Frequently Asked Questions
How do I set wage levels?
Although there is a minimum wage set by federal law for most jobs, the actual wage paid is between you and your employee. They are based on the skills required for a position and its importance. For industry specific information, you can contact your trade association regarding profit margins in your business field, and contact your accountant to learn the most current prices.
How do I raise money to get started?
Personal savings are the main source of funds for starting a business. An entrepreneur must have some personal assets in the business. Lenders and/or investors want to see that an owner has a fair amount of his own money in the business before they are willing to invest. Friends and relatives are another source of new financing; however, they may feel that they have the right to offer suggestions, so it is necessary to put this agreement in writing. Finally, other individual investors, known as angel investors, are a source of equity financing.
Should I do my own accounting?
There are many accounting software programs available that generate financial reports and are relatively easy to learn to use. If your business is complicated and your skills are limited, then seek assistance. It is very important for a business to keep adequate records to see how well the business is doing, to substantiate your tax returns, and to request a loan from a bank or credit from a supplier.
How do I determine a price for my service/product?
The price needs to be set at a level where it will be competitive and yet profitable to the business. The price of a product or service is based on the direct materials, labor, and overhead that are involved in producing it. This type of cost analysis provides a floor below which a price will not be set, but to determine the right price demand factors must be considered.
What kind of financing is available?
It depends on the amount that you need, and the length of time you have been in business. For start-ups, the usual sources are personal finances and friends and family. For existing businesses, one option is to obtain a loan. It is important to establish a relationship with a banker well in advance of seeking financing so that he will be familiar with the financial position of your business. There is also equity financing which involves giving up some control of the business.
Can I operate a business from my home?
Yes you can. In fact, many new businesses are operated out of the owner's home. Comfort, convenience, and costs are the major benefits. To operate successfully, owners of home-based businesses need to establish spatial and non-spatial boundaries between the business and the home so that they will not interfere with each other. Check on the zoning ordinances in your area as to any restrictions on the type of businesses that are permitted to operate in your area. Also, there are a number of magazines and web sites that are devoted specifically to assisting home-based businesses that may be of benefit.
Do I need mentoring?
Mentoring involves establishing a personal relationship with an existing business owner for the purpose of getting advice and support to help you run your business more effectively. Most business owners can benefit from this type of relationship and should seek the assistance of an experienced entrepreneur. One way to locate these individuals is through professional organizations.
How important is customer service?
It is the most critical element for a small business and can provide a competitive edge for a small business regardless of the nature of the business. Small firms are in a better position than big business to achieve customer satisfaction. Taking advantage of this opportunity is smart business.
Do I need to go to school after becoming an entrepreneur?
It is essential for business owners to continually upgrade their skills if they are to remain viable and profitable. There are several areas in which it is most critical to upgrade skills: employment law, technology, and marketing trends including e-commerce.
What about advertising?
It is important to plan and budget carefully for your advertising program. First, consider who is your target market. Next, look at the various options of reaching your customers that are available and the most cost effective means to reach them before committing your money. Finally, periodically evaluate the effectiveness of your advertising dollar.
How big is my market?
To determine your market potential, first determine your target market and develop a customer profile. Estimate the number of buyers based on demographics of the geographic area of the market. Then determine the number of competitors and evaluate their strengths and weaknesses and the share of the market that they have and how much you think that you will get.
How do I tell my market about my service/product?
There are three promotional activities that are utilized including personal selling, advertising, and sales promotion. The mixture of these methods is determined by three factors: the geographical nature of the market to be reached, the more widely dispersed market requires mass coverage by advertising; secondly, the targeted customers; and finally, the product's characteristics. Personal selling is more effective for promoting highly technical products whereas sales promotion is more effective for a relatively inexpensive item.
What does marketing involve?
Marketing involves identifying and researching your potential customers to determine a demand for the product/service and the price that customers are able and willing to pay, and how you will communicate that information to them.
What type of organization do I need to become?
A number of options must be considered, and some trade-offs are necessary. There are some considerations in selecting a form of ownership: organizational costs, limited versus unlimited liability, continuity of the business, transferability of ownership, income taxes, and management control. An especially important factor in considering the legal form of organization is its relationship to income taxes.
Should I purchase a franchise?
There are certain advantages and disadvantages with purchasing a franchise. The biggest advantage is its probability of success, but also to be considered are the training that is available, financial assistance from the franchisor, and operating benefits such as advertising. The limitations of franchising include the cost of the franchise, restrictions on the expansion of the existing sale territory, and the loss of independence.
What are some good sources of help?
There are numerous sources of help for entrepreneurs starting with the Jim Moran Institute, Small Business Development Centers, Service Corp of Retired Executives, and the local Chamber of Commerce. Additionally, there are many web sites that are devoted to entrepreneurs and provide a considerable amount of information (these can be located at the JMI web site).
Do I need a business plan?
Although it is not an easy task, it is a necessary one. It is usually written as a selling document to be shared with outsiders for the purposes of convincing potential lenders or investors that your business is potentially profitable and conceptually sound. However, it is also needed for internal operational purposes as a clearly articulated statement of strategy, in other words, a roadmap for your business.