Many people toy around with the idea of starting their own small business, but figuring out which step to take first is one of the biggest hurdles. The fact is, most small businesses start out with a simple idea. Whether or not that idea comes to life, however, boils down to one word: action.
If you have determination and the right attitude, this guide can get you on the right path. Think of it as boot camp for how to start a small business 101.
- Should I start a business?
- Create a business plan
- Choose your business structure
- Name your business
- Fund your business
- Get business permits
- Find insurance
- Pick a location
- Choose your store layout design
- Buy equipment
- Manage your inventory
- Hire employees
- Market your business
Meet your customers wherever they are
An omnichannel retail strategy is no longer optional.
Should I start a business?
Let’s phrase that question another way. If you don’t build your dreams, who will?
The small business community is a diverse and eclectic collection of mom-and-pop shops, multigenerational businesses, trendy boutiques, food trucks, lemonade stands, wine stores, bicycle stores masquerading as bars, and more. These entrepreneurs come from every walk of life and their motivations for starting small businesses are as unique as the businesses themselves.
If you’re reading this, chances are you’re looking to join their ranks, and we hope you do. Becoming a small business owner is one of the most rewarding and inspiring journeys a human being can take. It provides you with a chance to be your own boss, take control of your financial destiny, and become a meaningful contributor to your local economy and community.
There has never been a better time to start a small business. The world is opening back up after the COVID-19 crisis, and citizens everywhere are clamoring to visit brick and mortar retailers, independent restaurants, and activities of all stripes. You’ve probably seen the empty storefronts. Many businesses that did not survive the lockdowns left prime retail space in their wake, as well as loads of secondhand supplies.
By embracing a data-led, lean approach, you can minimize the inherent risks of running a business and make smart decisions from the start. Read on to learn how.
Create a business plan
Broadly speaking, you can break down the entry points for small, local business ownership into three categories:
- Start your own business
- Buy an existing business
- Buy into a franchise
We’ve been focused on the first category so far, but there is also an allure to buying an existing business. These enterprises often come with brand awareness, a customer base, trained employees, an established supply chain and most importantly (we hope), demonstrated profitability. As a result, countless startup risks can be diminished by taking this route. That is only true, however, if you make sure to carry out thorough due diligence on the existing business.
Due diligence is the process of going through the current owner’s books with a fine-tooth comb to verify inventory information, sales data, average ticket price and every other aspect of the business. Doing this yourself is difficult and time consuming, so you’ll probably want to involve accountants and lawyers to ensure that you cross all the t’s and dot all the i’s. A big red flag to watch out for is how intertwined the current owner’s personal expenses are with the business accounts. This can obscure the genuine flow of cash in and cash out of the business. The purchase price of an existing business is often calculated as three to five times the net annual revenue, so you’ll want to take that figure into account before you make an offer.
In the third category, franchise businesses, the risk of getting started is potentially the lowest of all when it comes to starting a small business, as you are often buying into a clearly established business model. You will also often benefit from the initial support of the franchisor, including advice around site selection, training and orientation, employee hiring, and product mix coordination. This support and assurance, however, comes at a premium. On top of the normal startup costs, like space and equipment, you’ll have to pay a franchise fee to the owner, which is often tens of thousands of dollars, as well as a percentage of your revenues on an ongoing basis.
At the end of the day, while starting a small business from scratch may be your riskiest route, in many cases it also turns out to be your most affordable. It also allows you the complete freedom to create your own vision, which is probably the biggest appeal of starting a small business in the first place.
The first thing to understand about a business plan and financial projections is that the process of compiling them is often more important than the final product. Sure, the actual sheets of paper, filled with spreadsheets and graphs with pretty arrows pointing up and to the right are great and can be very important in helping you to secure funding. However, when it comes down to the brass tacks of starting a successful business, it’s the process, not the paper, that counts.
For example, at a certain point, you will be asked to project how much cash you’ll spend in your fifth year of business. You’ll think, “Are you kidding? I haven’t even opened my doors yet and you want me to describe what my expenses and revenue will be like in five years?” Well, the quick answer is yes. Nobody ever said that starting a small business would be an easy feat.
Now, nobody reasonably expects you to actually hit that exact number in five years time, but the point here is accountability. A great small business plan forces you to think through your goals, associate a dollar value with each, and articulate clearly how you will make them a reality. By declaring your projected revenue in month seven or your expenses in year five, you are giving yourself benchmarks for success.
Think of your business plan as a roadmap that outlines how you plan to start and grow your small business. You’ve probably considered what goods and services you’ll be offering, but have you researched the cost of sourcing your raw materials? How about the cost of turning those raw materials into your finished product? Do you understand how much you’ll need to charge for your products or services in order to cover the expenses of renting a space, paying employees, leasing equipment, and paying for permits and regulations? Moreover, have you considered if the answers to these questions will provide the kind of operating margin you’ll need to pay yourself a salary?
Once you’ve considered the questions in the previous paragraph, start thinking about how your products or services stack up against the local competition. Unless you are offering something groundbreaking and innovative, chances are that your potential customers are currently having their needs met by another business. If your first thought was to compete on price, sorry to break it to you, but that’s not going to cut it. There is more to starting a successful small business than matching the price to the guy down the street.
Trying to compete on price is rarely an effective long-term strategy, so it’s important to consider how you will differentiate your offering. Will this be with amazing customer service? Or maybe with superior product quality? Regardless of what you choose, how will you allocate your budget to make it possible? How will you market your small business? How will you get customers through the door? Those are a lot of questions, but essentially, your plan has to answer one critical question: How will you achieve the kind of sales volume required to keep the doors open and set your business up for growth?
Having a plan of action is key to learning how to start and run a successful small business. Whether you are looking for funding from a bank or angel investor, or are lucky enough to completely fund your venture on your own, an articulate and thoughtful business plan will help you define what your business stands for and what it intends to become over time. As the age-old saying goes, “A goal without a plan is just a wish.” Don’t put your business idea in the hands of fate. Plan thoroughly, give yourself some benchmarks for success and be prepared to innovate as you go.
Choose your business structure
Types of business structures
There are a variety of structures to choose from when starting a small business. Here are the most common:
The structure you choose determines which income tax return form you have to file, which, you guessed it, dictates your legal and financial responsibilities
Why should you incorporate your business?
Commercial law exists for one simple reason: money and trust have a long and storied history of mixing like oil and water. One of the primary benefits of incorporating is that it limits the liability and risk of any losses your business may accumulate along the way. In other words, when you incorporate a business, you are typically not personally responsible for business debts. So if life happens and something goes wrong, as long as you and your business are not legally considered the same, your house, your car, and your goldfish are all safe.
When starting your small business, the type of business structure you choose will depend on three primary factors: liability, taxation, and recordkeeping. Most small business owners begin their commercial life as a sole proprietor because it’s the easiest way to get started. In fact, if you’re in business and you haven’t taken any action to incorporate, you are most likely deemed a sole proprietor by default. You are entitled to all the profits of your business but also responsible for all its debts, losses, and liabilities.
There are, therefore, a lot of benefits to researching alternatives to this setup, which include limited liability companies (LLCs), partnerships, corporations, or even a cooperative. By setting up a separate legal entity, you limit the financial fallout from a failed business, you shield yourself from legal risks (such as someone injuring themselves in your store), and you potentially put yourself in a more advantageous tax situation. Equally, if you are working with partners, making sure you are set up with the appropriate partnership will give all parties reassurance about their legal standing, obligations, and expectations.
Failure to set up the correct business structure can have serious repercussions in the future, especially if things don’t quite work out the way you envisioned.
Name your business
The world of small business has traditionally been populated by some pretty respectable, ‘say-what-you-see’ conventions when it comes to business name choices. Up until very recently, if a guy named Tony wanted to open a hardware store, he would probably go out on a limb and name his new business Tony’s Hardware. From a legal perspective, this lack of uniqueness doesn’t need to be a major concern. According to the rules governing business incorporation in most states, if you find yourself opening with the exact same name as another business, you can keep it as long as “your business and the existing business offer different goods/services or are located in different regions.” You’ll want to head to your local state filing office and make sure you’re able to clear this hurdle. But for most, this is not the defining reason to seek out a unique name when starting a small business.
As you can imagine, this collective practice has resulted in a surplus of duplicate business names across the country. This wasn’t necessarily an issue until the internet came along. The introduction of websites has left small business owners from all over the world competing for the same digital real estate: www. tonyshardware.com, facebook.com/tonyshardware, @tonyshardware and more.
Often a business name is the first step of building your brand. It takes just one-tenth of a second for us to judge someone based on a first impression. Since your business name is often the first thing potential customers will see or hear, think of it as one of your key tools for leaving a lasting impression. The right name, like a firm handshake, plays a role in your brand’s perception. Make sure it’s strong, catchy, and unique, but most importantly sends the right message about your business.
So you stayed up all night, thought long and hard, and decided you want to name your sunglass shop The Sunny Rabbit. First, run an online search to ensure that TheSunnyRabbit.com is available. You’ll also want to make sure that Facebook.com/ TheSunnyRabbit is also available. The good news? There are a ton of free tools out there help you simplify and minimize the research required to secure your online identity. Once you run a name search and confirm that it’s available for use both off and online, take the time to secure your unique name both legally and on the web.
If you want to operate your business under anything other than your own personal name, you’ll need to register your chosen ‘fictitious’ name with the appropriate county or state authority, otherwise known as registering your “Doing Business As” (DBA) name. The correct filing authority varies from state to state. The Small Business Administration (SBA) provides a helpful tool to help you find the relevant authority for your state. This legal name is your first step in separating you and your business as two distinct entities. You will use your DBA name on all legal paperwork and government forms, such as applications for employer tax IDs, licenses, and permits. It is significantly harder to go back and have this applied retroactively, so it’s worth getting it right from the start.
A DBA is needed in the following situations:
- Sole proprietors or partnerships. If you are starting a small business under anything other than your real name, you’ll need to register a DBA so that you can do business as another name.
- Existing corporations or LLCs. If your business is already set up and you want to do business under a name other than your existing corporation or LLC name, you will need to register a DBA.
Keep in mind that if you filed to become a corporation or LLC, then you can skip this step altogether. When you form an LLC or corporation for your business, your business name is automatically registered with the state. However, as mentioned before, if you legally registered your name as Bob’s Bike Shop and would like to conduct business using any variation of that name such as BobsBikeShop.com or Bob’s Bikes, you will need a DBA.
When to trademark your business name
When registering your business name, you should also consider whether or not you have plans to expand your local business nationally or online in the future. Registering your business with the state does not offer brand protection beyond the state it is registered in.
If you have aspirations that look beyond Main Street, USA and would like the option to expand nationally or on the web, you should consider trademarking your business. When you trademark your business name, it makes it a lot easier to recover property that infringes upon your brand. For example: If Bob’s Bike Shop in Ohio purchased the domain www.BobsBikeShop.com but Bob’s Bike Shop in New York trademarked that name, legally Bob’s Bike Shop in New York has the right to file a domain name dispute to get the domain name back from its current owner.
If you are going to apply for a trademark, make sure to conduct a comprehensive search, like the one mentioned in ‘Securing Your Business Name’ to ensure no one is already using your proposed name in a similar capacity. The United States Patent and Trademark Office also provides a simple search tool that will quickly let you know if you’re potentially infringing on someone else’s turf from a legal point of view.
Fund your business
It’s impossible to succeed in small business over any significant period of time without getting the basics right, and the fundamentals of small business are dollars and cents. Every single aspect of your business can be understood in terms of cash in and cash out. Like Keanu Reeves in The Matrix, a savvy small business owner will look around their store and see not employees and equipment, but dollars and cents stacking up in the plus and minus columns.
Set up a separate business account from day one
Many small business owners start on a shoestring budget, intertwining their personal and business finances, supporting the business with their personal credit cards, accepting payments into their personal checking account and even submitting tax returns that mix up personal and business finances. While this is common, it can create tax headaches, make bookkeeping more time consuming and interfere with the proper evaluation of your business.
You should set up a separate business bank account from day one, so all money coming in and out of your business will be clearly accounted for. If you don’t know your cash flow, you can’t understand how your business is doing.
When you are looking for small business funding options, be it from the local bank, an angel investor, or even a family member, the first thing you’ll be asked to present after your business plan will be any existing financial records. Make sure you are putting your best foot forward by keeping meticulous records, with your business finances completely separate from your personal finances.
Debt vs. equity financing
There are essentially two types of funding available to you when starting a small business: equity or debt. Equity financing is money raised in exchange for a share of ownership in your business. The core benefit of this type of funding is the lack of debt. You won’t have to worry about those pesky monthly repayments. The downside? You are giving up total ownership of your business, you are giving up the rights to a portion of the ongoing profits of the business, and you are potentially giving up some control of how your business is run.
Debt financing involves borrowing capital that must then be paid back over a set period of time, most commonly with interest. Typically the core benefit of this arrangement is that you, the business owner, maintains complete control over your business. Your only ongoing obligation is to repay the loan with interest. The downside? Fail to keep up those repayments and the loan — often secured against your assets, savings or property — can put you in very dangerous financial waters.
There are also a number of alternative funding sources available to those who are starting or expanding their small business. Loans and equity investments can be gained from multiple sources, including credit unions, savings and loans, and private financial companies. Family members, friends and colleagues are also potential avenues to explore.
The U.S. Small Business Administration provides support and tools to aspiring small business owners, and in particular to minority-owned, women-owned, disadvantaged and veteran-owned businesses, including a government-backed financing scheme to qualified participants. Local and state authorities also have a range of programs designed to encourage the growth of your small business. Make sure to research your local authority’s website.
Banks are often reluctant to provide long-term small business funding. They prefer short-term loans that are associated with physical assets, which can then serve as collateral. So instead of just asking for a generic loan, maybe consider raising capital for specific equipment that will kickstart your new business, like an espresso machine or delivery vehicle.
The difference between a bookkeeper and an accountant
They say nobody ever started a small business out of a love for numbers, but if you want to succeed, you’re going to want to fall in love fast.
Only by keeping detailed accounts and tracking your business’ numbers over time, (net sales, cost of goods sold, and average transaction size) can you gather the actionable insights you need to make intelligent business decisions. Today all of this information is gathered digitally by modern point of sale software.
What’s more, in the United States your books are also how the IRS will evaluate your business, so it’s not just good practice but a legal requirement to track certain basics about your business. These include revenues and expenses, cash expenditures, inventory, accounts receivable and payable, and employees.
If you’re starting a small business for the first time, your new best friends should be your bookkeeper and your accountant. The former should be engaged for a few hours every week to compile your books and ensure your records are maintained to the required standard, while the latter will help review your tax situation and prepare financial statements. Along with the information gathered by your POS, both are invaluable sources of actionable intelligence about ways to reduce costs, increase margins, and generally streamline your finances. You’ll be able to spend all that time you save doing what you love and thinking strategically about your business.
Get business permits
A business license vs. a business permit
A business license gives you permission to run a business within a particular territory. It is important to note that not all local governments require you to obtain business licenses, while others only require them for specific business types such as bars or restaurants. If your business is based in the United States, visit SBA.gov for state-specific license and permit information
Business permits are legal documents that serve as proof of compliance with city or state laws regulating the appearance, safety, and sale of products in your business. When starting a small business, it’s extremely important to make sure you acquire all necessary and relevant business permits.
For example, just because you have a license authorizing the sale of liquor, wine, and beer for on-premise consumption in your pub, doesn’t mean you have permission to manufacture beer in the basement. This likely requires an additional permit or license.
Most businesses must obtain a variety of business licenses, permits, and registrations before opening their doors to the public. As a small business owner, it is your responsibility to ensure that you are abiding all the laws and regulations applicable in your state and to your particular industry. You also have to research and apply for all relevant permits and licenses that apply to your business type and location.
Remember, it is impossible to plead ignorance as a defense.
On behalf of the entire community, the licensing bodies verify a number of things before granting permits to operate, like:
- Is the business type approved by the local community?
- Is the business type approved in that location per zoning requirements?
- Is the business involved with the health and safety of the local community?
- Is the owner a fit person to run that particular type of store?
Regardless of how frustrating, time-consuming and expensive the world of regulations and permits can become for small business owners, when it comes to starting a small business, it’s imperative to be on the right side of the law. The costs and requirements of staying on the right side of the law should be factored into your initial business plan and ongoing projections. In the long run, this will save you time, money and headaches.
If you’re starting a new small business, you’re not afraid of a little risk. However, it’s also likely that you’ve invested a large amount of money in this new endeavor so it’s prudent to take sensible steps to minimize the impact of unexpected events like the untimely death of a business partner, a lawsuit from a customer or employee, or a freak accident of nature.
Unlike the vast majority of the permits and licenses discussed in the previous section, there is no legal requirement to take out most forms of insurance. That being said, stories of small businesses completely wiped out after Hurricanes Katrina and Superstorm Sandy should provide a lesson about the need to insure your core assets. Many small businesses in New York and New Jersey were forced to close following Superstorm Sandy because they lacked the insurance that would have gotten them back on their feet. That part is well known. What’s less well known is that this lack of proper insurance, coupled with the lack of proper legal incorporation, resulted in many entrepreneurs seeing their personal assets come under threat. You’ll want to consider your insurance needs both in terms of the potential frequency of claims against you and the size of the potential liability. You’re also going to want to think carefully about your assets and what you can and cannot afford to lose.
A good rule of thumb is to always buy insurance if you can’t absorb the loss of a particular asset without dramatic effect. Once you’ve chosen your insurance coverage, you’ll want to re-evaluate your policy at least once a year. As your business grows in terms of revenue, space, and number of employees, your insurance needs will also evolve.
Insurance for small businesses employing W-2 staff
After starting your small business, you’ll probably want to hire employees. When this happens, you are legally required to purchase workers’ compensation insurance, unemployment insurance, and (depending on your business location) disability insurance. Much like auto insurance, business owners who are new to starting a small business or those with less experience tend to pay higher premiums.
In the U.S., you’ll also want to evaluate your obligation to your employees’ health care provisions following the introduction of the Affordable Care Act, which mandates the responsibility for the cost of insuring full-time employees to businesses with 50 or more full-time, or full-time equivalent employees. It also provides generous tax credits to smaller businesses with 25 or less full-time equivalent employees.
The bottom line is that starting a small business comes with it’s share of uncertainty. Every time you open your doors in the morning, your small business is incurring a potential risk, from your customers, employees, and even mother nature herself. Take the steps necessary to minimize that risk by applying for the adequate insurance to meet your business profile.
Pick a location
We’re sure you’ve heard the saying 1,000 times before: “Location, location, location!” Some of the world’s most successful franchises have this weaved into their business DNA. McDonald’s Ray Kroc once stated that “We are in the real estate business, not the hamburger business.” It’s not their secret sauce or salted fries that makes McDonalds one of the most successful fast-food franchises in history. It’s the fact that they have one of the world’s best real estate portfolios.
So how can you make sure you’re applying this mindset when choosing the right location for your business? Well, for starters, remember that there really is no such thing as a perfect location. There is however, the perfect marriage between location and your specific business needs.
Choose your customers first and location will follow.
Understand your potential customers and you’ll have a far better chance of finding both a site and a property that they’ll want to frequent. When and where do they work? How do they spend their free time and extra capital? Ask yourself if there are enough members of this target demographic near your intended storefront location. If so, what time of day they are most likely to be near your storefront? And, will it be quick and convenient for them to stop in?
The core criteria of small business site selection will always be foot traffic and ease of access. In urban areas, this means being by the train or on a busy street. In suburbs and smaller towns, it’s about considering traffic flow and parking accessibility. Ever see three gas stations at the same intersection? They are all picking off different traffic flows because they know customers are looking for the shortest possible detour.
Additional considerations include:
- Zoning regulations
- Local labor supply
- Proximity to suppliers
- How well the location reflects your intended brand image
To avoid buyer’s block, define the core characteristics you absolutely need in your business. Write them down in a prioritized list ranked from ‘deal breaker’ to ‘would be nice to have.’ Now cross off the bottom five and focus only on the ones that are left. Compromising is essential in choosing a commercial space, especially in popular neighborhoods. Besides, you’d be surprised how what once seemed like a less than stellar storefront can become your dream location once you get those creative juices flowing.
Understand commercial rental rates
Commercial rent is most commonly quoted as the cost per sq foot per annum.
In this example, our retail location has a square footage of 2,500 sq ft. The cost is $56/sq foot. Therefore 2500 sq ft * $56= $140,000 annual rent.
We can establish monthly rent as $140,000/12 = $11,666 per month
Take a lean, data-driven approach
The average length of a commercial lease has dropped over the last few years, but it’s still 3-5 years long, so the absolute last thing you want to do is rush into a signing and get locked into a bad situation. There are so many ways to test the viability of your business idea before you sign a lease agreement.
One method is testing your products and services for their desirability through ecommerce. It might turn out that your core product line will actually be much smaller than you originally envisioned.
Equally, there are now a number of services that will allow you to secure a pop-up lease in some incredible spaces, often for only days at a time. It might just turn out that your dream location isn’t as great as you originally thought.
Another example of data-driven decision making is scouting the local competition and taking notes on how much traffic they regularly get, the kind of products they’re selling, their pricing and how they market their business. This kind of information helps you determine the pros and cons of choosing a location in that area as well as potential strengths, weaknesses, and opportunities that can improve your business plan.
Choose your store layout design
Consumers make incredibly quick decisions about businesses. As they enter a location, they take in the signage, the windows and the product displays. The true art of compelling store design is in telling a story about your business while simultaneously anticipating the needs of your customers. It’s all about the surprise and delight.
When starting a small business, many store owners underestimate the value of a persuasive shop design. What they don’t realize is that people are visual creatures. In fact, 90 percent of the information transmitted in the human brain is visual. Clear, consistent store design will ensure that you attract your ideal customers into your business by delivering a subconscious uniform message.
Make sure that the brand perception you are trying to build for your business is clear from the moment customers walk into your shop. Your store’s design bridges your customer’s aspirations with the value your business can offer and is important in attracting the right customers to your business. You need quality lighting, clean displays, and a strategic layout. You can show personality and maximize sales per square foot at the same time!
Delighting the senses
Ever wonder why you walk into a supermarket and the first thing you see is fruits and vegetables rather than toilet cleaner?
At its core, store design is a fairly simple exercise. Think about your shop’s layout from a customer point of view and consider what might surprise and delight you, what might annoy you, and most importantly, what might convince you to make a purchase.
Big-box retailers have long understood that people have five senses and that those senses affect decision making in a profound way. Whether it’s through intelligent lighting, the right music selection, or the careful piping in of a beautiful scent, smart retailers have learned the art of manipulating customer mood — whether they need you excited about a sale or relaxed and in the mood to hang around.
Over the last decade, there has been an explosion in the number of high-quality, affordable technologies that are specifically geared towards helping small, local business owners improve the day-to-day operations that impact this aspect of their business. This includes point of sale systems, tax software, bookkeeping software, employee scheduling and payroll programs, inventory tracking tools, customer loyalty programs, gift card technology, ecommerce opportunities, website builders, email marketing software, and social media management tools, to name a few.
How to invest in the right business equipment
When identifying the equipment and technology that is best for your small business it all comes down to one key thing: opportunity cost.
Opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. While there is always a cost associated with technology and equipment investments, business owners often fail to consider the cost of not making the same investments. If you don’t invest in quality technology and the best equipment for your business, it could end up costing you a lot more in the future. So how do you determine this opportunity cost? Ask yourself the following:
- Will it improve the customer experience?
- Will it enhance customer loyalty?
- Will it attract new customers to my business?
At first glance, little things like cold drinks that aren’t quite cold enough can seem insignificant, but it’s often the little things that can turn a customer off to your business forever.
The aesthetics of tech
When you set out to start your small business, investing in the right technology and equipment should be considered in conjunction with your store design. They should seamlessly integrate with and improve the customer experience in your store. Everyone remembers their first trip to the Apple Store and the “wow” moment of having their sale rung up by the assistant in the middle of the store, rather than having to wait in a line. But fewer people probably notice the carefully positioned heater that creates a warm environment for them as they walk through the door. It’s all part of the same idea. Make sure to check out government surplus auctions, which sell extra government equipment, as well as seized goods. Auctions as a result of foreclosures are also often a great way to find a deal.
Whether you end up looking at self-checkout counters, fancy lighting systems, special refrigerated cases, or any of a countless number of options, never forget that these are only tools to help accomplish your main goal. Your store needs to create an environment where customers want to be, where they feel comfortable and appreciated, and where that experience will prompt them to purchase—and hopefully encourage their friends to do the same.
Manage your inventory
Creating an intelligent product line, working with quality, reliable suppliers, and implementing the right processes for monitoring your inventory will ensure your best chance of success.
Whether you own a store or a restaurant, it is beneficial to select one or two “headline” products that will form the cornerstone of your offering. This will often be an obvious choice: If you’re a coffee shop, your headline product will be coffee. If you’re a burger joint, you guessed it, it’ll be burgers. This product will often be the centerpiece of your marketing efforts and a way for you to “own” a space in a customer’s mind. For example, Jack’s Burgers makes the best cheeseburger in town and Daisy’s Threads has the most adorable scarves.
However, while this product might draw the customer through the door, it will not, on its own, make your business a success. A strong small business has to be resilient to the challenges the world can throw at it, whether that means sudden fluctuations in commodity prices, problematic suppliers or a global pandemic. A big part of resilience comes in the form of diversification. One of the core skills needed when starting a small business is the ability to build out a diversified product line that complements the headline products. A thoughtful product line lets the customer upsell themselves. You want them to think, “I’m having a burger, so I’m going to have some fries too.”
Choosing inventory suppliers and tracking performance
Demand is only one side of the product equation. It’s equally important to consider your supply-side needs. Ask yourself:
- Where will you source your products?
- At what price?
- What kind of markup does that leave room for?
- How will you find the right balance between quality and affordability?
- What is your product lifecycle?
- How often will you receive deliveries?
There is a lot to consider when choosing your suppliers, but getting it right is worth it. A great supplier will provide the raw ingredients of your success. A large part of the process of inventory control is ensuring that you are paying for exactly the inventory that comes through your door, and not a penny more. Even great suppliers are looking for the highest price possible for their goods, so once you find them, make sure you’re ready to negotiate!
If the COVID-19 pandemic has taught us anything, it’s that your product line should never be overly reliant on any individual supplier. One supplier raising their prices should not have a wholesale impact on your gross margins.
Use inventory management software
Inventory management—especially when first starting a small business—at its most basic level consists of counting how many of a given product (let’s say apples) you have for sale in the morning, keeping track of that number, then reducing it by one each time an apple is sold. At the end of the sales day, you count the leftover apples and make sure the number of apples in your inventory system matches whatever you actually have in store. When you have an accurate apple count, you call your supplier and order as many as you need to make sure you have enough on hand for the next day. Seems simple right? Well, yes and no.
Inventory management can become very complicated once you factor in issues like product lifecycle (how quickly do the apples go bad?), variable amounts of raw goods in a single item (how many apples went into that apple turnover you sold?), delivery times (how quickly you can get new apples?), and variable wholesale apple costs (how much did you pay for that particular bunch of apples?).
It can become very difficult and time consuming to constantly track the amount and purchase price of all your inventory, but it is hugely important to your bottom line. Every time you catch yourself saying, “Sorry, we don’t have that in right now,” you are leading your business in an unhealthy direction. Not only does being out of something represent a lost sale opportunity, it hurts your brand reputation in the process.
Tight control of inventory, while not a particularly glamorous part of owning a small business, is therefore one of the most important ways you can impact profitability. The good news now is that there is an array of technology available that can make this whole process much smoother, including sophisticated forecasting tools that will help you predict your required inventory levels for each day based on past sales, weather records, and many other factors. Choose point of sale software that integrates inventory management, saving you time and money.
At your small business, everything from the way the customer is greeted as they walk through the door to the way your products are packaged matters. Early on, you as an owner will be able to exert direct control over these details. But as you grow, you’ll come to recognize the value of a well-trained and motivated staff.
In order to ensure that the staff you’re bringing on board is the right fit for your small business, there are a few questions that you should ask yourself during the interview process. Are they competent? Capable? Compatible and committed to your core business values? Do they fit in with the culture you are trying to build? And can you offer them fair compensation? These questions are called the 7 C’s of hiring.
More employees, more paperwork
First, you’ll need an Employer Identification Number (EIN) from the IRS, and you’ll want to familiarize yourself with your tax obligations as an employer, including providing required employee benefits such as social security and workers compensation.
As an employer, you’re also responsible for withholding federal and state taxes from your employees’ paychecks. What’s more, you’re obliged to ensure all withheld tax is forwarded to the government within a defined time frame, usually a matter of days after the paycheck was issued. Failure to do so can result in a fine. You are also obliged to file a quarterly tax return which must detail, amongst other things, your employee pay and withholdings. Once again, failure to do this can result in, you guessed it, a fine.
The good news is that there are a number of affordable payroll software providers that automate this process very effectively. There are also excellent third-party companies that will take on the responsibility for this process, which can be a huge time-saver.
Therefore, it’s a good idea to have an employee handbook available to provide the key details you’d like a new employee to know. Creating this kind of central resource about best operating practices will also force yourself to formulate your thoughts and be clear about exactly what you want. Whether that means codifying sales procedures or deciding who can take cash from the cash drawer, you’ll have a clear and consistent company policy, something to which most employees will respond favorably.
Technology has also come a huge way in this area. Point of sale systems are much more easier to use, cutting down on training time.
Customers choose to shop at small businesses because they want something distinctive, local, and personal. Your team members play a key role in the success of your business.
Market your business
At a small business, every dollar spent is tracked and accounted for, either as an essential cost of doing business (rent, employees, etc.) or as a cost of inventory that will result directly in profit. By contrast, when it comes to marketing, small business owners have historically been asked to take a leap of faith, spending money without any clear sense of how much positive impact it will have on their business.
Traditional small business marketing techniques have escaped any clearly definable return on investment (ROI) analysis. It’s for this reason that so many small business owners write off marketing as if it were a gimmick. In reality, marketing is at the heart of any successful business.
Today sophisticated, affordable technology exists that tracks customer relationships from an ad placed on Google, right through to a successful sale. This offers small business owners a unique opportunity to be entirely data-driven in their marketing approach. Every single aspect of your small business can be tweaked and optimized to ensure that you are enticing customers, up-selling where possible, and encouraging people to spread the word about your business.
People want to know what makes you special, so tell them why your store or restaurant will be different to what is currently available. Use social media to build excitement about your grand opening and keep potential customers informed about special promotions and sales. From sharing pictures of that new fancy espresso machine or sneak peeks of your store’s interior, you can gain buy-in to your central message and build some anticipation before you even open your doors. Knowing how to leverage key social channels is imperative to starting a successful small business that will stand the test of time.
Once you have your space secured, hang some pictures in the windows that illustrate what’s to come. It’s also a good idea to provide leaflets that people can take away with them and hang a clipboard and pen on the front door where people can sign up to hear more about your business. This list is pure gold! So once you have it, why not stage a launch party and invite the local community, journalists, and influencers. The first step for any business is always getting people to try out your products.
If you’re not online, you don’t exist
Your online presence is crucial. It’s up to you to embrace this opportunity with open arms. Google accounts for 90 percent of all global organic search traffic and more and more of that traffic is coming from mobile devices, so be sure to create a Google Local Business Listing. Make sure your hours, description, contact details, address, and images are all accurate. According to a recent digital marketing survey conducted by Clutch, 74 percent of small businesses surveyed had a company website. Of the businesses that said they do not have a website, 9 percent said they planned to build a website in the future, while 10 percent said that they are unlikely to build one. One thing is clear: businesses need an omnichannel presence to succeed today.
Weave your story into your community
As an entrepreneur starting a small business, you can either look at your marketing budget alongside the Walmarts of this world and wave the white flag, or you can choose to change your perspective and realize that being small brings distinct advantages in the modern economy. More consumers are rebelling against the generic offerings of big-box retailers and seeking out the unique, personal touch offered by small, local businesses.
Your size allows you to laser-focus your attention on the right audience. Walmart wants to sell everything to everyone, so don’t try to do that. This kind of clarity allows you to compete for search rankings on Google, key positions on Yelp and other business recommendation engines, and for space on social media.
Lastly, and perhaps most importantly, your size should make you lean. Every single aspect of your store or restaurant can be tweaked and optimized to ensure more and more customers are coming through the door. As you experiment with strategies on Facebook or Twitter, introduce new email marketing techniques, or simply erect new signage outside of your store, you have the chance to measure your success and react quickly to failure.
Get started early, embrace the tools and marketing techniques available to you, and you will have a better chance of putting your best foot forward, both online and off.
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