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Top 14 Questions From
SCORE To Evaluate Your Business Potential
1. What kind of person makes a
successful entrepreneur?
Research of successful entrepreneurs has documented that successful
small business people have certain common characteristics. This
checklist can not predict success, but it can give you an idea of
whether you will have a head start or a handicap with which to work.
How do you measure up? Ask yourself these questions:
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Can I persevere through tough times?
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Do I have a strong desire to be my own boss?
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Do the judgments I make in life regularly turn out
well?
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Do I have an ability to conceptualize the whole of a
business?
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Do I possess the high level of energy, sustainable
over long hours, to make a business successful?
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Do I have significant specialized business
experience?
While not every successful business owner starts with a “yes” answer
to all these questions, three or four “no’s” and undecided answers
should make you think twice about going it alone right now. But, don’t
be discouraged. Seek extra training and support with help from a
skilled team of business advisors such as accountants, bankers,
attorneys and SCORE counselors.
2. How do I determine whether I am
capable of starting a business?
Small business owners have many things in common. Below
are some of the qualities you will need to be successful.
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Willingness to sacrifice—If you enjoy working 9-5, do
not go into business for yourself. Entrepreneurship often requires
many more hours beyond the forty-hour work week.
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Interpersonal skills—You will be required to interact
with a host of people other than customers: lawyers, employees,
salespeople. If you do not like talking to people you do not know,
better keep your day job.
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Leadership ability—You will be the one everyone turns
to for the answers. Are you ready to call the shots?
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Optimism—Being able to hang in there when business
gets tough is an important quality in small business owners.
Compare your skills and expertise with others who are
successful in similar businesses. Can you duplicate and surpass the
capability of other successful businesses? What unique skills, or
“edge,” can you provide to obtain a sufficient share of total market?
Review business journals, trade magazines and other
comparative studies that identify the requirements to operate the
business. From that information, derive a formula for the skills and
traits you plan to incorporate into the business operation.
3. Why is a business plan important and
who should write it?
A
business plan is important because it summarizes both your vision for
the company and your blueprint for the company’s operating success.
The business plan is a written guide that details the start-up and the
future direction of your company.
Who should write the plan? You, the entrepreneur. No
one else knows your business idea and goals better. Yes, there are
services that can do the work for you. However, you must present this
business idea to bankers or other investors. Therefore, it is best if
you are very familiar and comfortable with the plan.
Although there’s no set format, a good business plan typically
includes:
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Cover page—Identifies your business
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Table of contents—Organizes information for the
reader
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Executive summary—Provides a “big picture” view of
the plan, highlighting the factors that will lead to success
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Business background—If it is a brand-new business,
include your background and skills
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Marketing plan—Relates the business’s marketing
strategy
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Action plan—Summarizes how you will create and
deliver your product or service
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Financial statements and projections—Illustrates how
the business will perform financially based on the plan’s
assumptions
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Appendix—Includes statistical analyses, marketing
materials, résumés.
4. If I am not planning to apply for a
bank loan, why do I need a business plan?
The
fact that a bank or lending institution requires a well-executed
business plan is a secondary consideration. The primary purpose of the
business plan is to guide the owner or manager in successfully
operating the business. Preparing the plan forces the writer to
consider all aspects of the business and to confront any problems the
plan highlights.
For example, a monthly compilation of all known costs,
over time, will indicate the revenue necessary to support these costs,
plus a profit. This leads to the question of whether or not this
revenue number is reasonable. If not, it may cast doubt on the
viability of the venture itself.
The business plan is a vital management tool that
enables the manager to anticipate situations before they become
problems-or worse yet emergencies.
5. How do I determine my start-up costs
and other expenses?
It is
wise to find out what start-up costs you will incur before starting
the business. Many a budding entrepreneur takes his or her life
savings, or will borrow on the equity on their home before figuring
these financial factors, only to find that they don’t have enough
money. There are many web sites and other resources (including SCORE
offices and Business Information Centers) that provide guidelines and
worksheets to help determine costs for your business.
Each item on your proposed budget sheet should be
researched. Closely estimated costs can be obtained from utility
companies, trade associations, shopping and networking with other
business people who may have already gone through this experience. Do
not start buying until the investigation shows this venture is viable
and you have all the information needed.
6. What do I need to know about
financial statements?
First, you need to know which financial statements are
important. They are:
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Balance Sheet—shows the financial conditions of your
business at a point in time
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Statement of Operations (Profit and Loss
Statement)—shows whether you made a profit during a specific period
of time
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Cash Flow Statement—shows what happened to your cash
position during a specific period of time
You should have a basic understanding of each of these
statements. When compared with statements from prior periods, you can
determine whether something is happening in your business that needs
your special attention.
Your accountant can prepare these statements for you
from the business data that you supply. There are also a number of
computer software programs that will help you generate these
statements from your input of regular transactions—such as sales,
collections, purchases, payments and payroll.
A counselor can help you understand these statements
and may be able to direct you to a workshop on this subject. In
addition, most community and business colleges teach courses in
financial statement analysis.
7. Why is it important to do a monthly
cash flow analysis?
Your
businesses cash-flow cycle may differ substantially from the income
statement projections. Even if the projected income statement shows a
profit, it is possible that the cash flow for the same period is
actually negative.
The analysis of monthly cash flow can indicate whether
your business will collect sufficient cash to pay operating expenses.
It will point out specific months during the year when the business
may experience operating cash shortfalls and, therefore, either
require additional capital or excess cash reserves for payment of
expenses. It will also show when you may be able to make debt
reductions and when there is excess cash to make major purchases or
expand operations.
By developing a monthly cash flow projection, you can
time cash needs and quantify the amount needed. The cash flow
projection is an important management tool and must be developed with
very realistic expectations. Sufficient cash is critical for a
business to pay its expenses and to enable it to expand. If your
monthly cash flow projections indicate frequent cash shortfalls, you
should review the type of products and services that you offer, the
mix of sales, the pricing and terms of the sale and your short-term
borrowing needs.
8. How can I obtain cash to maintain and
grow my business?
Develop a positive business relationship with your bank. Seek your
banker’s advice even at times where you are not seeking funds. You may
find that every time you go to your bank you speak to a different loan
officer, so you should know them all.
When the loan officer gets a promotion, you must start
all over again with another person. If you want the bank to take an
interest in your business, then you have to take an interest in
theirs. How?
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Know your banker—Take an interest in your banker as a
person. Ask your banker to hold on to your account if he/she is
promoted. When you go to see your banker, have your business plan
and financial papers ready. Make it easy for your banker to see what
you want and why. The bank wants to minimize its risk with regard to
you and your business. This is where you have to sell yourself.
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Know your bank—Know and understand your bank’s annual
report. Know your bank's business direction and plan. Know the
bank's lines of authority. Get on the bank’s mailing list. It’s an
easy way to keep up with bank news.
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Go to a bank-sponsored seminar—Go to your bank’s
seminars on commercial lending. This will teach you how your bank
operates in terms of lending policies. By doing this, you also prove
that you have an interest in what the bank is doing. Finally, it
affords you the opportunity to meet and make an impression on the
loan committee.
9. In a retail business why is location
the most important aspect of my business?
A good
location can make the difference between a profitable and a bankrupt
business. There are many questions to consider when choosing a
business site. Use the questions below as a checklist for potential
locations and then compare several sites.
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Are there parking facilities?
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Is transportation available and convenient?
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Is the quality of police and fire service adequate?
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Will it be a quality site for the future—five, 10, 25
years from now?
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Is nearby housing readily available for management
and employees?
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Is there nearby competition? Are those sites better
or worse than yours?
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What is the general business climate in the area? Is
this a prosperous market?
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Are merchandise and raw materials available? Are your
suppliers easily accessible?
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How is the traffic flow—can your customers reach you
quickly and inexpensively?
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Is your building suitable to your kind of
business—will it need any major renovations?
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Is there an adequate community infrastructure for
utilities (sewer, water, power, gas, etc.)?
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What is the tax burden—town, city, county, state?
Will this impede your business and growth?
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What are the costs of operation in this location—will
it be too high to offer you an adequate profit?
10. Why is competition important?
No
business operates without direct competition. There also may be
indirect competition, which has a significant impact on customer's
buying decisions in your market.
Direct and non-direct competitors try to convince
customers to buy their products or services instead of yours. It is in
your best interest to learn more about the companies that are trying
to reduce your take-home pay. List the strengths and weaknesses of
each competitor. Talk with friends, visit your competition, call for
information about their products and analyze how they advertise.
Next, take a sheet of paper and list the major
competitors. Give each a rating, on a scale of one to 10, for product
quality, process, advertising, price and customer satisfaction. You
can add other ratings that you feel are important.
Your business can become more profitable by adopting
practices you admire in competitor operations and by avoiding their
mistakes. Some of your competitors have been in business successfully
for many years. Certainly, as a new or relatively new business, you
can learn a lot from them.
11. How can I better market my business?
To
market your business, you must define your customer. To maintain
consistent sales growth, you must become knowledgeable about your
market. Develop an outline of your “typical” consumer:
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What exactly is your market?
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Where do the consumers come from? (city centers,
suburbs, tourists, international)
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What are customers buying patterns?
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Why should they buy from you? (convenience, price,
quality, service)
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Should you try to appeal to a niche market segment or
the entire market?
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Have you missed a new customer segment or special
market?
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How large is the potential target market (in units or
dollars)? Is it growing, stable or decreasing? What percentage of
the market do you have?
Research will provide answers that are not available
from your business records and a financial analysis. Conduct research
through trade associations, your local chamber of commerce, libraries
or even ask for the help of a SCORE counselor. Pay attention to how
competitors market to their customers. Perhaps, some of their
marketing strategies can be adopted for your business, or you may find
examples of what not to do.
12. What makes a successful marketing
strategy?
When
creating a marketing strategy, keep in mind the four P’s of marketing:
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Product—What good
or service will your business offer? How is that product better than
those offered by competitors? Why will people buy/want it?
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Price—How much can
you charge? How do you find the balance between sales volume and
price to maximize income?
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Promotion—How will
your product or service be positioned in the marketplace? Will your
product carry a premium image with a price to match? Will it be an
inexpensive, no-frills alternative to similar offerings from other
businesses? What kinds of advertising and packaging will you use?
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Place—Which sales
channels will you use? Will you sell by telephone, or will your
product be carried in retail outlets? Which channel will
economically reach your market?
The marketing strategy should summarize your findings
about the key target buyer description, market segments the company
will compete in, the unique positioning of the company and its
products compared to the competition, the reasons why it is unique or
compelling to buyers, etc.
13. What do I need to know before
creating a marketing brochure?
A
marketing brochure can be long-lasting or short-term. It can represent
your business to potential customers and it can be a referral piece
for existing customers. Decide the purpose of and goals for the
marketing brochure before you begin to design and write. Remember,
this brochure represents you and your business; be sure its look and
feel complements your business. Here are few tips for when you are
ready to begin.
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State your message up front—The selling message
should appear on the cover of the brochure. For instance, “The XYZ
Company—Consultants on Doing Business Overseas."
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Include artwork—If you have space limitations, one
large photograph or graphic is better than several small images that
might not clearly portray your services or products.
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Photo captions—Photo captions are read twice as often
as the main copy.
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Create a keeper—Make your brochure worth keeping.
Include a calendar of events in your specific industry or some data
that will be useful to potential clients in the future.
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Quality is key—Your publications reflect you and your
business. Using one to four colors in the brochure will make it
stand out over one that is black and white. A good quality paper
stock is also important (and comes in many colors and shades if you
choose to use black ink). Remember to consider the weight of the
paper stock in relationship to mailing costs.
It is wise to have your brochure professionally
designed. Even if you have computer graphic skills, design is best
left to professionals.
14. How can I improve customer service
in my business?
Develop a strategy that puts the customer first. Customers will
receive the best possible service when employees are empowered to make
this happen. This is not to say that you should be lenient with your
policies, but have a degree of flexibility. Just remember, a lost
customer could spread the word of their discontent, resulting in more
lost customers.
Review the most common reasons for poor customer
service. Use these insights as a way to improve your customer service:
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Too many
rules—Employees lack creativity in problem solving. Rules are
followed and good solutions are not developed because employees do
not want to jeopardize their jobs.
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Lip service, not customer service—Customer service is
really only a name for customer complaints. Time is spent trying to
fix problems rather than preventing them from occurring in the first
place.
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Unempowered employees—Approval is needed by a manager
for small problems that can easily be solved by a good employee.
This problem leads to long lines and time-consuming waits by the
customer, who then refuses to come back-business operations turns a
small problem into a large one.
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Unmotivated employees—Personnel are not encouraged to
please the customer because there is no merit in it for them.
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Bad communication—Coordination of functions does not
exist-one person may write an order while another picks it off a
warehouse shelf and someone else delivers it to the customer. This
can result in miscommunication, incorrect goods or services, and
time delays.
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Arbitrary policies—Policies
that are followed blindly without room for situational allowances
may result in angry customers. For example, a store's return policy
of 30 days prevents a customer who, with good reason, could not get
back to the store in time from receiving a refund. That customer
will refuse to do business there anymore.
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