A Company Law Jargon Buster.
Company law is full of confusing terms, and if you don't know what they mean then settung up a company can start to look far more scary than it really should be. Read through this jargon buster and you should find it much easier to understand what starting up is all about.
Capital. This is money that is going to be invested in a business. Example: 'I am starting my business with $5,000 capital, $2,000 of which is my own'.
Contract. When you sign a legal document, you are entering into a contract. Starting a business lets you sign and enter into contracts on behalf of the business -- the contract will be between the other person and your company, not you.
Director. The people ultimately in charge of a company are its directors. For a large company, there will be a boards of directors, appointed by the shareholders. For a home business, though, you can appoint yourself as the sole director since you are also the sole shareholder (see 'shareholder').
Incorporation. This is the formal name for the process of starting a company. Example: 'My business was incorporated in March 2000'.
Insolvency. When a company cannot afford to pay its debts. The type of company you have set up will affect what happens in this situation -- you may be liable for all of the debt yourself, or for none.
Limited liability. A limited liability company is one where you agree beforehand how much responsibility you will take if anything goes wrong. This protects you from being destroyed financially if something bad happens to your business.
Office. Your company's 'office' isn't just a place with computers -- it's also a legal concept, meaning where your company is based. Your company must have a registered office, which means that you can't start a company unless you have an address which would be legal to use for this purpose.
Private. A home business will be private, which means that members of the public cannot invest by buying shares. This does not stop individuals from buying percentages of your company if you are willing to sell, though. Starting your company as a private one also doesn't stop you from converting it to a public one later on.
Proxy. Someone who acts as a proxy for you acts on your behalf -- you have given them the legal right to speak for you. For example, if you get a lawyer to handle the incorporation of your company, they will be incorporating it for you by proxy.
Shareholders. The shareholders are the people who own the company. In your company, you will be the only shareholder (and so own 100% of your business), unless you've made a deal with someone else for them to own a share.
Latin.
When you're dealing with law, the amount of Latin involved can be confusing. Here are some Latin terms you might come across when you're setting up your company.
Bona fide: 'in good faith'. This is used to mean that someone says they are telling the truth.
De facto: 'in fact'. Used when something has happened that makes the 'real' situation take precedence from the legal one.
De jure: 'in law'. The opposite of de facto.
Ex gratia, 'out of grace'. When something will be done for no fee.
Prima facie, 'at first sight'. Something that seems true but is wrong.
Quid pro quo, 'something for something'. When a fee will be charged for a service (or services will be exchanged).
Be Careful with Jargon.
However much jargon you might begin to encounter as you start your business, don't start to use it yourself. It will make it so that only 'insiders' will understand what you mean, and everyone else will feel either a little silly or a little annoyed. By the same token, if you're speaking to someone (your accountant, for example) and they use some jargon you don't understand, there's nothing wrong with asking them to explain what they mean -- it's their fault for using an overly technical word, not yours for not knowing it.
If you're not sure, there's a simple rule: jargon is for communicating very specific, technical meanings. It shouldn't be used to replace everyday language, as it does nothing but cause confusion.
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A Computer and Internet Glossary.
When you use computers and the Internet in your business, it's all too easy to start feeling like you're drowning in a sea of nonsense. Computer-related things tend to have a language all their own, and while you don't need to know all of it, there are many confusing words and phrases that you're going to come across sooner or later. Here's a quick primer.
Bandwidth. Bandwidth is the amount of data that your website can send each second, as well as the amount of data that the visitor to your website can receive. If either one doesn't have enough bandwidth, then the website will appear slowly. For this reason, you should choose a host with plenty of bandwidth, as well as testing that your site doesn't take too long to download on slow connections.
Browser. A browser is the software (see below) that visitors to your site use to view it. The most popular browser is Microsoft's Internet Explorer, which comes with Windows.
Cookie. Cookies are data files that your site can save on the computer of someone who visits that site, to allow it to remember who they are if they return. You will find that problems people have in ordering from you will almost inevitably be related to cookies -- they will need to have them turned on.
Download. Transferring data from a website to a computer.
Favourite. A favourite is a website that a user has stored to look at again, by choosing 'Add to Favourites' in their browser's menu.
FTP. File Transfer Protocol. This is a common method of uploading (see below) files to your website.
Javascript. A common language for writing 'scripts' on websites, which are small programs that make the site more interactive. Another common cause of problems for visitors.
JPEG. Joint Photographic Experts Group. This is the name of the most popular format for pictures on the web, named after the group that came up with it. If you want to put pictures on your website, you should save them as JPEGs.
Hardware. Hardware is computer equipment that physically exists. It is the opposite of software.
Hosting. If you've got a website out there on the Internet, then you'll be paying someone for hosting. It is the service of making your site available for people to see.
HTML. HyperText Markup Language. A kind of code used to indicate how web pages should be displayed, using a system of small 'tags'. The 'b' tag, for example, causes text to appear in bold, and the 'img' tag displays a picture.
Hyperlink. A hyperlink is when a piece of text on a website can be clicked to take you to another site, or another page on the same site. For example, if clicking your email address on your website allows someone to email you, then your email address is a hyperlink.
Programming. This is when the computer is given instructions to tell it what to do, using one of many 'programming languages'. Programming languages for the web include PHP and Perl.
Server. The server is where your website is stored, and it is the server that people are connecting to when they visit the site. If someone tells you, for example, that your server is 'down', it means that your website is inaccessible. Note that server refers both to the hardware and software of this system.
Software. Programs that run on the computer, or that make your website work. Microsoft Word is software, for example, as is Apache (the most popular web server software). Opposite of hardware.
Spider. Don't be scared if a spider visits your website! Spiders are simply programs used by search engines to scan your site and help them decide where it should appear when people search. It is good to be visited by spiders, as it means you should start appearing in search engines soon.
Upload. Uploading is when you transfer data from your own computer to your website. For example, you might upload your logo, or an article you've written. Opposite of download.
URL. Uniform Resource Locator. This is just a short way of saying 'web address', meaning what you have to type in to get to your website. Sometimes pronounced as 'Earl'.
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A Guide to Advertising in the Media.
The media is a powerful thing -- the average person spends an enormous amount of their life consuming it in one form or another, and will spend a significant percentage of that time looking at, listening to or watching advertisements. If you want to use the power of the media, though, you need to know what you're doing.
Advertising in Newspapers and Magazines.
There are two kinds of advertising you can get in newspapers and magazines: classified and display. Classifieds are the small ads towards the back of the publication, while display ads can be almost any size, from a small corner of a page to a massive double-page spread.
If there's a publication you're interested in advertising in, either go to its website (the rate card section) or call its advertising department to find out the rates it charges. Now pick your jaw up off the floor. Yes, advertising in the print media really is that expensive, and for most home businesses it probably just won't be that economical.
There is, however, an exception: niche and trade magazines. If you've ever looked around in a newsagent, you will have seen just how many magazines there are out there, filling every conceivable gap in the market. You need to find the magazine that people who are interested in your services might read. For example, if you're a wedding photographer, look for a magazine called 'Your Wedding', 'Bride', or something similar. Advertising in these magazines will be far cheaper than placing an ad in a general-audience publication, and far more likely to actually get some responses.
Advertising on the Radio.
Wherever you are, the chances are that there's a local radio station. Once your home business grows to a decent size, you might consider buying some time on it.
Really, though, the only kind of home business that can benefit enough from radio ads to justify the cost is one that does anything to do with cars. Since radio is almost entirely limited to use as in-car entertainment now, you know that almost everyone your ad reaches will be a car-owner, and so might be interested in what you're offering. If you offer something that people need cheaply or even for free, you can get a big response.
Unfortunately, that response could be a little too big -- thanks to the time-sensitivity of radio, you'll get mobbed the next day, and then everyone will forget you again. Radio advertising offers the listener no opportunity to keep your ad and refer to it later, or to find it again in the future. You will find that any ads involving a phone number are spectacularly useless.
Advertising on the Television.
Unless your business is getting pretty big, this would be quite a bad idea. You'd have trouble producing and airing an ad even on local cable channels for less than $10,000. Of course, if there's a market for your product and you've got the budget for this, you could take a gamble and make a mint. The home businesses that tend to do best out of TV ads are ones that have a 'unique and useful invention' product with easy-to-demonstrate benefits -- think infomercial. Research shows that you can sell almost anything given a 60-second ad, a free phone number and a price point of $19.95.
Advertising on Billboards.
Here's one that gets overlooked pretty often, but can be very effective if you do it right. Billboard ads are relatively expensive, but they do generally stay up for a long time, and they can be very specifically targeted to an area -- the one where they're physically located. You'll have the best results with this if you can put one near enough to your business that it could say 'turn left at the next junction', or something like that. Phone numbers are, again, pretty useless, although you could have some luck putting a website address up there.
Advertising at the Movies.
Finally, here's one that often gets overlooked. If you turn up to the cinema early, you might have seen that before the big-budget ads, ads for local businesses are run. This can be a great place to advertise relatively inexpensively in quite a high-profile way, and it works especially well for takeaway food businesses.
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Avoiding Home Business Scams.
Now maybe the reason you’re interested in setting up a home business is because you’ve seen an ad somewhere, or you’ve been approached by someone. It was all about a great work-from-home money-making opportunity, and you’re excited. Finally, you can quit your job!
If you’re thinking of working from home by someone else’s rules, though, you have to realise that at least 99% of the offers out there are scams – after all, if it was that easy to pay a few dollars and make thousands, wouldn’t everyone be doing it by now? Here are the biggest scams out there, how to recognise them, and how to avoid them.
Location, Location, Location.
Where did you see that work from home offer? If you got it in the post, or by email, or saw it on a poster taped around a telephone pole, then I can guarantee you right now that it’s not a legitimate offer. If you saw the ad in a newspaper, in a jobs magazine or on a jobs website, then it’s a little more likely to be legit – but not much. Always check out any offer, and assume it’s a scam until you have iron-clad proof to the contrary.
Envelope Stuffing.
This is the most established work-from-home scam, and it’s been going for decades now. Basically, once you pay your money and sign up to work from home, you’re sent a set of envelopes and ads just like the one you responded to. You might make some money if someone responds to your ad, but eventually there just won’t be a market for it any more. Anyway, work from home offers like this are illegal pyramid schemes.
You won’t make any money putting letters in envelopes – get over it.
Charging for Supplies.
The practice of charging for supplies is hard to pin down to any one scam – it’s the way almost all work-at-home scams work (including the envelope stuffing, above). You’ll be asked to make a small ‘investment’ for whatever materials would be needed to do the work – and then you’ll be sent very shoddy materials that aren’t worth anything like what you paid, and you’ll find that there’s no market for the work anyway.
If anyone asks for money upfront, run. A real company should be willing to deduct any ‘fees’ from your first paycheque – if they won’t do that for you, then that’s because they don’t ever plan to pay you.
Working for Free.
This variation on the scam is common with crafts. You might be asked to work at home making clothes, ornaments or toys. Everything seems legitimate – you’ve got the materials without paying out any money, and you’re doing the work. Unfortunately for you, when you send the work back, the company will tell you that it didn’t meet their ‘quality standards’, and will refuse to pay you. Then they’ll sell on what you made at a profit, and move on to the next sucker.
Never do craft work from home unless you’re selling the items yourself. Note that you don’t need to be selling to consumers (you could be selling to wholesalers), but you still need to be the one deciding what you make and getting the money.
Home Typing, Medical Billing, and More.
There are lots of work-from-home scams that involve persuading you that some industry has more work than it can handle, and so has to outsource to people working from home. For example, you might be told that you’d be typing legal documents, or entering medical bills into an electronic database. These scams have one thing in common: they all say that all you need is your computer, and they all then go on to say that you need to buy some ‘special software’.
This software might appear to be from a completely unrelated company, but don’t be fooled – the whole reason the ‘work-from-home’ ad was there to begin with was simply as cynical marketing for the software.
As you can see, running a ‘home business’ that just involves ‘working’ for one company is a bad idea. You don’t know who you’re dealing with. Here’s the clincher, though: even with entirely legal work-at-home offers that do pay you for your work, you still won’t make anywhere near as much as you can with your very own home business. So why bother with them at all?
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Before You Do Anything: Try It Out.
So you know, roughly, what you want your home business to be. Before you go any further and start investing, though, you need to try it out. Here’s how.
Build a Prototype.
If you plan to sell physical things, or you’re going to do something like starting a website or making software, then you should build a prototype to see how your idea will work out. A prototype is a version of your product that is built quickly by you alone, and serves to show that your idea is feasible in the real world. If it would be too expensive to build the whole thing, then just building the new part that differentiates you from your competitors is good enough.
Show your prototype to a few people, to see what they think. Are they excited? Would they use it?
Get a Few Customers.
If your product is relatively low-value, or you’re providing a service, then it shouldn’t be too much trouble to get a few customers and do a few dry runs. Do them a generous discount (you could even do it for free), to make sure that everything runs smoothly and the customers are satisfied at the end of it.
For example, let’s say you plan to be a landscape gardener from home. You could borrow the tools, and volunteer to do a garden for some kind of charity project – this is good, since it means that you’re doing something nice for charity, but they’re not paying for perfection, so it’s not that bad if small things go wrong. You should then go through all the motions as you would once your business is established, and see what comes out at the other end.
Here’s another one. Let’s say you’re an Italian living outside Italy, and you plan to start a home business cooking pasta in your kitchen and delivering it to customers (you’d be surprised how many home businesses there are in the catering industry). You could make a rough draft of a leaflet (with discounted prices) and deliver it to a small number of homes in the area, until you get a little response. You could then see if it really is feasible to make and deliver these things, and whether there would be any profit in it.
The best dry-runs, though, are the ones where you can get one client at full price. This generally happens in the kind of industry where most transactions are business-to-business, and go through a bidding process. If you’re doing something like freelance writing or artwork, this can let you take on one ‘job’ without being committed to any more afterwards. If you find it’s not for you, at least you haven’t lost too much – and if you love it, then you’re getting valuable experience before you try to take it full-time.
When you try your business out, make sure to do some kind of survey – you could hand it to the customer, include it with your delivery, or even phone up and say that you’re just calling to make sure everything is alright. Following up this way isn’t just good for you, it’s also good customer service.
Don’t Rely on Scale.
One of the most common things I hear when I tell people to try out their home business ideas is that a small-scale trial wouldn’t do the idea justice, since they ‘plan to make money on scale’.
Never, ever rely solely on scale. You think that supplies will get magically cheaper if you’re doing ten orders a day instead of one? Guess again. You think you’re going to save time by doing lots of orders at once? You might save some, but not as much as you might think. When you’re trying to see whether your business is viable, you should always err on the conservative side – the thinner your margins are, the easier it is for something unexpected to happen and destroy them altogether.
You’re cheating yourself if you don’t try out your business before you start it – you’ll be throwing yourself in at the deep end, and there won’t be a lifeguard. Trying it out gives you the opportunity to make your beginner mistakes (there will be a few, I guarantee it), and to build confidence in yourself and your business without taking pointlessly large amounts of risk.
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Cashflow Problems: How to Get Your Money.
One of the most common problems that affects businesses is that their customers owe them money. When you've done the work but people are being slow to pay you, you can get behind with bills and be short of money to invest in your business. This is, understandably, an annoying situation -- you're being chased for debts that other people refuse to pay. There are, though, a few ways to improve your customers' payment speed.
Remember You're a Credit Provider.
When you do work and invoice afterwards you are extending credit to your customers. As such, if the cost is going to be high, you should consider running a credit check on them before you start work. This will show you whether the company you're about to do work for is in trouble, and can help avoid lots of problems later on. You can usually run credit checks onlin for next to nothing.
Give Invoices a Due Date.
A mistake many home businesses make is to send invoices that have a fancy layout and say how much the customer owes, but don't contain any direct instruction to pay now. This results in customers receiving the invoice and putting it on their 'unimportant chores' pile -- you know, the one that doesn't get done for months.
To avoid this, a good strategy is to give your invoices a due date. Set it two or three weeks from when you sent the invoice, and make sure you highlight it. People will see your deadline and realise that you mean business -- they'll think 'oh, I'd better deal with this' and you'll get your payment sooner rather than later. If you don't, a follow-up phone call saying 'I wonder if you realised that your invoice's due date was yesterday...' will usually do the trick. Almost no-one refuses to pay if you confront them directly -- they just do it because they think they can get away with it.
In some places, the practice of putting due dates on your invoices might even entitle you to charge interest on money you are owed, or charge fees. Check your local laws.
You Could Try Debt Factoring.
Some businesses have success with a technique called 'debt factoring'. This is when you sell your invoices to a third party who specialise in administration and collection, and they give you the money for the invoice straightaway instead of you having to wait for the customer.
If you try this approach, though, you should consider the percentage of your invoices that the company is taking, and whether they're treating your customers the way you would want them to be treated. It might be best to only sell invoices to debt factoring companies when they haven't been paid by the due date, letting them act more like a collections agency.
Collections Agencies.
Of course, your last resort is to sell the debt to a collections agency. This will cost you around 10% of the debt. The collections agency will try to intimidate your customer into paying, ultimately taking them to court if necessary, and they might try seizing the customer's assets. Make sure you check out the agency you plan to use beforehand, though -- you don't want them to be doing anything illegal.
You should always try to talk to the customer before you take this route, as if they're not paying the chances are that there's a reason. You might be about to force them out of business. On the other hand, they might just be forgetful, in which case they won't be too happy about you setting debt collectors on them.
Be Prepared to Settle.
Sooner or later, you might end up being owed money by a business that is in financial trouble -- you're just one in a long list of creditors, as everything falls down around them. In this situation, you need to be prepared to settle with them for less than the original invoice price, or you risk getting nothing. It is a bad situation to be in, but it's better to give someone a break and get some money instead of pushing them further towards bankruptcy and getting nothing.
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Choosing a Name for Your Company.
One of the most important things your company needs is a name. Your name will be the very first thing that almost all of your customers see from you -- long before they meet you, they'll have responded to something (or someone) that told them the name of your business.
So What?
So, if you're planning on running a professional operation, don't call it 'A1 Supplies' just because you want to be listed first in the phone book. You have to pick a name that says something about you and your business, and that people in your target market will be able to say without feeling stupid.
The Professional Name.
If you're running a serious business targeted at other businesspeople, you'll probably want to keep the name sober, but memorable. A good formula is your surname, followed by what you do: 'Smithfield Tailoring', or 'Watson Engineering'. You might also want to add the name of the town where you live: 'Watson Engineering Anytown'. Little things can make a big difference: 'Watson & Associates Engineering' or 'Watson Engineering Co.' both sound quite good, for example. Don't use your first name, though -- it sounds terribly amateurish. Would you rather deal with Ted's Office Supplies or the Johansson Office Supplies Co.?
Another approach is to leave out your name altogether, and simply become 'Anytown Engineers' or 'The Anytown Engineering Co.'. This makes you sound like the first choice locally, especially if your main competitor has the name of another town nearby in their name.
The Corporate Name.
They sound quite bad, I reckon, but there's a still a place for them -- mainly if you want to deal with the big companies that this kind of name appeals to. Simply think of a word to describe your business and translate it into Latin. Then add the word "Consulting", if you want.
The Trendy Name.
If you're going for a more young or technology-savvy market, you might want a less formal name. Names of this form should be kept to one word, and preferably written in lowercase, URL-style. Another common trick is to make '.com' part of the name. Notice the difference between 'Fun House' and 'funhouse.com' -- the Fun House doesn't sound all that much fun, does it?
The Playful Name.
You'll be surprised how many people will love your name if you just decide to name it after an animal, and use that animal in your logo too. If you don't have much of a marketing budget, this is a good way to get a quick brand identity -- if you choose the panda, for example, then people start associating you with pandas, and you can have panda-pattern designs on your stationery and decorate your office with bamboo. Don't underestimate the power of this, seriously.
The Shortened Name.
One naming method that seems to be especially well-used by the big hitters is to take two words that describe your business, shorten them both, and make it one word. So you end up with Fedex (Federal Express), or Microsoft (Microcomputer Software). This is good for suggesting what you do without having an overly lengthy name.
The Random Name.
If all else fails, a great way to make up a name is to just string together sounds that you like until you come up with a made-up word. This can be a surprisingly good way to come up with a name -- and it will be completely unique.
Make It Easy.
Whatever you do, though, make sure your business' name is easy to pronounce and spell. If your surname is hard to say, don't use it. If people seem to have trouble spelling a made-up word, come up with something easier. You'll lose out on an enormous amount of word-of-mouth business if people have to write your name down just to communicate it to each other.
Check for Others.
Once you've got some ideas, make sure you check that no-one else is already using them. It will be expensive to get halfway through starting up a company only to find that the name you wanted is already taken. Also, you'll have trouble establishing any kind of Internet prescence with an over-used name, if that was part of your plan -- if your name is too common, you won't stand a chance of getting yourname.com.
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Do You Need a License? Regulated Industries.
I once knew a guy whose great idea for a ‘home business’ was to run poker tournaments from his house. Needless to say, that didn’t last long once the police heard about it.
If you think you’ve got an idea that’s going to make you big money, there might be a reason why everyone else isn’t doing it – and that reason could be related to the law. Many types of businesses are strictly regulated and controlled by governments.
Gambling.
However fun and profitable it might be to put fruit machines in your house, run a mini card casino or just invite the local old people over to play bingo, it’s almost certainly illegal without a license. Gambling is an industry that’s almost always strictly controlled – it might be fine to gamble privately with your friends (or, depending on where you live, it might not be), but as soon as you start running it as a business you’re on very dodgy ground. You’ll also find that most places have laws against for-profit lotteries – sorry. Applying for a license to turn your home into a gambling premises is unlikely to succeed. If you wonder why, consider what would happen if people in your area could do that. It wouldn’t be pretty.
Alcohol.
Yes, it seems odd to some people that you need a license to serve alcohol – after all, you can invite people round to your own house for a drink perfectly legally, can’t you? As soon as you start charging them for those drinks, though, the nature of what you’re doing changes drastically in the eyes of the law, and you’re going to need a license. If you don’t get one, then you could be heading off to jail for quite a while.
Again, you’re going to have trouble getting an alcohol license for your home, unless you’re holding some kind of event there and the drinking is just incidental. Alcohol licenses are usually subject to appeals from people who live near the premises being considered, and you can guarantee that your whole neighbourhood is going to turn out to say what a bad idea it would be.
Medics.
If you plan to do anything medical, then you’ll probably need a license. When I say medical, I mean doctors, dentists, opticians, and even vets. You might think it’d be fine to turn your home into an ‘animal hospital’, but you need to be qualified and licensed. Of course, if you’ve previously been a doctor, dentist, or whatever, then you shouldn’t have too much trouble getting licensed to do the same thing from home.
Children.
People get jumpy around children, and you’re very unlikely to be able to look after any as part of your business without jumping through all sorts of hoops. Just to be a nanny, there are all sorts of courses to take and regular inspections to go through. If you ever wonder why there’s a shortage of small-scale childcare, it’s because it’s so hard to keep within the rules while making any profit.
Food.
If you’re going to sell food, you usually need to register, for hygiene and safety reasons – imagine if just anyone could sell you food, without any checks! For various reasons most local government agencies are especially strict if you plan to handle raw meat. It’s usually fine to sell cooked meat, but raw meat is considered more dangerous. Food licenses aren’t too hard to get, anyway, provided you have a relevant hygiene qualification and you’re willing to have your kitchen and products inspected at regular intervals.
More.
This list is nowhere near exhaustive – it just covers some of the most common kinds of businesses that people think of. If you’re planning to do something more unusual, then you really need to check your local laws.
Should I Bother?
Most home business owners don’t know about the rules that apply to them, and don’t especially care either. Every day you operate in a regulated industry without a license, though, you risk being shut down, or worse. It’s only going to take one upset customer or neighbour to get you into big trouble – so unless you want to be worrying all the time, make sure you’re properly licensed for whatever you want to do.
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Don't Forget Yourself: Surviving the Financial Strain.
When you start a home business, it's all too easy to get carried away by all your new obligations: keeping your customers happy, earning enough money to live, and so on. Being in such an uncertain financial situation is stressful, but many home business owners simply ignore this stress, instead of dealing with it. When you're worrying about money, you tend to be worrying about everyone else and what will happen when you let them down. What I'm saying is this: don't forget yourself.
The End of Stability... or the Beginning?
Many people get very upset a few months after they quit their job and start their own business, feeling like they threw away the financial stability they had in their job, to chase a dream. Think of this way, though: just how stable were you in your job to begin with? Did you constantly have to avoid saying or doing the wrong thing, for fear of getting fired? Did it always feel like you were one bad project away from the end?
Well, you are in almost all 'real' jobs, when hiring and firing is at the whim of your manager. At least now you work for yourself you can't lose your whole job -- only individual clients. I know many people, especially medical professionals, who feel far more stable working at home than they ever did in their job. They know that there will always be at least enough people coming to them for them to survive.
Living With It.
You knew this was going to be hard on you financially when you started -- it's no excuse to give up. Talk to any home business owner and they'll tell you how much stress they're under. It's part of the way of life. Big companies are designed to take financial strain away from individual employees, since everything is decided by committee and it's the investors who are going to be losing out anyway. You don't have this luxury.
The only advice to give here is that you shouldn't take any more financial risk than you're comfortable with -- decide in advance just how much you're willing to lose before you throw in the towel. You should agree this point with your family before you start, though, and don't let them pressure you into giving in before you've reached it.
Keep Clear Records.
The absolute worst and most stressful thing is not to know exactly what your financial situation is from day to day. While you might think you don't want to know, things are never really as bad as they seem when you've got the numbers in front of you. It's when you leave it to your imagination that things really start to seem bad.
The simplest way to keep records for yourself is to use a simple accounting program, or even just a spreadsheet. Enter what you started with, and then record everything you spend and everything you earn. Remember: it's never that bad.
Don't Start Taking Sick Days.
It can be all too easy to take 'sick days' when the only person you answer to is yourself -- when you feel stressed, the natural reaction is to hide away and ignore whatever it is that's making you stressed. You'll only make your financial situation worse if you do this, so it's important that you only stop working when there's something actually wrong with you, not just when you feel low.
What's the Worst That Can Happen?
Think of it this way: what's the absolute worst case scenario, the thing that you're most afraid of financially? There are very few situations that couldn't be solved by selling a few of the things that have accumulated in your house over the years (you probably don't even use them), or by selling your car and getting a smaller one. Do you really need all those things you subscribe to monthly? Newspapers, cable TV, and the rest could all go in an emergency, right?
Basically, when you run a home business, you might have to make a few short-term sacrifices to get yourself out of trouble. I guarantee you, though, that you will find it very difficult indeed to completely crash and burn.
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Finding Who You Need: Advisors, Accountants and More.
When you run a home business, there are all sorts of professionals whose services you need. They are often indispensable, saving you two or three times what they cost. But what do you need, and how do you know who to choose?
Choosing People.
The best people to hire are people who you've heard about by word of mouth. Failing that, you should spend as much time as you can afford comparing people and services before you make up your mind. Don't worry, it's not all wasted time: the way you go about comparing others' services this might give you a few insights into how to improve your own marketing.
I find that the best way to do it is to narrow the people you're considering down to a shortlist, and then do as much research about them as you possibly can. Seek out their clients and their premises, find out how long they've been in business for and who the business is owned by -- make sure there's nothing you're uncomfortable with.
Lawyers.
Whenever you're dealing with the law, you really shouldn't try to go it alone -- and when you're running a home business, you'll be hitting up against the law quite often. It's important to build a good working relationship with a lawyer in your area, so that you have them available both for day-to-day things and for emergencies.
Sooner or later, you'll probably need a lawyer to help you with licenses, permits, regulations, contacts, or employment. You need to get one straight away if someone violates your trademark, copyright or patent, or someone threatens to take legal action against you for some reason.
Accountants.
Accountants are mostly useful for saving on tax, but you will find that tax is a big business expense, at least if you do it wrongly. Accountants know the tax laws inside out, and will be able to point out all the savings you might be entitled to without even realising it, as well as the best ways to do things like taking money out of the business without paying a ton of tax.
It is best to try to find an accountant who will keep in contact with you occasionally, reminding you of tax deadlines and telling you if anything changes in the law. They should also be able to advise you on bookkeeping methods, and suggest computer software that could be helpful for this.
Business Advisors.
You may wish to contact a business advisor if there's anything you're still unsure about when it comes to running your business -- they can be affordable yet very helpful. They are also very useful people to be able to contact in a crisis.
Financial Advisors.
If you're trying to manage a lot of debt, you might want to get a financial advisor. They can help you structure your business so that it pays debt off quickly while still leaving you enough to live on, as well as suggesting ways to get debt repayments down. Quite apart from the practical elements of this, it can be a big relief to know that there's a plan and your debts are being dealt with.
Advertising Agencies.
If you don't want to handle advertising yourself, then advertising agencies can be a good alternative. They'll produce a slick, professional ad, and place it in ways that they know produce results. Look for one that specialises in home businesses, and will allow you to try out a relatively small advertising budget with them to begin with to see what kind of results they could get for you. You could be pleasantly surprised.
Make sure, though, that any company you choose isn't so big that you'll get lost amongst all their clients, and that they understand your business and your industry. Since most ads for home businesses should be local, it's worth sticking to your own town when you're trying to find someone.
Web Designers.
Keeping a web designer as a semi-regular contact is important if you're going to have a website and don't know too much about them yourself -- they could be needed occasionally add new sections you might think of, or fix the thing if it all goes wrong.
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Getting Help and Advice on Starting a Business.
When you want to start a home business, it can be easy to feel alone, confused, and scared. The chances are that you don’t know anyone else who’s ever started a business, and you don’t even know who to ask if you get stuck. Here are a few things you ought to be looking at.
The Internet.
The Internet is a great resource for people who are thinking of setting up a home business – as well as all the articles you can find with practical advice, there are also many forums, where you can read about others’ experiences, and ask questions.
The Government.
Scary as it might seem to be getting advice on anything from the government, most governments go really out of their way to produce all sorts of easy-to-understand material on starting your own business. Encouraging you in business is a great way for them to both strengthen the economy and increase tax revenues.
Depending on your area, you might find that local government agencies are also keen to give you help and advice, and might even have some kind of ‘small business centre’ that you can visit.
Mentors.
Mentors are usually volunteers who think it would be nice to offer local businesses help and advice. They often have years of business experience, and can be really useful – if you find one, hang on to them.
Librarians.
Always willing to help and sadly neglected in our ‘wired’ age, you really should talk to a librarian. Libraries generally contain all sorts of business books and resources that they’ll be able to point you towards, and they’ll be more than happy to do research into obscure areas for you.
Lawyers.
Pricey as they might be, lawyers know all about starting businesses – they’ve almost certainly done it thousands of times over. It can be well worth paying for an hour of a lawyer’s time and just asking them every question you can think of.
Accountants.
A less expensive alternative to lawyers, accountants also know their stuff, especially (obviously) on the financial side. If you want your business to be profitable, you should take on board what your accountant tells you – and if you don’t have one, you should get one. By the time they’ve helped you navigate through all the tax mazes, they’ll almost certainly have made their fee back for you anyway.
Incubators and Investors.
If you think your business would be an attractive proposal to people who back businesses for a living, then you can try going to a ‘business incubator’ or some other kind of investor with your idea. If they like it, they’ll often have a quick process set up to get your company up and running as soon as possible.
Universities.
Here’s an interesting one: universities are full of business students. They’ve all spent ages learning about nothing but business, and many of them would just love to help get a real one off the ground – it’d look great on their CV, after all. Business students can be a great source of free help and advice, and they’ll probably even be thankful to you for letting them help out!
Teachers.
If you do a course to get a formal qualification in what you want to do before starting the business, you’ll probably find that your teacher is also a good resource on the business side of things. They’ll have had plenty of students starting businesses who’ve asked them similar questions, and they might even have prepared some material to give to anyone who asks for it.
Your Bank.
Traditionally, your bank would have been the first place you went if you were thinking of starting a business, but many people seem to ignore them nowadays. While they’re no replacement for accountants, most banks will offer you a ‘business advisor’ when you open a business account, and they can be especially helpful with the technical and financial elements of starting up.
Associations, Societies and Unions.
Whatever industry you’re thinking of entering probably has some kind of trade association, society or union. You should join as soon as you can, and take advantage of all the resources that they will almost certainly offer to people wanting to get started in their industry. After all, the more people who are in their industry, the more members they can get.
So you see, there’s no shortage of advice out there if you look for it.
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Getting Loans for Your Home Business.
Very few people can afford to start a business using nothing but the money they’ve got lying around in their bank accounts. For most of us, we’re going to need to get a loan before we’d have anywhere near enough money to invest in starting up.
Your Credit History.
You might not have realised that your credit history was going to count here, but it does. This is where all those late credit card payments come back to bite you. The better your credit history, the more likely a bank is to lend you money, and the better the rate it offers will be.
Bank Loans.
Banks usually have someone whose job it is to go through applications for business loans. These people have seen a thousand business plans, and they know what they’re looking for.
Take along all your plans and any other supporting material you can put together. Make sure you present yourself at your most professional. Act like the most sensible and level-headed person you’ve ever met. This is, essentially, a job interview: the bank is interviewing you and your business to try and figure out whether it would be a safe place to put their money. Remember that they’re just like every investor, lending you money with the expectation that they will get it back, plus interest.
Secured Loans.
Of course, you’ll probably have a much easier time persuading a bank to lend you money if you put up something of your own as collateral in case you can’t pay the debt back. Some dodgy banks would really like you to secure your business loan on your house, since they know that the failure rate of start-ups is high and they’d really like to get their hands on it. Be cautious, in case you sign your life away. It is almost never worth starting a business if you can only get secured loans – you’re tying the business’ fortunes too closely to your own.
Government Loans.
As part of the push to support small businesses, there are now many government bodies that will offer no-interest or low-interest loans to small businesses, a category which includes home businesses. The government lot will obviously be even more picky about your business plan, but it’s still a good option to have available to you. Even better, these loans will often come with free help and advice from the agency that issues them, as well as all sorts of booklets and leaflets telling you the technical details of getting started.
Credit Cards and Overdrafts.
These forms of debt are a very bad idea. Whatever you do, do not finance your business with personal debt. You’ll have to make a massive profit just to pay back your debts, and it’s unlikely that you’ll manage to both pay them off and have enough money to live. If you can’t get a loan, try to find other investors instead.
Friends and Family.
Friends and family can be a surprisingly good source of loans to help start businesses, especially if they’re in the same industry themselves – they’ll be more than happy to help you get a foot on the ladder. You might be able to persuade someone to give you the money at a good rate of interest, or even to act as a ‘sleeping partner’, financing half of everything while leaving you to run it all.
Be aware, though, that many friendships and families have been ruined by failed businesses. I had a friend who went around raising thousands from everyone he could think of to start a magazine of his own, only for it to crash and burn by the second issue. Be warned.
Keep Trying.
If you get turned down for a loan, keep trying (preferably at different banks!) You should revise your business plan each time, and try to get as many people as possible to read it – the more people who see it, the more ideas and suggestions you can hear. If your credit rating is fine, then the problem has to be with the business plan: fix it, and you’re set. Good luck.
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Going International.
At some point in your business' life, you might be contacted by someone in a far-away land who's heard about your business somehow (probably through the Internet). This will be your first encounter with the international market. For many businesses, once you've conquered your local area and done business by post or email with other areas of the country, dipping a toe into international markets seems like the next big step.
Preparing to Export.
When you're preparing to export your products, there are quite a few things you need to do. Firstly, make them as light as possible for the purposes of international shipping. Check that you'd be able to get the things you're selling to the place where you plan to sell them without it becoming prohibitively expensive. Next, check if there are any customs requirements -- you might find that either your own country or the target country has laws that will require you to register what you're sending and perhaps pay extra taxes. On the other hand, selling internationally may mean that you don't have to charge your own country's sales tax.
Obviously most of these things don't apply to non-physical products. One thing that you still need to be careful about, though, is currency fluctuations -- how stable is the currency you plan to start trading in? If it has problems, you might want to price products in your own currency instead.
Look for Niches All Over Again.
When you're trying to sell things to international customers, you need to make sure that there is a market in each country. Something that is very useful and in-demand in your country might just cause confusion abroad -- or, likewise, something that's only moderately popular where you are might be seen as revolutionary.
If you're not sure, you could talk to a few local businesspeople about how they think your product would be perceived, and they may be able to suggest a suitable target market for you. As always, research is key.
Produce Internationally, Supply Internationally.
If you're going to start exporting, you might want to consider importing as well. If you buy in bulk, you can generally get things far cheaper from developing countries, especially the 'Asian Tiger' countries like China, Taiwan, Indonesia and South Korea. Give it a try -- you could be delighted to find that they can make your product for a fraction of what it costs you, and all you have to do is a little quality control.
I understand that this approach is particularly useful for clothing products, which are labour-intensive yet can be produced cheaply and well by these countries. Note that you're unlikely to be exploiting anyone -- the country you're importing from simply has a lower cost of living. To be extra sure, shy away from offers of having things made in developing countries or dictatorships.
Try to Be Culturally Sensitive.
When you're dealing with international customers, you need to take their culture into consideration. In some countries everyone knows English, while in others they would be offended if you didn't get your materials translated. For all you know, the name of your product might be a rude word in some language or another, or the marketing might be focusing on benefits that people from some countries are unlikely to respond to.
This is one of the reasons why you're best off selling to countries that you have some experience with. Ideally, you should have the ability to speak the language, as well as having spent some time in the country. Failing that, read as many guides as you can and see if you can meet with people of that nationality socially.
Note that you should be especially careful about dealing with countries where there is some history or possibility of political unrest, as you can lose a lot this way.
You Are Not a Jetsetter.
Finally, remember that it's a bad idea to start flying around the world to pitch your products or meet your customers, especially in the age of the Internet when almost everything can be done from your home. Did you really get into home business to throw away your profits on expensive flights and hotels? Exactly.
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Guerrilla Marketing: a Cheaper Alternative.
So you've spent an enormous amount on advertising in the media and got very little response -- or maybe you were scared enough by the prices that you never put the ads there to begin with. You're annoyed at how expensive it is to get even the simplest and smallest ad in front of anyone, and how useless the whole thing seems to be.
That's because media advertising, in the main, isn't designed to cater to home businesses. No, if you want to get ahead as a home business, you're going to have to do the advertising yourself.
What is Guerrilla Marketing?
Guerrilla marketing is a way of advertising when you have an almost non-existent budget. Instead of thinking of your business as a smaller version of a big one, you have to realise the situation you're in, and behave accordingly to maximise your profits while minimising your marketing costs. Essentially, you're going to try to do anything to get publicity.
Telemarketing.
Don't worry, I'm not talking about telemarketing of the nasty call centre variety here. It's B2B (business-to-business) telemarketing you want to be doing -- basically, phoning up local businesses and making yourself known. You'll be surprised at just how effective this can be, since businesses tend to appreciate the effort you've made to contact them and offer your services far more than a customer does if a business phones them at home.
Direct Mail.
It shouldn't be too difficult to get hold of a mailing list that covers your whole area -- ask your local post office if you're unsure, as they'll often be able to help with bulk mail campaigns. Alternatively, if you don't even want to pay for delivery, you could hire a few local teenagers to go round putting your letters in people's mailboxes. This will work best if you keep your message to one small page or even just a business card, so that people will keep it if they're interested and call you in their own time.
Outdoor Leafleting.
Another effective guerrilla marketing technique, at least for some kinds of business, is to hang around outside giving out leaflets to passers-by. This gives you an opportunity to 'meet and greet' people, and lets you do some free targeted advertising by choosing your location carefully. If you do odd jobs in people's houses, for example, you could stand outside the DIY store, handing out leaflets that say 'Why Do It Yourself? I'll assemble and install everything you buy today for only $50!' If you custom build and sell your own computers, you could stand outside a big-box computer store with this leaflet: 'Get your computer tailor-made, for half the price of [big store]'. You get the idea.
Free Gifts.
You'd be surprised just how effective it can be to stand around handing out free gifts. If you do something that relates to children, then hand out balloons to them in the mall. You'll make some kids' days, and your name and perhaps website address will be written there on the balloon for all to see. Free pens are a very effective thing to give away if you provide a more serious business service -- people are always short of pens, so they'll keep your pen in their bag and be reminded of your business each time they use it. Even better, the cost of getting thousands of balloons or pens printed with whatever you want is almost nil.
Attack the Competitor.
Nasty as it might sound, hardcore guerrilla marketers regard their competitor as their sworn enemy, and will do anything to bring them down so that they can replace them in the marketplace. A little disturbingly, this can be quite simple to do -- fake a few letters complaining about a business to a local newspaper, and you might find that they follow through and do a feature on it without even checking the story out.
In the end, with guerrilla marketing, there are endless ideas -- it's all about being inventive, and having the guts (and the patience) to try them out. When you get your first customer without buying a single media ad, it'll all be worth it.
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Hardware and Software: Using IT in Your Business.
There's almost no-one nowadays who doesn't have a computer -- it's more-or-less a given that you've got a computer in your home office, and that you use it almost every day. But are you getting as much out of it as you could be? Here are some things your computer can do that you might not have thought of.
Keep Track of Customers in a Database.
Once you start to get some customers, you'll need to keep track of their contact details, as well as making sure you know who they are in case you forget. You have a choice: you can keep a file for each customer in your filing cabinet, or you could enter their details into a computerised database.
The good news is that if you have some office software, then you should already have a database package. Starting a database of your customers isn't too difficult to figure out, and lets you do all sorts of things -- you can sort them by the area where they live, or list everyone who's bought one of your products but not another, for example.
Graph Your Sales.
Once you've got your database telling you what you've sold to who and when, you can use it to produce all sorts of graphs and other reports that could help you to spot trends and see what works and what doesn't.
Do Your Accounting and Tax.
With inexpensive accounting software, it's not hard to use your computer to keep track of all your incomings and outgoings -- it can even be integrated with your customer database. Since you'll have all your sales data electronically already, it'll be a snap to do your taxes at the end of the year, where for people who have it all on paper it can be a complete nightmare.
Design Your Own Marketing Materials.
Modern desktop publishing software makes it dead easy to design your own logo, leaflets, brochures, and anything else you might want. With a little practise, you can produce things as good as any graphic designer a home business could afford, and save the money for distribution. Make sure you run your design by a few people first, though, to check that it's readable and there aren't any mistakes or flaws that you've been staring at it for too long to see.
Follow Market Trends.
With Internet access, you can read articles from the specialist press of the whole world, and keep up to date with all the latest technologies and trends in your industry. It's worth picking out the top five or so most important sites to your business and spending a few minutes each day checking them. After all, you don't want to get left behind.
Accept Credit Cards.
Many people don't realise, but Internet merchant accounts aren't just for accepting card payments over the web. You can also open one to use as part of your home business over the phone or by post, with you simply entering the card numbers and amounts into a website to process the payments. This is a powerful way of giving your customers more alternatives when it comes to paying you.
Promote Your Business.
Don't underestimate the effectiveness of the web as a tool for promotion. You should definitely take the time to list your business on every directory listing people in your industry -- make sure that someone searching for your profession and the town where you live would be able to find you listed easily.
Pay Your Staff.
When your business gets big enough to employ staff, you'll find your computer is a useful tool for keeping track of how many hours each person has worked, how much they should be paid, and how much of that amount needs to be kept behind as tax. Trying to do payroll manually is a big headache.
Keep Backups!
There's one thing, though, that it's important to always remember: when you use your computer to store any data that you can't afford to lose, make regular backups and keep them in a safe place. It's really not that much trouble, and if you don't do i then a simple computer failure can devastate your business.
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If It All Goes Right: The Exit Strategy.
After a few years, you might find yourself with a successful home business. After a few more, you might find yourself sick of it and ready to retire, only to realise that you have no idea what to do with the business and all the customers who rely on you if you take that course of action. Here's what you need to do to get out of your business without destroying it, and come away with a good nest egg.
Selling Your Business.
A business has more value than you might expect. As a rule, businesses are bought and sold for somewhere between one and two years' worth of their profits. If you wonder why, consider that the person buying a business gets not only a proven business model, but also all the marketing materials and other intellectual property (trademarks, copyrights, patents), an existing customer base, and years of built-up goodwill.
Home businesses, however, can be more problematic to sell than other businesses, for the simple reason that they do not come with business premises. You might have the best luck allowing one of your larger competitors to do a 'takeover' of your business, in which they are mostly paying for your name, branding and customers. This can be lucrative for them, as they get to both eliminate a competitor and expand their own business at the same time.
You will need to put some effort in to make your business attractive to potential buyers -- do some analysis on what each element of the business is worth. Show that you have made lots of sales in the past and will make many more in the future. Above all else, buyers are looking at your balance sheet, and the business' potential for growth. They're in this because they want their future earnings to be more than the amount they pay, and if you can demonstrate that they could make that happen quickly then they'll have no reason not to buy.
Getting the Right Price.
Don't sell your business to the first person who offers, however good their offer might sound -- you need to get offers on the table from everyone you can think of who might be interested. You may even find that they're quite willing to have a meeting with you as a group, and get into a little bidding war. Alternatively, if you already have staff, you may wish to offer them the option to bid too, providing them with a finance agreement. Before you do anything like this, though, it's good to get your lawyer and your accountant to advise you on the best course of action.
You will do better on the price of your business if you've planned your sale in advance, instead of waiting to the last minute. The people who get the best prices are the ones who take years to sell their business, and are always prepared to walk away from the negotiating table.
Time to Skim.
One thing you need to remember when you sell your business is that if there are any shareholders other than yourself, they need to receive their percentage of the business' final sale price. Depending on the terms of the agreement, you may have to buy their part of the business before you can sell it, or give them the option to buy your part before you offer it on the open market.
On top of that, you will also have to pay tax on the sale of your business. Always consider how much an offer is going to be worth to you after tax, not before.
Starting from a Powerful Position.
Once you've sold your business, there's one thing left that you can do. With the lump sum you just got from the sale, you're in a great position to start a new business! If the sale didn't include your equipment, then it shouldn't be too hard to get started again -- and this time, you'll have a lot of money to invest. Not only that, but you've proven yourself to be good to lend to, so any finance you need should be far easier to obtain.
Keep building businesses and selling them every few years, and you can quickly get hold of the resources to build something truly great. Good luck!
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If It All Goes Wrong: Don't Rush to Bankruptcy.
It's a sickening feeling when your debts start to stack up, your marketing strategy is failing, and it doesn't look like you'll ever be profitable. Your family is getting stressed, your business can't pay its bills, and customers are starting to make angry phone calls asking why the things they paid for aren't happening.
At this point, many people feel ready to throw in the towel. I'm here to tell you why you shouldn't be one of those people.
A Proverb.
There's an old Chinese proverb I'd like to share with you: the temptation to quit will be greatest just before you are about to succeed. Nowhere is this more true than in home business. You might feel like you're failing over and over again, until you feel like giving up. The paradox, though, is this: you haven't really failed until you've given up.
Never Fear.
If you really want to, there will always be ways to raise money for your company. You probably have all sorts of bills for things you don't use, not to mention possessions that could be sold or downgraded. Did you know that the average person has thousands of dollars worth of random stuff just lying around in their home? In other words, you can always find the money if you're really determined and not afraid of losing everything.
The only thing you should really try to protect is your house and some money for basic food -- everything else is expendable. Never forget that the worst thing that can really happen to you is that you'll have to go out and get a job. Would that really be so tragic?
Fear is your enemy in business. You cannot give in to your fear and give up before you've given it your all -- the real reason why so many home and small businesses fail is that their owners chicken out and run away at the first sign of trouble.
The Captain Goes Down with His Ship.
When the chips are down, the only thing to do is to stake your personal success on the success of your business. After all, what's the point in bailing out before you have to? You're guaranteed to lose money that way.
Someone once told me that the difference between an average Joe and an entrepreneur is this: the entrepreneur will not give up on a business until his creditors come and take everything he owns. And even then he might try to hide from them and keep things going from his friend's basement.
Don't Tell Customers.
It might seem dishonest, but for goodness' sake do not tell any of your customers that things are going wrong because your business is in trouble. They will immediately run a mile, putting your business in a far worse situation than it was before. You must always try to make it look like everything is going just fine -- admitting problems will put the final nail in your business' coffin.
Try a Voluntary Agreement.
If your creditors are at the point of knocking on your door, you should try to get a voluntary agreement with them before you even consider declaring bankruptcy. This is when you negotiate your debts down to a lower level using the threat of bankruptcy, and your creditors sign an agreement with you to say that they will leave you alone once you've paid that money.
The Absolute Last Resort.
I simply cannot get across to you how much you should not consider bankruptcy as a viable option, ever, until you are absolutely forced into it. Think of it as being like suicide: the absolute last resort. Would you commit suicide because your business was going badly? I hope you answered no -- which means that you shouldn't consider bankruptcy either.
Having had a bankrupt company stays with you for a long time in everything you do: your credit rating, your employment history, and even just in the way you think of yourself day-to-day. It's better to have everything wrestled from your hands than to give it up voluntarily -- otherwise you'll always be tortured by wondering what would have happened if you'd kept going just a little longer.
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Invented Something? Get a Patent.
There is one kind of home business that is very different to any other: that of the inventor. If you’ve invented something, the chances are that you don’t have the resources to mass-produce it yourself – you’ll be needing to send the plans and designs off to someone else to make in their factory. When you do this, though, how can you protect your idea against theft by them, or anyone else who might see it? The answer is patent registration.
What is a Patent?
A patent is when your government gives you the exclusive right to profit from an invention for a set number of years. If anyone else tries to sell something that is covered by your patent, then you will have the legal right to make them either pay you a licence fee or stop.
Each patent has a patent number – you might have seen ‘Pat No’ printed on some things, followed by this number. You may also have seen ‘patent pending’, which means that the patent has been applied for but not yet granted.
Your Invention Must Qualify.
Not all inventions can be covered by patents. Check that your invention meets these two requirements:
Is it new and secret? You can’t have showed your invention publicly before you apply for a patent. Whatever you do, don’t take your invention round and demonstrate it to people before you think about patents – you might make it impossible to get one.
Is it non-obvious? Your invention must not be something that would be obvious to experience in your chosen industry. This is to stop people rushing to patent things that anyone could figure out, and then charging high fees for their use.
In addition, you cannot apply for a patent for any of the following: a scientific or mathematical theory or method, a work of art (books, plays, etc. – computer programs are included), a way of doing things (eg. a new business method). Many of these things are, instead, covered by copyright. Patents are intended for actual, physical inventions.
Where Do I Get One?
Wherever you live, the chances are that it has a government agency called a ‘patent office’, or similar. There are also patent agencies for larger areas, such as the European Patent Office or, ultimately, the WIPO (World Intellectual Property Organisation).
To begin with, you should apply for a patent at the patent office for your country – it’s best to get a lawyer to guide you through this, and make them sign an NDA (non-disclosure agreement, a contract saying they won’t tell anyone else about your invention). Depending on your country, this can either be absurdly cheap or really expensive.
Once you’ve done that, you generally have only one year to file for any patents you might want in the rest of the world. You used to have to apply individually in every country where you wanted a patent (this got very painful and expensive very quickly). Now, though, you can now take advantage of the PCT (Patent Co-operation Treaty), which allows you to apply once and eventually receive protection in all of the 126 countries that have signed up to the treaty.
You can apply for a PCT patent either through your own country’s patent office, or through the WIPO’s office in Geneva. It is again important to stress that you should really get a lawyer if you plan to go through this process, as international patent law isn’t especially intuitive or easy.
You should note that if your patent application is refused at any stage, you won’t be getting your fees back – although you can usually apply again, if you want to pay again.
What if I Don’t Get a Patent?
If you’ve looked at the prices, you might be wondering: what’s the worst thing that could possibly happen to me if I didn’t get a patent? The only answer I can give is that anyone you happen to explain the idea to can steal it, and you won’t be able to do a thing. What’s more, once your invention does come on the market, success will attract many imitators, and they’ll probably be able to produce your invention cheaper by sacrificing quality.
Essentially, a patent gives you protection against competition – but if you think you could do perfectly well in the market no matter how many imitators you had, then maybe patents aren’t for you.
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Is it Legal in Your Home? How to Check.
If you’re going to start running a business from your home, there are various laws you need to know about. If you don’t check things out before you start, then you risk having your business shut down by the authorities.
Zoning Laws.
The chances are that the different parts of your town or city have been split into different ‘zones’. Each one of these zones has a purpose: business or residential. Since you almost certainly live in a residential area, zoning laws restrict what you can do there in terms of business.
If you think about it, there are good reasons for this. What would it be like if someone could just decide to buy up a whole load of houses and turn the area into a shopping mall, without getting anyone’s permission? What if your neighbours could just turn around one day and start using their house as a shop? I doubt that you’d like that. The laws are there to protect your neighbourhood, and to stop business from interfering with people’s home lives.
You need to phone whatever local governmental body there is in your area, and ask them about the zoning laws in your area. If they’re not helpful, it could be worth a visit to a lawyer. You’ll find that laws vary massively – here are some of the things you might come across.
The Strict Zoning Policy.
Many areas still operate a strict ‘no-business’ policy in residential areas, and will come after you if you start a business without their permission. You’ll need to put in a formal application, and there could be a public hearing, giving other residents the chance to object. Time to start being nicer to your neighbours!
You should note that just because there are other home businesses in your area, it doesn’t mean that you’ll find it any easier to get permission. The rules may have been tightened up since those businesses were started. Still, it’s worth talking to other home businesses in the area, if you can, to see if you can get any advice.
Percentage Policies.
Another common way of handling things is to allow you to use only a percentage of your house for business, to avoid residential properties becoming wholly commercial. You might be told, for example, that only 20% of the house can be used for business purposes. This can be restrictive if you have a small house, or if you need to store things. Worse, areas with a policy like this are usually completely unwilling to vary it for you.
Restrictions by Industry.
It’s worth checking if there’s a special exception in the zoning laws for what you plan to do. Artists, for example, are often excluded from the laws (where are they supposed to work – the art office?), as well as people who give home tuition, like music teachers. Doctors and dentists are another common exception.
Signs and Traffic Rules.
You might find that the laws have special restrictions on signs and traffic. You could be restricted from putting anything on the front of your house that could be considered ‘advertising’, meaning that you can’t even have a sign with the name of your business. If you plan to have lorries or trucks bringing deliveries to your house, then that can pose a big problem, especially if someone complains about them, or there are lots of children in the area.
Visitor Rules.
Another contentious issue is visitors. For some reason, people get upset if lots of visitors keep coming to your house – they like their street to be quiet, not constantly busy. Some laws allow only a set number of visitors to your home business per day, or restrict the number of visitors that you can have at one time.
Breaking the Law.
A footnote to all this is that millions of businesses are operated illegally out of people’s homes, in violation of the relevant laws. They keep their business secret, because they know that admitting what they’re doing would probably get it closed down. This approach obviously isn’t recommended, though – you should always try your best to do things legally, and consider moving house if no-one seems to want your business in the area.
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Keeping Customers Loyal.
It's a well-known fact that it costs many times more to acquire a new customer than to keep doing business with your existing ones. For this reason, the best way to become profitable is to have loyal customers who keep coming back again and again. It's all about relationship building. So what can you do?
Customers Aren't as Loyal as They Used to Be.
It used to be that customers would find one service that met their needs and stay with it for absolutely years. Now, though, customers are fickle, and can all-too-easily be tempted away by a competitor's offer if they feel that it sounds cheaper or better than yours. So-called 'loyalty management' has become more of a science than it ever used to be, and it's one that you need to make use of if you don't want to be constantly failing to retain your customers.
Offer Discounts for Repeat Business.
You will see some businesses who give people a 'first-time' discount, as a hook to get people to try their services. This is entirely the wrong way to do it. What you should be trying to do is reward loyalty by giving people a discount each time they use your services. Over time, this makes it so that moving to the competition looks like a ridiculous proposition for them -- why would they when they get a 20% discount from you every time?
Keep Mailing Lists.
You should have at least two mailing lists: one for your prospects (people who might buy from you), and one for your customers (people who have bought from you). You should lavish attention on both lists, but especially on the existing customer one -- and really lay it on thick for anyone who's bought from you more than once.
You need to be in contact with your regular customers as much as you can, always understanding their needs and when they might need you again. Don't worry about this costing masses in direct mail, as you can always do it by email. The secret is this: contact, contact, contact. Send your regulars Christmas cards, invite them to meet with you for lunch -- anything you can think of. A good tip is to always use the techniques that your competitors are neglecting.
If your service is one that the customer will need at regular intervals or a certain time of year, make sure you keep track of this in your customer database and send something out then. There's nothing worse than losing out on a customer's business just because they didn't have your phone number to hand and had a little extra time to see an offer from a competitor.
Another good thing to send to your mailing list is a newsletter, either by email or post. Take a few hours each month to write something with useful information about your industry that your customers are likely to keep and find useful, and put your logo on the top so that they can be reminded of you when they see it. As a bonus, you can keep this material archived on your website too, so it can be found by people searching for related words in search engines.
Be Crazy About Feedback.
You need to phone up as many customers as you can to get their feedback after they deal with you. Make sure they were satisfied with what you provided, offer to fix anything that they're not happy with, and ask them if they can think of any way you could improve. Customers will appreciate this -- and they'll like it even more if you actually implement their suggestions.
Provide a Personal Service.
Go the extra mile to make your customer feel like they're your friend, and not just a tracking number in your database. Tailor everything you do to their needs, and make everything easy for them -- don't leave them to do legwork that you could be doing. After all, they're the customer.
Finally, cheesy as it might sound, customers really appreciate a little thank you note when you've received their payment. For an extra personal touch, you could handwrite it.
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Managing Risk: the Disaster Plan.
A very important factor in any business is how you manage risk – yet it is a factor that is often ignored by home businesses.
You have to realise that any time you start a business, you are taking the risk that the business might fail. What experienced people do is shield themselves from risk at every opportunity, to make sure that they can keep a business going for months on the brink of disaster, and wind it down gracefully if it really has to go under.
You need to have a plan for what you’re going to do if your business looks like it’s going bankrupt. Are you going to borrow more money, if you can? Sell your car? Raise prices? Get rid of staff? Done right, you should have a good package of ‘rescue measures’ that really do have a chance of rescuing the business.
Borrowing.
If you need to borrow more to keep your business afloat, take great pains to avoid looking desperate. Act like your business is moderately successful but needs more investment, and you’re far more likely to succeed in getting more funding.
Bye-Bye Staff.
This is a bad idea, but not always a terrible one. In a home business, you presumably only take on staff because you have enough business to cover it, don’t you? So it makes perfect sense to get rid of the staff when things start to go wrong and go back to doing it all yourself.
Price Hike.
When your business is in trouble, there are few things guaranteed to destroy it faster than a price rise. Just don’t do it, however tempting it might be – cut costs instead. If you absolutely must raise prices, do it by scaling back what you get for your money in each of your price ranges, without actually raising the prices.
I know of a struggling bus company that kept its fares the same for years but gradually started to run fewer buses and send them all over town, making journeys take longer. People reacted a little badly to the longer journeys, but it was nowhere near the scandal that there would have been if prices had risen.
Keep Staff Pay Aside.
Whatever you do, make sure to keep staff pay separate from the other business finances, and pay it out immediately if the business looks to be heading for trouble with its creditors. It is far better to be paying your staff on the last day than to be giving all that money to the creditors. Leaving staff unpaid will destroy your reputation, not to mention hurting a lot of innocent people.
The ‘Closing Down’ Sale.
If you plan it well, your last day in business might not be so bad. Just make sure everyone knows that you’re closing down for real, but still price everything ever-so-slightly above cost. In this way, you can avoid the drastic loss-making ‘Everything Must Go!’ mentality, and come out of your business the same way as you would if you’d decided to shut it down that day for some other reason.
Selling Your Business On.
If you’re shrewd about it, you might be able to keep your business going long enough to sell it to someone who could turn it around. There’s nothing dishonest about this route – it’s the one most big companies take if things start to go wrong. You might even find that one of your competitors is willing to buy, even if only for your established customer base.
It’s Up to You.
Disaster plans are very personal, and they depend a lot on how much risk you’re willing to put on yourself. If you do things the sensible way, then you’ll go as far as you can to avoid selling or borrowing against any of your own assets just to keep a business afloat. On the other hand, if you’re really determined and a bit of a risk-taker, putting some things of your own at stake might buy you enough time to recover from whatever hit your business.
It’s a little like playing poker: are you going to be the guy who walks away and leaves his money on the table, or are you going to throw your car or house keys onto the table and raise the stakes? That’s risk management for you.
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Once You're Established: Planning Your Growth.
If you've got a profit-making home business on your hands, the next step is growth -- expansion into new markets and new products. But how can you grow when the physical space you have is so restricted?
Outsource More.
A typical problem when your business starts to grow is that you find yourself spending a lot of time on all the small administrative tasks your growth creates, leaving you with less time to do all the extra work you're getting.
The answer is to start outsourcing those small, time-consuming tasks, like bookkeeping, invoicing and the rest. Outsourcing lets you concentrate on what you're best at while getting the other things done by professionals. They'll have a system in place that lets them do what you're taking hours over in a matter of minutes -- after all, it's what they do. Don't forget, though, that you need to hold outsourced work to the same standard of quality you hold your own to, since your customers won't be making the distinction.
Create a Growth Plan.
Remember that business plan you made when you started it all? Well, growing your business isn't that different to starting a new one: you still need to plan ahead, and know what you're doing. Take out your existing business plan and look at what needs to be brought up to date, what still stands, and what needs to be added.
The most important thing to keep in mind when you turn your business plan into a growth plan is this: don't forget your core focus. Tempting as it can be to diversify into all sorts of areas as a way to grow, you don't have experience in these areas -- try to do more of what you know, and keep new things to a minimum.
Financing Your Growth.
While running your business, you might have become frustrated with how much more you could do if you just had a little money to invest. Equity finance is a popular way to raise money to invest in a business. It involves you selling a small share of your company to someone who is interested in investing. They don't have to have any involvement in the running of the business, necessarily -- the only real condition is that you agree to give them a percentage of your profits equal to the percentage of your business that you sold them, known as a dividend.
But Don't Grow Too Fast.
One thing that can be fatal for home businesses is trying to grow too fast. Some people have a tendency to let success go to their head, and will borrow tons of money to expand their business at an amazing rate, only to have a breakdown when they realise that they just can't manage a business that large.
Have You Considered Raising Prices?
If you've got more business than you can handle, that's not expansion -- it's overtrading. You might be doing more work than you need to, when you could just raise your prices. Try out a few different levels, and you'll find the one that gets you a manageable amount of business. It's a simple question of supply and demand: you should be earning the same as you were before or more, but doing less work.
Remember that growing your business doesn't necessarily have to mean getting more customers. You can expand your business financially just by selling more to your existing customers, or providing extra 'premium' services on top of the ones you already provide.
Could You Franchise?
This obviously won't apply to every kind of business, but if you've found a successful formula, you could consider franchising it. Franchising is especially common in the food business, where risk-averse people starting new businesses often want to do something that's tried and tested. You can, effectively, sell your business plan, marketing materials and the experience you've gained in business so far to these people.
Even though you should wait a while before you actually do it, it's worth at least considering whether this could be an option for your business, and starting to standardise everything and get it down to a formula and assets that could be sold on.
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Planning For Every Expense.
Making a budget for a home business start-up is more of an art than it is a science. No matter how exactly you think you’ve pinned down all your expenses, it’s guaranteed that more will appear that you either didn’t think of or just couldn’t have predicted. That’s why you need to make sure that you always plan for every possible expense.
Things Break.
Remember that any equipment you buy can go wrong, no matter how expensive or high-quality it was (this is especially true of anything IT-related!) When things break, you probably won’t need to buy a new one, but you’ll at least have to wait for the manufacturer to replace what broke. This can lead to days of lost or less-efficient business, and cost you money. Budget for equipment failures.
People are Unpredictable.
When you hire staff, you have no way of knowing that they aren’t going to let you down. You might have worked out that it takes $200 to train one new staff member, but what do you do when that newly-trained staff member quits and moves to France after three weeks at the job? You’ve got no choice but to train someone else and take the loss. Budget for staff turnover.
The World is Against You.
Or at least it can sometimes feel that way. Just when you’ve got everything perfect, someone sets up a little construction site next door, and drives your business away. Or maybe it rains for a few weeks, meaning that there’s just no demand for your bouncy castle hire business. Whatever, you need to budget for times when you’ve got no customers – and make sure you have something else to be getting on with in the meantime.
Customers are Out to Get You.
‘The customer is always right’, right? Well, yes, but their ‘rightness’ can sure cost you a lot of money. You have to be prepared to take huge losses to pay off complaining customers. Remember that one unhappy customer can undo hundreds of dollars worth of marketing efforts – once you make a customer unhappy, your options are to take a loss fixing the situation or to take an even bigger loss when they tell everyone how you didn’t. The only way to avoid this expense is to please all of the people all of the time, which just isn’t possible. Budget for unhappy customers.
Competitors Kick You When You’re Down.
If one of your competitors spots a good opportunity to take some business from you, they won’t hesitate. You need to have a ‘war chest’ ready to make aggressive offers and marketing efforts, and be prepared to get into a full-scale price and advertising war with the competition. It’s massively frustrating to be in a position where your rivals are getting all your business simply because you already used up your marketing money for this month. Budget for war.
Double Your Budget.
Whatever happens, remember that under-budgeting is the worst mistake you can make. It’s known as ‘under-capitalisation’, and is generally thought of as one of the quickest ways to kill a business – anyone who might be willing to give you finance will just think you’re a fool if you’ve under-capitalised your business, and might even refuse to lend to you.
Most home businesses budget only a few thousand dollars for their expenses (if they even make a budget), thinking that they already have everything they need. People don’t realise how quickly little costs like having some business cards made or getting your suit dry-cleaned start to add up. This doesn’t apply for other kinds of business, but if you’re like 99% of home business starters, you really ought to double your budget. If you doubt me, start adding up all your ‘little’ expenses over a year, and see what happens.
Budgeting for every expense in your initial plans shows that you’re not the kind of person who thinks that everything’s going to go right for them just because they’re so great – instead, you’re a practical businessperson who knows that anything that could go wrong probably will, and you plan to make a profit anyway. There is a difference, after all, between arrogance and cool-headed determination, and it’s one that the people with the money want to see.
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Preparing Yourself Mentally for Business.
People say that starting your own business is difficult. Guess what? They’re not kidding. Starting a business, in many ways, is a lot like having a child – and would you just have a child without thinking it through first? Before you get started, there are lots of things you need to think about and discuss with anyone you can.
Can You Afford to Fail?
You might have heard the old saying ‘only gamble what you can afford to lose’. Well, however you approach it, starting your own business is still gambling. A massive percentage of businesses fail in their first year. If your financial situation is such that you agonise over every small amount you spend, starting a business is probably a bad idea.
Put it this way: do not expect to succeed. Expect that you will fail, and always try your hardest not to. You’ll be pleasantly surprised if things go your way. Note that this doesn’t mean that you shouldn’t believe in yourself and your business – simply that you have to realise the kind of odds you’re up against, and stay realistic.
Will You Stick at It?
You can’t get halfway through all this and have a sudden change of heart, or feel like you’re doomed to fail. All successful business spend plenty of time doing badly before they start to pick up. You need to prepare yourself for a steady stream of failure being slowly replaced by success. Don’t expect the world all at once.
Could You Take the Stress?
Starting a business is one of the most stressful things you can do. It will affect you mentally, physically and emotionally. You need to be strong to deal with this kind of stress, and you need to have someone to turn to for support.
Are You a Survivor?
There are some people who always seem to make it in the end, regardless of what life throws at them. You need to be the kind of person whose response to things going wrong is to work harder and get it fixed, not someone who cries and goes into hiding.
Many entrepreneurs say that this, more than anything, is the secret of success. You need to be a ‘never say die’ kind of person. You need to be always ready to try again, no matter what gets thrown at you. Remember that it’s not when things start to go wrong that you fail – you haven’t failed until you’ve given up.
Be Prepared to Work Hard.
If you’ve been doing a standard nine-to-five job, you’re probably used to a world where it’s someone else’s responsibility if the work doesn’t get done – you work as fast as you can for the hours you’re told to, and if it’s not done on time then it’s the manager’s fault for not hiring enough people. When you work on your own, though, there’s no-one to blame – the buck stops where it starts, with you.
You Need to Satisfy Every Customer.
When you run a home business, you can’t afford to lose any customers. You need to always be nice to them, trying to meet their needs. You have to remember that you’re the most senior person they can talk to in this organisation, and you have to act like it – when there’s no-one other than you to handle complaints, you have to either give in to customers at every opportunity or watch them take their business elsewhere.
Do You Really Love What You Do?
If you don’t love what you do, then sooner or later you’re going to want to stop doing it – and when you run a home business, that’s difficult. Besides, you can’t run a home business if you’re always sitting and thinking about how great it’ll be when it’s the weekend. No, the only way to succeed in home business is to be absolutely sure that you really love what you’re doing. If you can think of another job you’d rather have, then you’re in trouble.
Think of it this way: could you run up to someone on the street with a leaflet about your business, and tell them all about it in a way that would really leave an impression? It doesn’t matter whether you actually could or not – if you think everyone will be interested, then, believe me, they will be.
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Putting a Work Area in Your Home.
When you work from home, one of the hardest things to get right is knowing where to do your work. In your bedroom? In a special home office? Well, here are a few pointers.
A Dedicated Space is Best.
I really believe that you won't get far unless you set aside a space and use it for work only. Why? Well, if you use your work space for things other than work, then you'll get distracted by anything you leave there. Other people in the family might become frustrated by not being able to use the space, or you might find that you simply don't have anywhere to put all the important pieces of paper you acquire, meaning that they get lost.
The Art of the Home Office.
A home office is really what you want -- this really needs to be a dedicated room of a reasonable size. You shouldn't have too much trouble if you convert a small bedroom, as most bedrooms are actually surprisingly large once you take away the bed.
Your essentials for a home office are a desk, chair, computer, filing cabinet and phone/fax. If you don't have spare ones of these lying around then you should buy them used, or from some kind of discount store -- don't spend a cent more than you need to on your office furniture and equipment, at least to begin with. Still, though, do try to find things that don't look too bad, and that match.
Do make sure that you have everything in the room that you'll need for your business, and that your equipment is good enough that you'll be able to use it for long periods of time without it becoming painful. If you plan to do a lot of phoning, for example, buy a headset so that you can do it hands-free. It's also worth spending just a little extra on that chair, if you're going to be sitting on it a lot.
You should also make sure that the room is well-lit and decorated in a style you like: one that says 'serious', but not 'dull, terrible work'. Keep it at a comfortable temperature, with good ventilation. Many people like to make their home office visibly different to the rest of their house, by having a differently-coloured carpet or wooden floor, or painting the walls an entirely different colour. Whatever you do, though, I have no doubt that it'll be better than 99% of the corporate offices out there. The most important thing is that you don't spend too much, but that you make sure to solve any problems you have with your space as soon as they come up.
A Whole Other Building.
One thing that some people like to do when they set up home offices is to make it completely separate from their house: a business annex. This could be expensive -- for goodness' sake don't build a whole other building if you don't have something like a shed or garage to convert -- but it is also one of the most effective ways to work from home. It's not so much a 'home office' as an office that you've built right next to your home -- and it gives you a much clearer sense of when you're working and when you're not.
This option is especially worth considering if you do a manual trade, especially if you already have some kind of workshop space. I knew a carpenter who saved himself all sorts of headaches when he moved his home office away from his bedroom and into his existing workshop in his garage.
A Question of Tax.
When you're organising your home office, don't forget about tax. The area of your house that you do business in should be tax-deductible, and so should any equipment you buy or other work you have done. Don't use it as an excuse to get carried away, but do rem