Starting a small business – Websites

Check out a free webinar happening now.  Click here now.  I should have shared this earlier.  It is full of great ideas.  It’s free.  No one is trying to sell anything, except a download of the video.  If you have time, check it out.

I’m stuck on hold with IRS and taking notes from webinar so you can definitely multitask while watching it.



Starting a small business – Restaurants – UPDATED

Just don’t.  “When I save some money (or inherit it or win the lottery), I want to start a little Uzbek restaurant where all my friends can come and hang out.  It will be like a party every night.”  How about: “I can cook so I can open a restaurant.”

A successful restaurant might be the toughest business.  King crab fishing seems easier.  I’ve had many restaurant clients.  None of them made made any money and most of them failed within a year.  It is hard 24/7/365 work.  Here’s why:

It takes a special, learned skill to plan a menu.  Food spoils, quickly.  People’s tastes are fickle.  There is plenty of competition out there.  Math skills are necessary to determine the proper inventory of food – constantly.  You need business planning skills to guesstimate how much food is needed each and every day.  This is daunting and amateurs are guaranteed to fail at it.

Margins suck.  You will be lucky to break even on food – very lucky.  Do you think McDonald’s makes any money on its Dollar Menu?  The price of your plate barely covers the food and prep costs let alone the service cost and overhead.  I used to recommend that aspiring restauranteers calculate how many plates they need to serve each hour to reach break even.  I don’t think anyone heeded that advice.  Liquor sales are used to offset poor margin on food, plus it doesn’t spoil as quickly.  That’s why a $15 bottle of wine costs you $45 at your favorite restaurant.  Even McDonald’s can make up for its Dollar Menu losses by marking up soda and McCafe drinks by 300-500% of cost.

People suck.  Restaurants need to reinvent themselves constantly to stay on top.  Restaurants are a form of entertainment.  People’s tastes in food and entertainment are constantly changing.  It takes money to constantly change the look, feel and taste of a restaurant.  If you can’t break even on food, you’ll never generate enough capital to keep up with your customers changing tastes.

Friends suck.  Don’t count on them to carry your business.  They expect discounts, especially on booze.  They know you’re marking up the Chardonnay so they expect a special price from you.  They may not realize that you’re losing money on their calamari or casually forget the last time you told them.

Competition will crush you.  There is usually room for only a few successful restaurants in any area.  Smaller towns may only be able to have one.  That local restaurant that everyone goes to all the time shouldn’t be held up as an example for success.  They have years of gut wrenching experience under their belts and low overhead that you can’t compete with.  Large chains have economies of scale, distribution systems, and planning systems to beat you on the cost of everything.  (Even with the advantages, are any of your local Quizno’s still open?)

You suck.  Maybe, I don’t know you.  But are you willing to put in the work to make a successful restaurant.  There are no off hours let alone off days.  You need to work every day and watch everything.  I couldn’t do it.  I like the occasional hike or Sunday morning soccer matches.  You won’t get to enjoy anything until your restaurant starts making money.  By then, you’ll need to worry about how to keep it making money.

Franchises suck.  Look up Quizno’s.  I used to love their bourbon chicken (for no other reason than I really like bourbon).  I’d eat at my local Quizno’s a few times a week.  It always seemed packed at lunchtime.  Then it was less packed.  Then it closed down.  Franchises don’t guarantee success.  They take a whole lot of money upfront to purchase and start.  They also get a cut of every single sale so you have a higher break even point.  You’ll have high capital requirements, a vig, and many of the same headaches as a private restaurant.

So, still want to open a restaurant?  Sign here ____________________ acknowledging the fact that you’ve been warned.  Better yet, here’s a link to a sample business plan P&L for a restaurant.

Starting a small business Part 8

What business should I start?

Harking back to one of my early posts, does the world really need another __________?  Fill in that blank with the type of business that you are thinking of starting.  I now know that the world really didn’t another CPA firm specializing in individual tax preparation and small business accounting.  If you’re thinking about opening a “common” business, look around first.  Drive through the area where you want to open it.  Search for similar businesses on the web and in the yellow pages.  These are your competitors.  How are you going to take business from them?  Offer lower prices?  Why do you want to race to bottom of profitability?  Offer better service?  How will your potential customers know that?

Do we really need any more apps or social media products?  Here’s a Wall Street Journal blog all about software developers.  Even these guys are having a hard time finding funding as potential investors are asking themselves that question.

My original idea was to focus exclusively on consulting to manufacturers in the hopes of finding manufacturing companies that I could buy and make more profitable.  I ended up doing taxes and bookkeeping.  Again, the world didn’t need another one of those.

Here are some ideas:

Solve a problem – find a common problem and come up with an affordable solution for it.  As a misanthropic curmudgeon, I tend to drink alone but don’t always want to finish a bottle of wine on a school night.  I have not found a reliable way to preserve a bottle of red wine for more than 36 hours.  Come up with a decent solution to a common problem, whether a product or service, and you may be on your way to a business.

Increase productivity – employees suck and they’re expensive.  Find a way to eliminate employees through automation or process reduction.  PCs and Microsoft Office killed off the secretary, ATMs killed off bank tellers and automated check-out is killing off cashiers. In my last manufacturing gig, I would have loved to find a way to automate the inspection process.  It could have saved the company hundred of thousands of dollars while shortening the amount of time needed to complete an order.  Find a cost effective way to provide products or services more quickly and cheaper.

Play to greed or fear – Greed and fear are the too best motivators.  Black Friday shoppers suffer from both – greed to feed their consumerist appetites and fear of losing out.  Find a product that plays to common greed or fear and you may have a winner.

I’m not softening my stance in these last few posts.  I still don’t recommend starting a business.  Become a school teacher or a senior finance analyst at your state government.  But you’ve read this far so you must be serious.

Starting a small business – Taxes Part 1

I should be finishing a third response to the IRS for a client under audit.  The response has me so angry and frustrated that I decided to start a new thread.  By the way, I’ve had 3 clients get audited in 10 years of having my own firm.  That’s 3 out of about 3500 tax returns.  The IRS audits about 1% of returns each year some I’m either lucky or good – most likely a combination.  The first audit was due to being way to aggressive on deductions.  The second audit was because the IRS agent couldn’t figure out the Form 1040.  No lies – his supervisor admitted that I was right over the phone but decided to let her agent audit the return anyway.  The US Treasury got nothing from the audit but I had to bill my client more than $500 for my work.  Insipid.  This last audit was a no brainer.  I warned the client when I filed it.  The IRS originally wanted about $14,000.  I should have it down to less than $200 when I finally finished.  It will probably cost him about $1000 in heavily discounted fees from me.

Besides the relief of ranting, I’m telling you these stories because taxes are a large part of a business.  All three of the audits above were on small businesses or self-employed individuals.  Taxes suck.  They are complicated.  The average person (non-HGH or steroid using) probably couldn’t carry the paper version of all the forms, codes and regulations for just the IRS.  When I started studying taxes, they could fit in a duffle bag with room left over for a notebook, textbook, Mountain Dew and M&Ms.

Here’s a list of taxes that the average business must confront:

  • Federal Income tax – business or personal
  • State Income tax – business or personal
  • Social Security tax
  • Medicare tax
  • Self Employment tax if self employed
  • Federal Unemployment tax
  • State Unemployment tax
  • State and local Sales tax
  • Property tax
  • Real estate tax
  • Myriads of excise taxes (usually paid when you buy something)

I’ll address the taxes in separate posts.  Please leave any questions in the comment section.  I’ve have to get back to my audit response.



Starting a small business Part 7

Do what you love and the money will follow.

Excuse me while I wretch.  I love sleeping and drinking beer.  I don’t think following either of those loves will result in any success.  Unless…

You should be passionate about your business idea.  Don’t let the passion blind you to the obvious necessities of finding customers, managing employees, marketing, etc.  But you’ll need that passion to help you deal with all of the stresses of the business.  If you’re not passionate about selling cars, don’t open a car dealership.  The mundane will kill you if you an’t fall back on your passion.  But if you love cars and working on cars, should you open an auto mechanic shop?

Probably not.  Use the discipline of creating a business plan to determine if following your passion, in this particular way, will actually work.  You may not be able to share your passion with other people willing to give you money (customers).  Without customers, there is no business.

On the optimistic side, once you’ve identified your passion and started a business plan, maybe you will an alternative business.  Maybe you don’t need a full mechanic shop with all of the overhead and employees.  How many oil changes at $29.95 do you need to do just to pay rent?  Are there enough hours in the day for that.  Maybe you find a niche that lets you follow you passion, like auto detailing, dent repair, a car shopping comparison website and so on.

Don’t necessarily let your passions drive your decision.  Let them be a spark but follow your discipline.

Starting a small business Part 6

Everything that I learned about marketing in college and before starting a business was WRONG.  Marketing is the most important responsibility of a business owner.  Read that again.  You may think that you’re a mechanic, software developer, hairdresser, CPA, etc, but you’re not.  You are a marketer.  I didn’t understand this until I wasted a ton of money.  I wish that I’d read Dan Kennedy‘s books before 1) starting my business and 2) before spending any money on advertising.

Dan Kennedy is a marketing guru who upends everything that you’ll ever learn about marketing in school (or in working with advertisers.)  I’ve read most of his books and subscribe to his monthly newsletter.  I’m not making a cent from my endorsement.  Start your real marketing education by visiting his website.

I started my business as a consultancy and probably should have stuck with that.  Instead, I decided to enter the highly competitive market of tax return preparation and bookkeeping.  I spent thousands of dollars on advertising.  This is what I had learned – get your message out and new customers will just show up.  I would have made a better investment by sponsoring an open bar for a night while handing out a refrigerator magnet with each drink.  The advertising didn’t work and even if it had, I had no way to measure it.

Marketing is the task of acquiring new customers and retaining existing customers.  Advertising is a tactic used in marketing.  Marketing should be a holistic exercise in your business.  This is one of the reasons for creating the customer list recommended in Part 1.  Everything that your business does must include an element of marketing as it will help you acquire new customers while retaining current ones.

Dan Kennedy’s methods and opinions are 180 degrees different from the current marketing curriculum.  You may disagree methods with his methods.  If you disagree with his message – you are in the marketing business – you will fail in your business.

If you can’t handle the marketing or a energy consuming involvement in marketing, don’t start a business.  You’ll fail.

Do a Ton of Homework Before Writing a Business Plan – The Accelerators – WSJ

Do a Ton of Homework Before Writing a Business Plan – The Accelerators – WSJ.

The headline is misleading.  The best advice is in the last paragraph so read that first.  The author is from the renowned New York Tisch family.  It appears that most of his article assumes that you have a large pot of money to use to start your business.  The last paragraph is gold.

I think his grandfather and great uncles would be more apt to use my idea of the business plan of putting numbers down on paper before starting a business.


Starting a small business Part 5

Should I just buy an existing business instead of starting one?

Probably not.  Especially not if you’ve never owned a business before.

Intangible assets are the most valuable assets of an existing business and the toughest to value.  Intangible means assets that you can’t touch and include customer lists, patents, trademarks, brands and innovative (though not legally protected) ways of doing business.  Tangible assets are machines, furniture, land buildings, trucks, cash, inventory and so on.  Tangible assets are easier to value because there is a secondary market for just about everything – see Ebay.  The problem with intangible assets is that they are usually more valuable to the current owner than any successor owner.

Why?  Customers are usually tied to the owner on a personal loyalty level.  The customer trusts the business owner to provide the product or service at a good value.  The customer doesn’t know you and definitely doesn’t trust you.  Customer attrition rates, especially in a service business, are between 20-40% after a change in ownership.  So if your purchase price is one year’s sales, you will typically lose 20%-40% of that value during the first year.

Other intangible assets like patents, trademarks and brands are only worth the future income that they’ll  produce.  This is again a difficult calculation.  You need to understand the business and the competitive advantage provided by these assets.  How long does the patent protect you.  Is it enforceable?  Is the brand tied to the owner and face contact with the customers?  Do you have the experience, knowledge or talents to successfully exploit these intangible assets?

Employees are tangible, intangible assets.  You can theoretically but not legally touch them.  The employees may have the knowledge and experience to exploit the competitive advantages of the business.  But, take a look at Part 4 – employees suck.  Most employees are paid above their replacement value.  I’ve restructured plenty of these people out of companies acquired by my previous employer.  Employees are usually baggage.

Baggage is a big concern when buying a business.  Besides employees, you’ll have disgruntled customers or vendors.  You need to make sure that any assets are unencumbered.  You’ll need to make sure that the IRS and local tax authorities don’t have ongoing liens or investigations.  There could be product recalls or malpractice suits pending.  Environmental concerns can kill new business owners – you end up owning the last guy’s mistakes.

If you want to buy an existing business, do your due diligence and then low ball the price.  It is the only protection that you have.  Then work your ass off to reduce the number of customers that you’ll lose.