your business. You need to efficiently implement your business process to maintain the operating cost low enough to make a decent profit. Outsource any work if it can do better, cheaper, and faster than you can. Also, use any tools that can help your productivity and give better service to your customer. The critical elements of successful operations are the ability to sustain your value delivery, the ability to innovate continuously, and the ability to deliver defect-free products or services on-time.

C-2 (a) Resource requirement

In this section, describe any resources you need to run your business—for example, financial capital, workplace equipped with tools, skilled know-how, and dependable people. You may require financial resources to cover your equipment acquisition and operating expenses until your business becomes quite profitable and financially be self-sustaining. Other resources you need to run your business are, for example, a good workplace, office, store, workshop, and specific know-how. In a service business, since you are selling your skill time, the most productive use of your time is a one-person operation. If you hire any workers, your productivity goes down due to managing overheads, such as communicating with workers, job coordination, and labor-related management. If your business needs to hire workers, you need to markup worker’s rate by three or more to cover for wages and overhead expenses to make a decent profit.

C-2 (b) People you need

In this section, describe who you need to hire. If you do need workers, do not hire casually. Engage your energy to choose selectively. An excellent worker (team member) can significantly increase your business output, whereas a lousy worker can drag down your business. Skilled labor human resources are one of the most dominant and expensive resources. Therefore, it needs careful planning. When you need people, reaching out to your network is a way to find new talent. Another way is to use an employment agency. Most agencies are HR (human resource) professionals, and sometimes money well spent as they handle all the time-consuming tasks. In either case, create a clear job description and qualification criteria for the job.

A well-documented job description will help you select a new worker objectively. It will avoid pressure into hiring a bad one, especially if the applicant’s character does not fit with your style and the job requirement. Try to avoid people with lots of jobs in a short period and people you feel uneasy about. For a small business, trusting teamwork is crucial. Select only the people who match closely to the job description and have the required qualifications. And then, check the job applicant’s references by calling on the phone to learn more about the applicant’s previous job behaviors. While on the phone, ask and verify the skills listed on the applicant’s resume, so you know what it says on paper just looks good. Consider carefully whether the applicant will fit into your existing team. Inserting the wrong person into the mix can upset a successful team.

While you write a job description, think about the role your new worker will be performing. Good job description includes essential responsibilities, activities, qualifications, and skills. For instance, spell out the technical and physical qualifications needed to take on the role to carry out the day-to-day tasks, including any special requirements. Make sure the job description outlines your expectations. And make the job position attractive to potential applicants.

If the new worker turns out to be an excellent worker, give proper compensation and empowerment to actively contribute to your business. You may want to consider bonuses or profit-sharing for your superb valuable workers to reduce the chance they leave.

C-2 (c) Legal requirements (licenses and permits)

This section describes the necessary regulations, rules, codes, or laws that you need to comply with. As a sole proprietor, the default business name is your full name, such as "Jack Smith." Or, you can register a business name FBN (Fictitious Business Name) or DBA (Doing Business As), such as “Jack’s Sandwich Shop”, at your state's Department of Commerce. When you register your business name, try to think of a unique, compelling, descriptive, and memorable business name. You want your business name to have an impact on people so that it is easy to remember. While you are at your state's Department of Commerce (or at their website), look into any legal restrictions on what you are doing. Inquire the steps you need to comply with any government licenses, permits, approvals, codes of practice, standards, and guidelines. Check with your city and county for specific licenses and permits, such as liquor licenses to serve alcohol.

Any business entity that operates as a corporation, or has employees will require an EIN (Employer Identification Number) from the IRS. An EIN identifies your business for tax purposes. It is like a Social Security number for your business. And, you can use EIN to open a business bank account, file tax returns, and apply for business licenses. Depending on your state, do not forget to register for the GET (General Excise Tax) at your state's Department of Taxation.

C-2 (d) Place of doing business

In this section, describe where your place of business will be and why. Location is vital for businesses because you rely on visibility and exposure to your target customers. Consider these factors, such as foot traffic, customer convenience, parking space, and occupancy costs affected by the place of doing your business. Even the manufacturers should be concerned with the location in respect to keeping operating costs down. For example, locating near the critical suppliers, and accessible for pick-ups and deliveries. When selecting a site, consider the zoning rules, other businesses nearby, and neighborhood ambiance. And then, create a budget that you can afford to spend on the place, including all the costs such as rent, tax, insurance, utilities, and upkeep.

Suppose you need a place to rent. Usually, it is better to sign a lease than a month-to-month rent. Typically lease agreement is more favorable to a tenant, and you will know your rental cost is steady for the coming year. The downside of a lease agreement is when you decided to terminate. You will be responsible for the rent payment until the space owner finds a new tenant.

C-2 (e) Your credit policies

In this section, describe your policy on credit sales. You may want to extend (offer) credit to specific customers and accept cash, checks, and credit cards on most customers. With business credit, customers purchase products or services and receive an invoice later on. Customers may spend more on credit because they don't have to pay at the time of sale. Furthermore, extending credit can keep your competitiveness and may broaden your customer base. Although the credit can encourage spending, it could cost your business. Your customers might default, leaving you with slow cash flow and bad debts. If you decide to extend the credit, determine who you will extend to (not to everyone), dollar figure of the limit of the credit, and establish on payment terms. And, do a credit check of your customer. You can do the credit check by contacting a service bureau like Equifax with the customer's full name, address, and social security number.

After a customer purchases with credit, send them an invoice. The invoice includes information about the purchase, the invoice date, the payment due date, and how to pay. When you sell on credit, build a delayed cash flow factor into your financial forecast. You may not see any money coming in for a while. In some cases, you can ask for a deposit or a partial payment upfront.

C-2 (f) Production of goods (manufacturing)

In this section, describe the methods you create finished products for sale in the most cost-effective ways. Explain the operation involving the manufacturing of your goods, the production process, any equipment used, your capacity to produce, and the cost to build what you sell. Show how you can obtain what you need, such as the right equipment, staff, and capability to do the job, and getting a product from you to your customer. Getting your products to the end-user, through a physical transfer with intermediate parties, is referred to as 'distribution channel.' Depending on your case, this series of transfers can include wholesalers, brick and mortar retailers, online marketplaces, or sell directly to consumers. The distribution channel you choose determines how your products are handled, how it is delivered, and how you are getting paid. For example, the use of e-Commerce can be one of your distribution channels, whether you are selling through your website or an online marketplace, such as Amazon. Take time to learn about technology platforms you will use to operate your e-commerce site. Get to know and select a proper hosting web service, shopping cart provider, web design service, payment processing service, etc.

C-2 (g) Suppliers

This section describes who provides vital raw materials, supplies, or services to run your business. You rely on others to provide what you need. When you are selecting suppliers, the price certainly is one of the essential criteria. However, reliability is probably the most critical factor to look for in selecting suppliers. Suitable suppliers will ship the right number of items, as promised, on time to arrive in good shape. Don’t neglect small suppliers as your choice of selection. You might get more attention and possibly better service and reliability than a much larger supplier.

Further, consider splitting your orders among two separate suppliers. A dual supplier can provide you with a backup as well as a high profile. Suppliers can be essential sources of information, helping you evaluate the potential new products and identify opportunities.

C-2 (h) Inventories

In this section, describe how you control having the right items in the right quantity on hand. Try to avoid products being out of stock for popular items or overstock and your money tied up in excess stock. Out of all business expenses, neophyte business people tend to underestimate the cost of carrying the inventory. If you can forecast the demand accurately, that would be ideal. But it is not possible. Many small business owners rely on the use of inventory lists, spreadsheets, or software technology to try to manage their inventory. And, periodically, you still need to count your inventory to verify what you have in stock matches what you think you have. A trick of managing inventory is to put labels on each item. Use consistent description on the label, such as item numbers, or defined names. And, a consistent measure of units. If the inventory you need to manage is small, spreadsheets such as Excel will do.

C-2 (i) After-sales service

This section describes all the things you do for the care and feeding of your valued customers after buying from you. For a small business, after-sales service can be a competitive advantage against larger companies because your chance of talking directly to customers is much higher. Consider after-sales service as a part of the sales life cycle. When you help your customer get the most out of your product or service, they will be happier with it. That makes your customer more likely to order from you again and make word-of-mouth recommendations to others. That makes the circle back for more future sales. One way to proactively do after-sales support is to call them and ask them about their experience using your product or service. While you are talking to customers, ask for referrals, and reward them when you get it. Ask your customer to review your business with easy to follow instructions, so their effort is worthwhile. In regards to referrals, focus on the value of your product or service and how a customer can share the benefits it has brought them. Your customers should be the first to know when you roll out a new feature that will give your customer an even more excellent experience. Think of it this way, the cost of after-sales service is much cheaper than running a promotional ad to acquire new customers.

C-3. Financial plan

Each business endeavor must make a profit and be able to make cash flow to survive and grow. Developing a financial plan will help you assess your financing needs. While you are making the plan, keep notes on the assumption you made to create these estimates. Later on, when you review, you can understand the reason for the assumptions you made in your financial projections and judge whether these projections need to be adjusted.

You will need to keep accurate business records to track your revenues and expenses. And, to file your tax correctly. There are accounting service providers who can manage your accounting and bookkeeping needs. However, you can do it by using a spreadsheet tool such as Excel or invest in good accounting software. The right accounting software can save plenty of time on accounting while keeping accurate records. Some software tools have useful features. For instance, it helps you determine whether your business is making enough money and making purchasing decisions based on the budget.

C-3 (a) Startup expense

This section describes the expenses involved in opening for business and the source of funding. Provide a breakdown of how much you need for the capital and initial operating cost. For instance, money to buy new equipment and cover operating costs like rent, utilities, wages, marketing, and IT communication costs.

To cover your startup cost, raise as much cash as you can. For example, withdraw your personal savings and sell any asset you own. Borrow anything you can, instead of purchase, to minimize the cost of startup. Some cases are borrowing equipment, essential machinery, fixtures, or partner with existing businesses to use any of their spare capacity until you're profitable enough to buy your own. Until that time, be frugal. Be sure to explain all the assumptions to back up the figures. Opening a new business tends almost always to cost more than expected. You need to be prepared for the unexpected cost to pop up.

C-3 (b) Balance sheet

This section shows a shot of your business's financial condition at a set moment, such as your business's first-day opening balance and your projected balance 12 months later. A balance sheet covers assets, liabilities, and owners' equity. At any given time, assets must equal liabilities plus owners' equity.

C-3 (c) Month-by-month income projection

This section shows profits, losses, and cash on hand for the next 12 months period. Creating your projection for the month-by-month income and expense statement will help you foresee the next 12 months' financial situation. The month-by-month cash on hand (it is like balancing your checkbook at the end of each month) will help you see the cash flow. Create estimates based on your marketing plan, operation plan, and your prospect of sales projection. This month-by-month projection helps track how much cash your business has on hand at any given time. This projection is like a forecast for your business checking account. When it comes to projecting your monthly expenses, plan on paying your bills promptly on time. In today's low-interest environment, the time value of money does not help you much. Instead, for a micro business owner, paying promptly to have a good credit rating is valuable. Furthermore, paying bills on prompt builds trust; it builds a good relationship with your supplier and maintains a positive credit rating. Seeing the money come and leave monthly is different from looking at a yearly profit-and-loss projection.

Profit and loss projection shows how much profit you will make based on sales income, cost of sales, and expenses. Sales revenue is all the money you take into your business. The cost of sales is the direct cost of the product or service you sell. Expense is overhead cost independent of how much you sell. Some examples of expenses are advertising, payroll, insurance, rent, equipment depreciation, office supplies, and any outsourcing services you expect to use. Then calculate how they impact your profit margin. Do a "breakeven" analysis. Estimate how many items, or hours of service, you will need to sell each month to cover all your costs and expenses to come out even.

One of the pitfalls is the mismatch of what you plan to do (as described in marketing and operation plans) and figures in your 12-month projections. For example, if your marketing plan calls for running ads on Facebook and Tweeter, make sure that the cost of running such advertisements is reflected in your 12-months projection numbers.

Cash flow projection is money that comes into and goes out of your business daily, weekly, or monthly. It is impacted by sales and expense fluctuations in each period. Positive cash flow is when money comes in is higher than cash goes out, in that particular period. Negative cash flow is the opposite.

Reviewing your month-by-month projection with the actual result each month helps you assess your current situation. Like information on a dashboard on your car, any info on your month-to-month data gives you the current health of your finances and indicates future outlook.