NxLeveL Instructor Presentation

NxLeveL Instructor Presentation
“Business Plan Basics” NxLeveL Guide for Micro-Entrepreneurs

NxLeveL Guide for Micro-Entrepreneurs-OHD 1-a
Course Overview Session 1: Keys to Your Business Success Session 2: Assessing Your Business Idea Session 3: Business Planning Session 4: The Marketing Plan Session 5: Government Regulations Session 6: Management Session 7: Market Analysis Session 8: Product and Pricing Session 9: Placement and Promotion Session 10: E-Commerce NxLeveL Guide for Micro-Entrepreneurs-OHD 1-a

Course Overviewcontinued
Session 11: Selling Success Session 12: Where’s the Cash? Session 13: Managing the Money Session 14: Financial Tips and Tools Session 15: Bringing It All Together NxLeveL Guide for Micro-Entrepreneurs-OHD 1-b

Participant Materials
SESSION OUTLINESOne Page Session-by-Session Outline for the Course TEXT  “Business Plan Basics” NxLeveL® Guide for Micro-Entrepreneurs WORKSHEETSNxLeveL® Micro-Entrepreneur Business Plan Worksheets RESOURCE GUIDENxLeveL® Business Resource Guide OTHERClass Handouts Supplemental Material NxLeveL Guide for Micro-Entrepreneurs-OHD 1-c

NxLeveL Guide for Micro-Entrepreneurs-OHD1-d
Class Agenda Class Opener Instructor Topics Guest Speaker Break Refreshments Networking Activity Work Hour Discussion Groups Worksheet Activities Business Plan Sections NxLeveL Guide for Micro-Entrepreneurs-OHD1-d

Expectations & Ground Rules
Attendance Absenteeism Punctuality Participation Discussion Confidentiality Listening Assignments Reading Worksheets Written Business Plan Sections Format General Safe environment to test ideas Ask questions Add ground rules as needed NxLeveL Guide for Micro-Entrepreneurs-OHD 1-e

Traits of Successful Entrepreneurs
Passion Persistence Good Health, High Energy Communication and Listening Skills Creativity Self-Confidence Willingness to Work Hard NxLeveL Guide for Micro-Entrepreneurs-OHD 1-1

NxLeveL Guide for Micro-Entrepreneurs-OHD 1-2
What Are Your Goals? Your goals may focus on: Yourself Family Children Health/weight/exercise Friends/relationships Further education/degree Job/career Cars/vehicles Home ownership Starting a business Travel/vacation Retirement NxLeveL Guide for Micro-Entrepreneurs-OHD 1-2

Personal Assessment Why do you want to start a business? What special skills, experience, and knowledge do you have? How’s your personal financial health? Do you have a mentor or advisor? Can you get one? NxLeveL Guide for Micro-Entrepreneurs-OHD 1-3

The Risks of Entrepreneurship
Failure: Can you bear the emotional and financial risk of failure? Long Hours: hours per week is normal Family Strain: Potential strain on relationships because of long hours No Regular Paycheck: How will you support yourself and your family? No Health Benefits: No employer-provided health coverage Isolation: You’ll be working by yourself much of the time Debt: You may have to take on additional debt Responsibility: Everything may rest on your shoulders Stress: New emotional, financial, and physical pressures NxLeveL Guide for Micro-Entrepreneurs-OHD 1-4

The Rewards of Entrepreneurship
Success: You’ll be able to support yourself, and hire others! Independence: You get to be your own boss Learning: No matter what happens, you’ll have valuable new skills and knowledge Self-Respect: Few things are as rewarding as succeeding through your own talent and hard work Recognition: It’s always nice to be noticed…and it can lead to new opportunities, too! Family Benefits: You’ll have something special to leave your children FUN: You can make money doing something you really enjoy! NxLeveL Guide for Micro-Entrepreneurs-OHD 1-5

Why Do Businesses Fail? Poor management No business plan Don’t listen to customers Don’t set prices appropriately Poor cash flow management Don’t ask for help NxLeveL Guide for Micro-Entrepreneurs-OHD 1-6

Why Do Businesses Succeed?
Careful planning Clear focus and purpose Offer a unique product Understand customers’ needs Sell at the right price Seek and follow expert advice Get help when necessary Understand industry and competition Do regular bookkeeping Know how to keep existing customers, and get new ones Understand cash flow management NxLeveL Guide for Micro-Entrepreneurs-OHD 1-7

Professionalism in Business
Health and Hygiene Personal ImageFirst Impressions REALLY Count! Appearance and Dress Etiquette and Manners Always use the magic words: PLEASE and THANK YOU Be on time Keep your promises Respect people and be courteous Follow up with thank-you notes Return all phone calls Call ahead to confirm appointments NxLeveL Guide for Micro-Entrepreneurs-OHD 1-8

Check Your Verbal Skills
Speak at a comfortable pacenot too fast, not too slow Make sure people can understand you Speak at a good volume—not too loud, not too quiet Avoid slang and swear words Answer the phone slowly and clearly Practice talking into a tape recorder and play it back… How does it sound? NxLeveL Guide for Micro-Entrepreneurs-OHD 1-9

Check Your Nonverbal Skills
Stand and sit straight, but comfortably Make eye contact Don’t yawn when someone is talking with you Respect people’s “personal space” keep at least 18” between you & your listener Don’t fidget, rock, tap your feet, etc.it looks like you’re bored Look confident and proud of your business Smile! Know what signals your different facial expressions send to your listener Practice shaking handsit should be firm (not like a vice grip, but not like a wet rag, either!) Practice talking into a mirror… Do you look comfortable and professional? NxLeveL Guide for Micro-Entrepreneurs-OHD 1-10

Written Communication Skills
Make written communication Simple, Short, Specific Make sure it answers: Who What Where When Why How Don’t write when you’re angry or upset. Sleep on it…you may feel differently the next day! NxLeveL Guide for Micro-Entrepreneurs-OHD 1-11

Check Your Listening Skills
Stop what you’re doing and pay attention to what the other person says Maintain eye contact…look alert and interested Prove that you’re listening by summarizing points and asking questions Listen, understand, judge carefully…and then react NxLeveL Guide for Micro-Entrepreneurs-OHD 1-12

Networking Tips Have a purpose for networking Have a confident handshake Be aware of your body language Wear something unusual to spur conversation (unique pin, watch, tie) Always carry your business cards with you Be able to talk about more than just the weather At a networking event, don’t try to juggle food and drinks Follow through on promises you make Set up a system to keep in touch with your network If you’re not comfortable networking, learn from a pro NxLeveL Guide for Micro-Entrepreneurs-OHD 1-13

What Are Your Time Wasters?
TV Talking on the telephone Not keeping lists; poor planning Disorganization Unclear goals Lack of motivation Procrastination No schedule; no procedures Interruptions from co-workers, family, friends Waitingdoctor appointments, long lines, etc. Red tape Always tired Lose or misplace things often Negative attitude Not able to say “No” NxLeveL Guide for Micro-Entrepreneurs-OHD 1-14

Time Saver Tips Set priorities Keep lists; cross off completed items Use a calendar or planner…EVERY day! Combine personal and business calendars Ask family for help with household responsibilities Involve family or friends in the business as appropriate Complete difficult tasks during your peak time Call ahead; confirm appointments Set time aside each day to handle the unexpected Set working hours and family time Learn to say “No” Create agendas for meetings Reward yourself when major projects are completed Keep desk clear of clutter; file papers immediately Keep business papers in one location Be on time; encourage others to be on time NxLeveL Guide for Micro-Entrepreneurs-OHD 1-15

Coping With Stress Take a break! Step away from the problem for a while Take a walk! Exercise will clear your head Think positively! Refuse to be negative Identify the problem, and isolate it Ask for help and advice Don’t overreact! Choose to be in charge of your emotions Take control! Manage your time better Breathe deeply Relax, reflect, meditate, pray Carry some inspirational quotes with you Be open to change, and make the most of it NxLeveL Guide for Micro-Entrepreneurs-OHD 1-16

Your Personal Budget The money you expect to come in each month (income, earnings) The money you expect to go out each month (expenses) The amount left over NxLeveL Guide for Micro-Entrepreneurs-OHD 1-17

Personal Financial Statement
What you own: Assets minus What you owe: Liabilities equals What’s left: Net Worth NxLeveL Guide for Micro-Entrepreneurs-OHD 1-18

What You Should Know About Credit
It’s good to establish a credit history Each time you purchase something on credit, or apply for credit, it’s reported to a national credit bureau National credit bureaus track your credit and payment history If you apply for credit, a credit report is generated based upon your name & SS# A “credit score” is a rating assigned to you based upon your credit and payment history, and is used by creditors or lenders to make decisions about your application. You can and should obtain a copy of your credit report. Your personal credit will affect your ability to get credit for a start-up business. NxLeveL Guide for Micro-Entrepreneurs-OHD 1-19

How to Protect Your Credit
Obtain a consumer copy of your credit report (small fee) Clear up any disputes on your credit report (in writing) Do not carry too many credit cards Protect your SS#do not give it out haphazardly Don’t apply for credit too often; it will count against you Don’t give your credit card number to telemarketers you’re not familiar with Be aware of hidden costs at check-cashing or rent-to-own establishments NxLeveL Guide for Micro-Entrepreneurs-OHD 1-20

Ideas for Dealing with Bad Credit
Develop a budget and stick to it Obtain a consumer copy of your credit report If you find an error on your report, contact the credit bureau(s) in writing If you are denied credit, find out why Contact creditors to make arrangements to pay back old debt Do not ignore student loans, utility bills or delinquent taxesPAY THEM! Do not apply for more credit Do not incur more debt Keep only one or two credit cards; destroy others and close the accounts Work with a reputable credit counseling or debt management service Be wary of quick advertisements to repair creditthere are no easy cures Do not automatically file bankruptcy; it can be more damaging in the long run NxLeveL Guide for Micro-Entrepreneurs-OHD 1-21

Credit Bureau Information
Trans Union Corporation Experian Equifax Also contact your local Consumer Credit Counseling Service (CCCS) 1,400 offices nationwide NxLeveL Guide for Micro-Entrepreneurs-OHD 1-22

Business Idea Sources NxLeveL Guide for Micro-Entrepreneurs-OHD 2-1

Types of Businesses Characteristic Mfg. Service Retail Start-up costs High Low Medium Start-up time Technical Skills Selling skills Creative skills Medium/High Cost Pressures Technology Business Location Risk to Entrepreneur NxLeveL Guide for Micro-Entrepreneurs-OHD 2-2

What Can Make Your Business Unique?
Features (different size, color, format, etc.) Your location Offer things that cannot be found elsewhere New invention Use of materials (green, recycled, American-only) Pricing, guarantees Customer service policies Unique packaging Individual artistry (e.g., crafts) Add-ons or extras that come with a purchase Your experience Delivery policies / timeframes NxLeveL Guide for Micro-Entrepreneurs-OHD 2-3

Who Are Your Customers? Gender (male or female) Age or age range Income level Education level Residence location Employment/job location Worker type (professional, hourly, etc.) Marital status (married, single, widowed) With or without children Renter or home owner Lifestyles/interests (sports, arts, pets...) Level of familiarity with your service Beliefs/Opinions Specifics to your business NxLeveL Guide for Micro-Entrepreneurs-OHD 2-4

What Do You Need To Know ? Who? What? Where? When? Why? How? NxLeveL Guide for Micro-Entrepreneurs-OHD 2-5

Start the Research Process Things to learn about…
Your niche The need for your product Customer identification Competition Location Pricing Costs/financing information Regulations, licensing, certification NxLeveL Guide for Micro-Entrepreneurs-OHD 2-6

Is Your Business Idea Viable?
Work in your industry on a part-time basis Get a business mentor and learn from him or her Volunteer for a small business owner to learn day-to-day operations If you have a product, test it at a trade show, community fair, or block party Call sales reps that supply your industry Talk with local realtors, business owners, bankers, elected officials, etc. Research the competition – start with the phone book Contact local economic development and/or government agencies NxLeveL Guide for Micro-Entrepreneurs-OHD 2-7

Where to Begin… Accessing Business Resources
Public Library Trade Associations Published Reports and Articles Studying the Competition Talking with Customers Suppliers/Vendors Local Economic Development or Business Resources Banks Internet Small Business Administration NxLeveL Guide for Micro-Entrepreneurs-OHD 2-8

Questions About Business Planning
Isn’t planning for “big business” only? How does planning help management? Can’t I hire someone to do this for me? How can I know all the answers? How often do I have to do this? What if I don’t complete the process during class? What’s in it for me? NxLeveL Guide for Micro-Entrepreneurs-OHD 3-1

The Planning Cycle NxLeveL Guide for Micro-Entrepreneurs-OHD 3-2

Keys to a Successful Planning Process
The owner assumes the lead in the process The planning process involves everyone in the family and business The plan reflects reality There is a contingency plan for the worst-case scenario The goals and objectives are achievable and clear The plan is flexible The plan is reviewed often, and revised when necessary NxLeveL Guide for Micro-Entrepreneurs-OHD 3-3

Managing Your Personal and Business Goals
Goals: Dreams with deadlines Objectives: How you’ll get there (The steps to reach the goals, including what, who, when) Business goals can be set for many parts of your business: Sales volume Number of employees Desired owner compensation Profit Time commitment Other: NxLeveL Guide for Micro-Entrepreneurs-OHD 3-4

NxLeveL® Micro-Entrepreneur Business Plan Outline
Cover Page Table of Contents Section I. Executive Summary Section II. Personal Background Information A. Personal Skills and Experience B. Personal Financial Resources Section III. Business Concept A. General Description of the Business B. Business Goals and Objectives C. Industry Information Industry Background Information Current and Future Industry Trends Business Fit in the Industry Section IV. Business Organization A. Ownership, Regulations, and Contracts Ownership Government Regulations and Taxes Contracts and Leases B. Management Issues Managing People Internal Management Team Employees Outside Services/Advisors Risk Management C. Managing Books and Records NxLeveL Guide for Micro-Entrepreneurs-OHD 3-5

NxLeveL® Micro-Entrepreneur Business Plan Outline (Cont.)
Section V. The Marketing Plan A. Product Description Product Description Features/Benefits B. Market Analysis Customer Analysis Competitive Analysis Market Potential C. Market Objectives, Strategies, & Tactics Product Lines Positioning Packaging/Branding Pricing–A First Look Placement (Distribution) Promotional Strategies Customer Service Section VI. The Financial Plan A. Investment Required for Start-Up Start-up Costs/Needs Investment Required–Bank Loan/Self B. Cash Flow Projections Monthly Cash Flow Projections–Year One Notes to Cash Flow Projections Annual Cash Flow Projections—Years Two and Three C. Additional Financial Information Summary of Financial Needs Personal Financial Statement D. Conclusion Attachments NxLeveL Guide for Micro-Entrepreneurs-OHD 3-6

Strategies and Tactics
Overview of Marketing Research Study the industry…then study the customer, competition and location. Analysis Analyze your research about the industry, customer, competition and location. Analyze your competitive advantage. Strategies and Tactics Determine the best method of getting your goods and service to market, based on your analysis NxLeveL Guide for Micro-Entrepreneurs-OHD 4-1

Contents of the Marketing Plan
PRODUCT DESCRIPTION: Features and benefits (what makes it different or better?) Design and material choices Life cycle and seasonality MARKET ANALYSIS: How big is your target market? Who are your customers? (Demographics and psychographics) Who are your competitors? What are their strengths and weaknesses? What are the political, economic, social, and technological trends in your market? MARKETING OBJECTIVES, STRATEGIES, AND TACTICS: What are your business’s objectives? How will you achieve them? What’s your business niche? NxLeveL Guide for Micro-Entrepreneurs-OHD 4-2

Sales Forecasting Methods
Breakdown Forecasting: Start with largest population, and break it down to estimate sales from target customers Buildup Forecasting: Estimate size of each market segment, and add them to get a total Indirect Forecasting: Find possible indicators of sales when specific market data are missing NxLeveL Guide for Micro-Entrepreneurs-OHD 4-3

Primary and Secondary Sources
Government (federal, state, local) Small Business Development Centers Women’s Business Centers U.S. Small Business Administration Trade and industry associations Chambers of Commerce Local newspapers and magazines Census data Business magazines PRIMARY: Interviews Surveys Focus groups NxLeveL Guide for Micro-Entrepreneurs-OHD 4-4

Research Tools Libraries (Public, University/College, Private) Online and offline Trade Associations Business Periodicals State and Federal Resources Local Resources (Chambers of Commerce, SBDCs, WBCs, BICs) Professional Research Companies NxLeveL Business Resource Guide Studying the Competition Surveys (focus groups and interviews) Observation NxLeveL Guide for Micro-Entrepreneurs-OHD 4-5

Ways to Contact Information Sources In Person Telephone Facsimile (Fax) Internet U.S. Mail Express Delivery Services NxLeveL Guide for Micro-Entrepreneurs-OHD 4-6

Drawing Industry Conclusions
How has the industry developed? How do small businesses operate within this industry? What are the current growth patterns in the industry? What is the industry’s size at present? What’s projected a year from now? Five years from now? Are there any niche markets that are hot? How does international trade affect your industry? How will current and new government regulations affect your industry? How will technology affect your industry and the small businesses within it? NxLeveL Guide for Micro-Entrepreneurs-OHD 4-7

Sole Proprietorship Advantages Easy to form and the simplest way of doing business Owner has complete control Owner receives all the income Avoids double taxation Disadvantages Unlimited liability for all acts and debts of the business Fewer tax benefits The business dies when you die Can’t expand the business through new owners and use of their money NxLeveL Guide for Micro-Entrepreneurs-OHD 5-1

General Partnership Advantages Fairly simple to set up Combination of resources & talents Personal tax benefits Disadvantages More recordkeeping requirements Unlimited liability (including for each other’s actions) Dissolution upon death of a partner Partnership profits taxed as income to the partners Possible friction between partners NxLeveL Guide for Micro-Entrepreneurs-OHD 5-2

Limited Partnership Advantages General partners can provide additional source of funding Limited partners have limited liability Allocation of income and losses to owners (no business income tax) Finite existence Disadvantages Initial organizational cost high Limited partners have no control… might be hard to find partners to invest without having authority Compliance with state and federal securities laws NxLeveL Guide for Micro-Entrepreneurs-OHD 5-3

Corporation Advantages Limited liability of shareholders Existence continues even if death of owner or sale of stock Flexibility of financing through outside investors Transfer of ownership by sale/gift of stock Tax benefits available to corporate employees Disadvantages Initial organizational cost high Annual reporting requirements Double taxation if paying dividends NxLeveL Guide for Micro-Entrepreneurs-OHD 5-4

S Corporation Advantages Same as for corporation Taxed at the individual shareholder level Disadvantages Except for the tax consequences, same as for corporation With some exceptions, only individuals can be shareholders Limited number of shareholders Limited to one class of stock Must use calendar year NxLeveL Guide for Micro-Entrepreneurs-OHD 5-5

Limited Liability Company
Advantages Limited liability without limits on management participation Flexible ownership and capital structure No double taxation Allocation of tax benefits among members Disadvantages Initial organizational cost high Poor tax treatment of fringe benefits Ownership transfer must be governed by buy/sell provisions NxLeveL Guide for Micro-Entrepreneurs-OHD 5-6

Cooperatives Advantages Members own and control the business Potential for collective efforts to improve marketing and add value to products Shared expertise in operation is a potential benefit Disadvantages Lengthy process by members to set up (bylaws, major policy issues, direction, board) Effectiveness depends on members dedication to long term Group decision-making and “shared ownership” can be cumbersome NxLeveL Guide for Micro-Entrepreneurs-OHD 5-7

Government Regulations Which Affect YOUR Business?
General Business Taxation Personal Income Tax Business Income Tax Sales Tax Property Tax Business License Fees Employee Regulations Payroll Tax/Withholding Employee vs. Independent Contractor Wage and Hour Regulations Hiring Regulations OSHA Consumer Protection Regulations Warranties Uniform Consumer Credit Code NxLeveL Guide for Micro-Entrepreneurs-OHD 5-8

Government Regulationscont’d Which Affect YOUR Business?
Commerce Regulations Professional Licenses Business Registration Uniform Commercial Code Zoning Regulations Home-based business Signage Manufacturing / retail Bankruptcy Regulations How much protection? Transportation Regulations Customs Environmental Regulations Waste disposal Storage tanks Siting / Buying property NxLeveL Guide for Micro-Entrepreneurs-OHD 5-9

IRS 20-Point ChecklistIndependent Contractor or Employee?
Primary Factors Yes No 1. Does the service recipient have the right to require compliance with significant instructions? 2. Does the service recipient have the right to set the hours of work? 3. Does the service recipient have the right to set the order or sequence of services to be performed? 4. Does the service recipient have the right to discharge the service provider? 5. Does the service provider have the right to hire, pay and supervise assistants as the nature of the work requires? 6. Does the service provider have no ability to realize a profit or loss? 7. Does the service provider have no investment in significant tools, materials and other equipment when such items are necessary to accomplish the task and are customarily provided by the service provider? 8. Does the service provider have no significant investment in facilities when they are necessary to accomplish the task and they are customarily provided? Secondary Factors 9. Does the service recipient train the service provider? 10. Does the service recipient have the right to require oral or written reports? 11. Does the service recipient pay by the hour, week or month? 12. Does the service recipient pay for business and/or travel expenses? 13. Does the service recipient have the right to require personal service? 14. Does the service provider usually not work for more than one firm at a time? 15. Does the service provider maintain a continuing relationship with the service recipient? 16. Does the service provider devote substantially full time to the service recipient? 17. Does the service provider have the right to terminate the relationship at any time without incurring liability? 18. Is the service provider integrated into the service recipient’s business? 19. Does the service provider not make his or her services available to the public on a regular and consistent basis? 20. Does the service provider work only on the service recipient’s property or designated location? Note:  “Yes” suggests employee status. “No” suggests independent contractor status.  More weight should be given to the first eight questions than the last twelve.  If you answered “yes” to any of these 20 questions, proceed with caution. Consult an accountant or tax lawyer who is familiar with the problems raised by hiring individuals as independent contractors. NxLeveL Guide for Micro-Entrepreneurs-OHD 5-10

Basic Contract Terms Performance. What actions must you complete? Price. How much, in what currency? Place of delivery. Where, by what method? Who’s liable? Time to perform. When are goods or services due? When is payment due? Legal remedies. How can you enforce the contract? NxLeveL Guide for Micro-Entrepreneurs-OHD 5-11

What’s in a Lease? What are you leasing? True cost of the lease Payment “escalators” Permitted uses Lease responsibilities (insurance, maintenance, etc.) Renewal options Purchase rights Right of first refusal Exclusivity NxLeveL Guide for Micro-Entrepreneurs-OHD 5-12

Protecting Your Intellectual Property
What needs protecting? Patent Prevents others from copying and selling your invention. Costly to enforce. Trademark Words, logos, symbols, that represent your company. Copyright Protects work that is independently created, such as songs, textbooks, creative writing. Inexpensive to register. Trade secrets Secret processes, methods and information may be protected under Uniform Trade Secrets Act. NxLeveL Guide for Micro-Entrepreneurs-OHD 5-13

Traits of Effective Managers
Build a team and lead it Organize and plan Solve problems Manage money Provide superior customer service Build strong public relations NxLeveL Guide for Micro-Entrepreneurs-OHD 6-1

Business Communication
Written Communication Be clear and to the point Keep duplicates Develop a filing system Verbal Communication Be honest! Don’t make promises you can’t keep! Don’t say anything you wouldn’t put in writing! Phone Etiquette Sound confident and enthusiastic Answer with a greeting Keep message pads handy Always end with “Thank you!” Networking When you get something from a networking partner, always give something in return! NxLeveL Guide for Micro-Entrepreneurs-OHD 6-2

Traditional Organizational Chart
NxLeveL Guide for Micro-Entrepreneurs-OHD 6-3

Optional Organizational Chart
Operations Marketing Owner/ Entrepreneur Finance/ Accounting Other NxLeveL Guide for Micro-Entrepreneurs-OHD6-4

Key Management Issues Learn to let go and delegate Develop your internal team and your external team Look at the big picture Develop management goals and strategies Create a workable structure Assign responsibilities Communication is key Lead by example Get advice Have fun, be creative! NxLeveL Guide for Micro-Entrepreneurs-OHD 6-5

Key Employee Management Practices
Identifying tasks and job descriptions Interviewing, selecting and hiring, and training Setting performance goals Evaluating/measuring performance Creating compensation and incentive strategies Facilitating communication and learning Creating cooperative teams Building in fun and creativity NxLeveL Guide for Micro-Entrepreneurs-OHD 6-6

Elements of a Personnel / Company Handbook
A letter from the founder, team leader, and coach (you!) Company mission statement Employee relations policy Employee benefits package “Principles of doing business” statement Employee performance appraisal procedures Employee problem resolution procedures Vacation and holiday policies Reporting structure and functions NxLeveL Guide for Micro-Entrepreneurs-OHD 6-7

Types of Insurance Covering Your Business General liability Product liability Key-person Business property Business interruption Automobile Electronic data Covering Your Employees Workers’ compensation Life insurance Health/Medical Pension plans NxLeveL Guide for Micro-Entrepreneurs-OHD 6-8

Risk Management Check-Up List
Are my goals written, measurable and realistic? Have I communicated those goals with everyone in the business? Do I understand the goals of other family members and/or employees? Do I know which risks can keep me from attaining my goals? Have I decided which risks I’m comfortable managing myself, and which I should seek assistance with? Have I scheduled regular insurance check-ups for health, life, casualty, property, disability, and long-term care? Do I have a confident relationship with my risk management advisors? Do I understand how much coverage I need to provide adequate cash flow for my business? Will my lender understand my overall plan for my business and help me achieve my goals? NxLeveL Guide for Micro-Entrepreneurs-OHD 6-9

Risk Management Check-Up Listcont’d
Are all of my assets covered in my risk management plan? Do I know what financial records I need to adequately manage my business? To document my borrowing requests? Do I understand the terms and conditions of my borrowing arrangements? Do I have alternative sources of income in case of business slowing, business failure, etc.? Do I have a will? When was it last reviewed? Have I advised family members as to the location of my will, other important documents, etc. Do I have life insurance? Is my list of beneficiaries up to date? Have I explored ways of transferring assets to the next generation? ___________________________________________ NxLeveL Guide for Micro-Entrepreneurs-OHD 6-10

The Purpose of Market Research
You want to identify: Customers: Who will buy your product? Market Niche: Who’s your competition, and where do you fit into the market? Price: What price will make your product competitive? Competitive Edge: What makes you better than or different from the competition? Location: Where will you sell your product to reach your target customer? NxLeveL Guide for Micro-Entrepreneurs-OHD 7-1

Important Info-Gathering Tips
Keep your eyes and ears open Ask lots of specific questions Carefully listen to the answers Honestly evaluate the importance of the answers Don’t let wishful thinking, assumptions, or prejudices affect how you gather or interpret data NxLeveL Guide for Micro-Entrepreneurs-OHD 7-2

Sources of Information
Survey of potential customers Small Business Development Center Chamber of Commerce Library Commercial Sources (local utility companies, market research companies) Trade Associations Stock Brokers Online Resources Phone Book Competition (visit, review advertising materials, buy their product) Census Information Local Zoning Plan Suppliers Test Market Other: ________________ NxLeveL Guide for Micro-Entrepreneurs-OHD 7-3

The Four Ps will guide your research, analysis, and strategies:
The Marketing Mix The Four Ps will guide your research, analysis, and strategies: PRODUCT PRICE PROMOTION PLACEMENT NxLeveL Guide for Micro-Entrepreneurs-OHD 7-4

Features vs. Benefits Features: Size Quality Varieties Types Materials Benefits: What your product will DO FOR your customer (time savings, convenience, status, security, etc.) PEOPLE BUY BENEFITS, NOT FEATURES! NxLeveL Guide for Micro-Entrepreneurs-OHD 7-5

Your Product In Use If you sell something to eat… ask people to taste it. If you offer a service… ask people to use it. If you sell something to wear… ask people to try it on. THEN When people hate it, ask them WHY. When people love it, ask them WHY. Then, ask them more questions about themselves. These are your target customers. NxLeveL Guide for Micro-Entrepreneurs-OHD 7-6

Demographics Age Gender Location Education Occupation Income Level Marital Status Kids / No Kids NxLeveL Guide for Micro-Entrepreneurs-OHD 7-7

Psychographics Needs Security, esteem, love, acceptance, understanding, beauty, good health Values Status, success, greed, simplicity Buying Styles Price, fads, quality, technology, luxury, convenience Cultures Modern, artistic, religious, liberal, conservative, environmental Interests Sports, reading, fitness, cooking, workaholic, gardening NxLeveL Guide for Micro-Entrepreneurs-OHD 7-8

Why Analyze the Competition?
Because You Might: Learn more about what the customer really wants (or doesn’t want)! Discover unserved niche markets Get ideas for marketing, merchandising, product mix Obtain valuable advice, support, information from remote or indirect competition Because You Will: Determine whether or not you have a COMPETITIVE ADVANTAGE NxLeveL Guide for Micro-Entrepreneurs-OHD 7-9

Things You Should Know About Your Competition
Direct or Indirect Competition? Where are they located? What is their brand image? Who are their customers? How do they price their products? How is their overall performance? How is their customer service? What type of promotions do they use? What are their strengths and weaknesses? NxLeveL Guide for Micro-Entrepreneurs-OHD 7-10

Choosing a Location Proximity to customers Neighborhood Convenience Safety (lighting, off-street parking, etc.) Accessibility (ADA) Visibility Foot traffic, vehicle traffic Other complementary businesses nearby Size/floor plan requirements Lease or own Zoning restrictions; landlord restrictions Costs (property, amenities, required improvements) NxLeveL Guide for Micro-Entrepreneurs-OHD 7-11

Questions You Need to Answer:
Your Target Market Questions You Need to Answer: ? Are there enough people in the target market to make enough sales to generate a profit? ? Does it have unique and definable characteristics that will let you develop marketing strategies for it? ? Are there unmet or under-met needs within the target group that your product or service could fill? ? Is there room for growth? NxLeveL Guide for Micro-Entrepreneurs-OHD 8-1

Product Strategies Understand the features and benefits of your products Determine product lines and appropriate product mix (depth and width) Position your product in the marketplace Package your products and your business Develop service enhancements Create a unique brand identity NxLeveL Guide for Micro-Entrepreneurs-OHD 8-2

Choose your business name wisely!
What Makes a Good Name? Choose your business name wisely! Guidelines: Tells people what you do Easy to pronounce Not used by someone else No double or hidden meanings Be careful with acronyms Be creative, but not too cute Not too long Be cautious about using your last name or initials Develop appropriate logo or trademark NxLeveL Guide for Micro-Entrepreneurs-OHD 8-3

Basic Pricing Concepts
VALUE is what your customer believes your product is worth PRICE is the amount of money you charge your customers per sales unit of your product COST is what you spend to make your product or deliver your service PROFIT is what’s left over after you subtract COST from PRICE NxLeveL Guide for Micro-Entrepreneurs-OHD 8-4

Pricing Considerations
What are your costs? What will your customer pay? What image do you want to convey? What does the competition charge? What will the market bear? Where do you want to be positioned? How does a service business determine price? NxLeveL Guide for Micro-Entrepreneurs-OHD 8-5

You Must Understand Your Costs!
Variable Costs Costs that go up or down in relation to sales volume. Example: You sell personalized T-shirts for $10.00 each. Selling Price $10.00 Variable Costs: Raw material (t-shirt) $3.00 Hourly labor $1.00 Sales commission (10%) $1.00 Shipping charge $ .50 Total Variable Costs $5.50 Price minus Variable Costs $4.50 The $4.50 is called the contribution margin because it represents how much each unit of sales “contributes” towards paying for fixed costs and profits. NxLeveL Guide for Micro-Entrepreneurs-OHD 8-6

You Must Understand Your Costs!
Fixed Costs Costs that don’t change regardless of sales volume. Example: Fixed expenses (per month) Rent $ Telephone Insurance Bookkeeping Loan payments Total Fixed Expenses $1,350.00 QUESTION: How many t-shirts do you have to sell each month to pay for your variable and fixed expenses? NxLeveL Guide for Micro-Entrepreneurs-OHD 8-7

Break-Even Analysis NxLeveL Guide for Micro-Entrepreneurs-OHD 8-8

Your Break-Even Point How many t-shirts do you need to sell each month before you pay for your variable and fixed expenses and start making a profit? Break-Even Units Volume = Fixed Costs Price minus Variable Costs Example: Selling Price $10.00 per unit Variable costs $ per unit Contribution margin $ per unit Fixed costs $1,350 / month Break-Even Point in Units = $1, = 300 t-shirts per month $4.50 When you sell t-shirt #301, you will start making a profit for that month. Break-Even = 300 t-shirts x $10 =$3,000 NxLeveL Guide for Micro-Entrepreneurs-OHD 8-9

Planning for Profit ? Can you sell 300 t-shirts per month? ? If it takes 300 t-shirts per month to break even, how many more can you sell to make a desired amount of profit? ? How much profit do you want to make? Example: You want to make $900 profit per month. How many more t-shirts per month do you have to sell? It took 300 t-shirts to just break even After the first 300, $4.50 per t-shirt contributes to profit $  $4.50 = 200 t-shirts more to make $900 per month profit. ? Can you sell 500 t-shirts per month? NxLeveL Guide for Micro-Entrepreneurs-OHD 8-10

Pricing Strategies Cost-based pricing Competition-based pricing Value-based pricing Retail pricing NxLeveL Guide for Micro-Entrepreneurs-OHD 8-11

Distribution Basics Questions You Need to Answer: Where will I distribute my product? Retail location? Wholesalers? Customer’s site? Internet? How will I deliver my product? UPS, express mail services, USPS? Personal delivery? Special packing, warehousing? My office or their office? Will I need someone to help me sell? In-house sales team? Sales representatives? NxLeveL Guide for Micro-Entrepreneurs-OHD 9-1

Distribution Strategies
Direct marketing (to customers or to other businesses) Manufacturer to retailers through intermediaries (sales reps, agents, brokers, wholesalers) Consignment Mail-order catalogs Classified ads Home shopping networks “Piggyback” with other products Internet NxLeveL Guide for Micro-Entrepreneurs-OHD 9-2

Elements of Effective Advertising
WHO? Right Audience WHAT? Right Message WHEN? Right Time WHERE? Right Place HOW MUCH? Right Cost NxLeveL Guide for Micro-Entrepreneurs-OHD 9-3

Types of Advertising Word of Mouth Print (Newspaper) Broadcast (Radio and TV) Other: Business Cards/Letterhead Brochures/Flyers Catalogs Magazines Classified Ads Direct Mail Telemarketing Signage Novelty/Specialty Advertising Yellow Pages NxLeveL Guide for Micro-Entrepreneurs-OHD 9-4

Attracting new customers Branding your business
The ABCs of Signage Attracting new customers You need to “restock” customers who move away or change their buying habits! Branding your business Your sign is a promise that tells customers what to expect. Remember, first impressions count! Creating impulse buys Impulse buys make up 68% of total sales! NxLeveL Guide for Micro-Entrepreneurs-OHD 9-5

Public Relations & Networking
P.R. is: Promotion without paid advertising Press releases Sponsoring events Drawings, contests, Giveaways Speaking as a “Guest Expert” Participating in community organizations NxLeveL Guide for Micro-Entrepreneurs-OHD 9-6

Online vs. Offline Buying
WHY PEOPLE BUY ONLINE: Speed and convenience Vast product selection It’s easy to compare prices and save Search capabilities No driving and parking, or crowds WHY PEOPLE DON’T BUY ONLINE: Product is easily available locally Doubts about reliability of seller or shipper Security, fraud, and privacy issues Shipping costs are too high Inability to sample, try on, taste, or test product Return and warranty issues (trust) NxLeveL Guide for Micro-Entrepreneurs-OHD 10-1

Benefits of Being Online
Provides business and product info to global markets Increases consumer awareness of your product Improves customer service by providing online product tips, instructions, and links to helpful sites Gives prospective customers one more way to contact you Networking, partnering, and bootstrapping opportunities NxLeveL Guide for Micro-Entrepreneurs-OHD 10-2

Building Your Own Website: Pros and Cons
Advantages: Your company learns site-building skills You can update your site instantly Site maintenance costs may be lower Disadvantages: Time spent learning skills distracts from core business tasks Time spent maintaining site distracts from core business tasks Cost of site-building tools, and possible training Site may not have a professional look, and may take longer to develop NxLeveL Guide for Micro-Entrepreneurs-OHD 10-3

Hiring a Web Designer: Pros and Cons
Advantages: You don’t have to learn new skills Costs are upfront and known No time wasted on site-building Site can be built quickly Professional look Disadvantages: You must rely on outside help Higher expenses It may take longer to update site Site maintenance costs will be higher in the long run NxLeveL Guide for Micro-Entrepreneurs-OHD 10-4

Selling Through an E-Commerce Host: Pros and Cons
Advantages: Usually very easy No time wasted on site-building E-commerce functions already in place, with appropriate security Some hosts may have consumer trust, and offer problem-resolution services Professional look Disadvantages: Higher charges (per month, per transaction, by traffic volume, etc.) Some hosts have uniform look and provide fewer opportunities for branding “One size fits all” format may not suit your business NxLeveL Guide for Micro-Entrepreneurs-OHD 10-5

Issues to Address When Planning Your Site
What business tasks do you need to do online? Do your customers buy online? What information do your customers need? How quickly do you need a functioning site? How much can you budget for site creation and maintenance? How will you market your site? Are you prepared to sell internationally, or will you only sell in the USA? How often will your site get updated? NxLeveL Guide for Micro-Entrepreneurs-OHD 10-6

Website Tips Clean design, and fast-loading pages Accept as many forms of payment as possible Avoid backorders Send an confirmation for all orders Offer many shipping options, including express mail Include shipping info for foreign consumers Make sure site fits brand identity Optimize for search-engine placement NxLeveL Guide for Micro-Entrepreneurs-OHD 10-7

Things to Consider Before You Start Selling
Your image is your business’s image. These things influence that image: First Impressions Dress Language Being On Time Business Meeting Etiquette NxLeveL Guide for Micro-Entrepreneurs-OHD 11-1

Traits of Successful Sellers
High energy Self-motivation Good grooming Persistence and perseverance Good listening skills Technical knowledge Ability to use the product Ability to explain the product Good communication skills Ability to overcome objections Knowing how to close the sale NxLeveL Guide for Micro-Entrepreneurs-OHD 11-2

Six Steps to Sales Success
Prospect and Prioritize Accounts Plan and Prepare for Sales Calls Make the First Contact Count Present your Product Handle Objections Close the Sale NxLeveL Guide for Micro-Entrepreneurs-OHD 11-3

Closing Techniques Basic Close Offer Alternative Choice
Compare Pros and Cons of Buying the Product Ask Closing Questions and Summarize Cite Examples of Others Who Have Purchased Isolate the Customer’s Potential Objection and Clarify Use a Secondary Question to Close NxLeveL Guide for Micro-Entrepreneurs-OHD 11-4

Four Customer Service Basics
Positive Talk Recognizing Customer Needs Finding Common Ground Building Trust When We Communicate… 7% of our message is delivered by words 93% of our message is nonverbal! NxLeveL Guide for Micro-Entrepreneurs-OHD 11-5

Learn What Your Customer Needs
To Be Understood To Feel Welcome To Feel Important To Feel Comfortable Why We Lose Customers: 1% die 3% move away 4% drift to another business 5% change on a friend’s recommendation 9% buy it cheaper somewhere else 10% have a service problem that is not resolved 68% leave because they feel they’re not getting good service NxLeveL Guide for Micro-Entrepreneurs-OHD 11-6

What Customers Expect Clean, comfortable, attractive surroundings To be welcomed pleasantly Well-groomed, professional sales personnel Immediate, focused attention Eye contact To be addressed by name To be assisted by someone with excellent product knowledge Confidentiality To be treated with courtesy and respect Other: ___________________ _________________________ NxLeveL Guide for Micro-Entrepreneurs-OHD 11-7

General Guidelines for Dealing with a Complaint
LISTEN! Recognize the customer’s feelings Apologize when it’s the right thing to do Clearly explain what you’re going to do about the situation Thank the customer for bringing the problem to your attention Take action to make things right NxLeveL Guide for Micro-Entrepreneurs-OHD 11-8

Customer Service Essentials
Welcome customers to your business Thank customers for coming to you Educate customers about your products Answer questions Follow up promptly Thank customers for choosing you Follow up with the customer, to make sure that your product and service were satisfactory Use follow-up responses to improve your product or service NxLeveL Guide for Micro-Entrepreneurs-OHD 11-9

Cash Flow Projection Worksheet Sections
(A) Beginning Cash Balance (B), (C) & (D) Cash From Operations (B) Cash In from Operations (C1) Variable Expenses (C2) Operating Expenses (D) Net Operating Cash (E) Cash From Investment or Loan Activities (E1) Other Cash In (E2) Other Cash Out (F) Net Monthly Cash (G) Ending Cash Balance NxLeveL Guide for Micro-Entrepreneurs-OHD 12-1

Sample Chart of Accounts
Account # Description Asset Accounts: Cash On Hand Cash in the Bank Petty Cash Inventory Equipment (Net) Accum Deprec-Equip Liability Accounts: Accounts Payable Payroll Taxes Payable Capital Accounts: Owner’s Equity Owner’s Draw Revenue Accounts: Sales Product #1 Sales Product #2 Sales Service #1 Sales Interest Income Other Income NxLeveL Guide for Micro-Entrepreneurs-OHD 12-2

Sample Chart of Accountscont’d
Account # Description Expense Accounts: Inventory Purchases Advertising Auto Expense Bank Charges Dues & Subscriptions Insurance Licenses Office Expense Miscellaneous Payroll Taxes Professional Services Rent Supplies Telephone Travel Utilities NxLeveL Guide for Micro-Entrepreneurs-OHD 12-3

Start-Up Expenses Worksheet

Operating Cash Out Worksheet

Operating Cash In Worksheet
Product/Service Sales Forecast NxLeveL Guide for Micro-Entrepreneurs-OHD 12-6

Michele’s Photo StudioBlank Worksheet

Michele’s Photo StudioStart-Up Expenses

Michele’s Photo StudioCompleted Worksheet

Michele’s Photo StudioWhat If I Borrow $2000?

Michele’s Photo StudioWhat If No Wedding Sales?
NxLeveL Guide for Micro-Entrepreneurs-OHD12-11

Sample Income Statement
Your Business Income Statement For the Year Ended December 31, 20__ NET SALES Product Sales $ Services Sales $ Total Net Sales $ COST OF GOODS SOLD Beginning Inventory $ Plus Purchases Less Ending Inventory (185) Other Direct Labor Other Materials Expense Total Cost of Goods Sold $ GROSS PROFIT $ OPERATING EXPENSES Advertising $ 464 Bank Charges and Interest Insurance Office Professional Fees Salaries (Indirect Wages/Benefits) Subscriptions and Dues Supplies Taxes and Licenses Utilities Miscellaneous Depreciation Total Operating Expenses $ NET PROFIT (LOSS) BEFORE TAXES $ Income Taxes Due NET PROFIT AFTER TAXES $ NxLeveL Guide for Micro-Entrepreneurs-OHD 12-12

Sample Balance Sheet Balance Sheet Formula: Your Business Balance Sheet As of December 31, 20__ ASSETS Current Assets Cash $ Accounts Receivable Inventory Other Total Current Assets $ Fixed Assets Equipment $ Less Accum Depreciation (100) Furniture and Fixtures Less Accum Depreciation Total Fixed Assets $ TOTAL ASSETS $ 2977 LIABILITIES Current Liabilities Accounts Payable $ Payroll Tax, due not paid Sales Tax, due not paid Total Current Liabilities $ Long Term Liabilities Notes Payable $ Mortgages Payable Total Long Term Liabilities $ 1850 TOTAL LIABILITIES $ 1850 OWNER’S EQUITY $ 1127 TOTAL LIABILITES TOTAL EQUITY $ 2977 NxLeveL Guide for Micro-Entrepreneurs-OHD 12-13

Preparing for Success Set achievable financial goals Do business on the books Keep personal and business money separate Accept the responsibility of paying taxes on time! Develop a code of ethics for your business, and stick to it Commit to keeping track of your budgets and comparing them to actual expenses NxLeveL Guide for Micro-Entrepreneurs-OHD 13-1

Why Keep Records? Financial Management To provide financial background information about your business To help produce financial statements To provide tax preparation information To provide borrowing information To pay and/or collect bills when due To control cash flow Internal Control To watch costs and budgets To prevent theft Legal To document events in case of lawsuits Management Decisions To provide planning information To monitor business progress NxLeveL Guide for Micro-Entrepreneurs-OHD 13-2

Learn the Terminology What is Recordkeeping? Recordkeeping (or bookkeeping) is the tracking of income and expenses that relate to your business. What Does “Cash vs. Accrual” Mean? There are two methods of accounting for your income and expenses: Accrual Method Cash Method Work is done Cash is received Record revenue & Record revenue & expenses at this time expenses at this time even though cash may not even though work have been collected yet may not be complete NxLeveL Guide for Micro-Entrepreneurs-OHD 13-3

Record Retention Guide
Type of Record Retention Period Bank statements 7 years Business licenses Until expired Cash register tapes 3 years Check registers Keep permanently Canceled checks 3 years Deeds, titles, title insurance While you own property Financial statements Keep permanently General ledger Keep permanently Inventory records 7 years Invoices (A/P) 3 years Invoices (A/R) 3 years Phone/Utility bills years Property, plant & equip. Keep permanently records Purchase orders 3 years Receiving reports 3 years Tax returns (& related backup) 10 years minimum Time cards or tickets 3 years Travel expense records 7 years Other: ______________ __________________ ____________________ __________________ NxLeveL Guide for Micro-Entrepreneurs-OHD 13-4

Paperwork and Forms NxLeveL Guide for Micro-Entrepreneurs-OHD 13-5

Computerized Accounting Systems
Be sure you find out about: Hardware requirements Ability to modify Support services Ability to expand User friendliness Training Reports and documents Personnel requirements Local use (other businesses using this software) NxLeveL Guide for Micro-Entrepreneurs-OHD 13-6

Business Ownership & Tax Forms
Each legal entity has its own tax filing requirements. Contact your accounting professional for help in finding out which forms must accompany your tax returns. Common Payroll Tax Forms 941 Employer’s Quarterly Federal Tax Return 940 Employer’s Annual Return 8109 Tax Deposit Coupon W2 Wage and Tax Statement 1099 Miscellaneous Income Statement (used to report independent contractor wages) Workers’ Compensation NxLeveL Guide for Micro-Entrepreneurs-OHD 13-7

Tips for Keeping Better Books and Records
Keep your records daily! Deal with your bookkeeping on a regular basis, and it could take as little as 20 minutes a day. Keep an audit trail Keep checks in numeric order. Never skip a number, and always record voided checks. Keep invoices filed sequentially and/or alphabetically. Make everything easy to find and track! Request a bank statement with a “month-end” cut-off date It’s easier to reconcile your records when they all end at the same time. Keep withholding taxes withheld Don’t spend this moneyit’s NOT YOURS! Don’t panic if you find a mistake Everything can be fixed, if you’ve kept up with your recordkeeping chores. NxLeveL Guide for Micro-Entrepreneurs-OHD 13-8

Twelve Check-Writing Tips
Always write in ink (or type the check) Always write clearly, and be sure the spelling is correct Date the check correctly Write the payee’s name after the printed words “Pay to the Order of…” Write the amount of the check in numbers close to the printed dollar sign ($) so that other numbers can’t be inserted Write the amount of the check in words starting as far to the left as possible leaving no room for the amount to be changed Draw a wavy line through any blank space Do not sign a blank or partially complete check Sign the check just as you signed the signature card Use the memo line to help keep a record of your spending Record each check you write or deposit you make in your checkbook register immediately Don’t forget to record automatic withdrawals or deposits in your checkbook register NxLeveL Guide for Micro-Entrepreneurs-OHD 13-9

Why Do You Need Financing?
Research and development Start-up expenses Purchase a business Seasonal working capital Permanent working capital Equipment acquisition Real estate acquisition Other: __________________ NxLeveL Guide for Micro-Entrepreneurs-OHD 14-1

Sources of Capital Debt Capital Money borrowed for the business Use of the money is repaid, with interest as “payment” for the use of the loan Equity Capital Money invested by the owner(s) Not a debt; nothing to pay back Investor(s) get a part of the ownership, and share in the profits or losses Personal Capital Personal funds of the owner(s) Any debt borrowed on a personal basis Includes savings, second mortgages, personal loans, etc. Angel Money Money received from friends, family, or interested 3rd party Document as you would for other debt or equity financing NxLeveL Guide for Micro-Entrepreneurs-OHD 14-2

Fitting the Loan to the Need
Short-term Debt Used to meet short-term needs: Bullet loan Seasonal inventory purchases Line of credit Accounts receivable financing Intermediate Debt Three to seven years: Permanent working capital loans Equipment loans Long-term Debt Longer than seven years: Real estate purchases Initial purchase of a business NxLeveL Guide for Micro-Entrepreneurs-OHD 14-3

Debt or Equity Considerations
Change in ownership Obligation to repay Tax considerations Capital structure Time required to do it Cost of obtaining the funds Personal factors/preferences Lender and investor reactions NxLeveL Guide for Micro-Entrepreneurs-OHD 14-4

Other Sources of Financing
Home Equity Loans Alternative Lenders Suppliers Customer Deposits Credit Cards Insurance Companies Factoring Companies Loan Guarantor Loan Brokers Grants Other: ______________________________ NxLeveL Guide for Micro-Entrepreneurs-OHD 14-5

Financing Factors The growth potential of your business The risk of your business venture The length of time you need the money The kind of money you need (debt or equity) The amount of interest you can pay (debt) or the amount of ownership you will give up (equity) Profit potential of the business NxLeveL Guide for Micro-Entrepreneurs-OHD 14-6

Preparing for the Loan Process
Before You Apply for a Loan: Find a lending institution that regularly lends to microbusinesses What size businesses do they normally lend to? Do they shy away from making loans within certain industries? Check your credit history Are there credit problems you need to clear up? Do you know how to repair your credit? Are there credit items you don’t know about? Get your business records in order Have your business plan ready Be able to describe your recordkeeping procedures and accounting system Find out what books and records the lender will want to see, and gather them NxLeveL Guide for Micro-Entrepreneurs-OHD 14-7

What Lenders Require Business Loan Application Form Complete Business Plan Cash Flow Projections Monthly for 12 months Quarterly or Annual for Years 2 and 3 Personal Financial Statement Personal Tax Returns (2 to 3 years) Other Documentation (Options) Accounts payable aging Accounts receivable aging Inventory status reports Appraisals NxLeveL Guide for Micro-Entrepreneurs-OHD 14-8

The Cs of Credit Credit History Character Capacity Collateral Conditions NxLeveL Guide for Micro-Entrepreneurs-OHD 14-9

Tips for Working with Your Banker
Deal with a local bank when possible Make an appointment Select a banker you trust Select a banker familiar with your type of business Dress appropriately Ask for advice or clarification of anything you do not understand Develop a long-term relationship Know your needs Present a complete proposal Explain source and uses of the loan Be flexible Be patient Tell the truth Recommend your banker to others NxLeveL Guide for Micro-Entrepreneurs-OHD 14-10

Understanding the Financial Health of Your Business:
Ratio Analysis Current Ratio = current assets  current liabilities Example: $1,000  $500 = 2 (or 2:1) Debt to Equity Ratio = long-term liabilities  owner’s equity Example: $5,000  $10,000 = .5 (or 1:2) Net Profit Margin = net profit  gross revenue from sales Example: $1,000  $10,000 = .10 or 10% What do the ratios tell you about the health of your business? How are ratios used by lending institutions? NxLeveL Guide for Micro-Entrepreneurs-OHD 14-11

Ways to Offer Your Customer Credit
Credit Cards Checks Credit Terms Credit Card Considerations Know what equipment you need to process the credit card payment Look for the best merchant account rates (discount rate and transaction fee) Know when deposits will be made to your account Check Considerations Call the bank on large check amounts Decide on your check acceptance policies Trust your instincts! Know your collection policies/options NxLeveL Guide for Micro-Entrepreneurs-OHD 14-12

Basics of Negotiation There would be no negotiation unless both sides expected a benefit A goal of negotiation is to create a new situation that’s better than the old one Unfair deals last only while one party feels weaker than the other Win-win negotiation delivers the best, most enduring deals Like any other skill, negotiation can be learned and practiced NxLeveL Guide for Micro-Entrepreneurs-OHD 15-1

Traits of Effective Negotiators
Good negotiators: Understand their counterparts' interests and perspectives Understand the difference between positions and interests Understand the difference between real power and perceived power Know their settlement range Know their BATNA (Best Alternative To a Negotiated Agreement) Tough on problems, easy on participants! NxLeveL Guide for Micro-Entrepreneurs-OHD 15-2

Stages of Negotiation Setting an Agenda Why are you negotiating? What are the issues, and what are the goals? Voicing Demands and Offers What are your interests and positions? What do you want, and what are you willing to give in return? Working to Minimize Differences Where do interests overlap? Where is the common ground? Closing the Deal “Win-win” means both sides are better off than when they started NxLeveL Guide for Micro-Entrepreneurs-OHD 15-3

Negotiation Strategies
Soft Negotiators Avoid conflict at any cost Usually don’t stand up for their best interests Hard Negotiators Aggressive and competitive May use threats of bluffs Not trusting or trustworthy Win-Win Negotiators Work towards the best outcome for all Flexible, but can be firm when it’s appropriate Attack problems, not people NxLeveL Guide for Micro-Entrepreneurs-OHD 15-4

Pitfalls of Business Growth
Growth may be short-term Inability to maintain performance standards Unprofessional behavior Poor employee morale Lack of adequate employee training High employee turn-over Loss of profitability Inefficient use of resources Loss of customer loyalty Diminished quality Inability to focus on core strengths Paralyzed or overworked leadership Cash crunch Bankruptcy NxLeveL Guide for Micro-Entrepreneurs-OHD 15-5

Bringing It All Together!
Celebrate what you’ve accomplished Organize what you have learned Fill in the gaps Complete your business plan Ask for help Remain positive Never stop planning! NxLeveL Guide for Micro-Entrepreneurs-OHD 15-6

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