Business Strategies

How do you determine how much to sell your service so that you can maximize your business’s profits?

Do you have a pricing strategy?

Do you have, and more importantly do you follow, a systematic approach for assigning a price to the professional services you are in the business of providing?

If the answer to any of these questions is “no” or sounds like a resounding “huh,” then this article may contain some valuable insights on how implementing value-based pricing model could be one of the more profitable decisions you could make for your business. 

Selling your services for the right price is imperative if you plan to survive. Just “shooting in the dark” is nothing short of gambling that you have it right. Your selling price directly impacts your revenues, cash flows, profitability, and your ability to pay your bills. Without a profitable selling price you could eventually go out of business.

What Is Value-Based Pricing For Professional Services?

Value-based pricing, as noted in this definition, means determining the price of a service based on the benefits it provides for the consumer. You are essentially attaching a price to your service based on what the client thinks the service is worth. This approach contrasts the typical model that bases price on cost or hourly rate. When you are using value-based pricing you are trying to reach equilibrium where you are maximizing your revenue, yet charging the customers an amount they are also willing to pay. 

What Are Some Of The Benefits To Value-Based Pricing?

Because of value-based pricing’s focus on customer research and understanding, the pricing model is a valuable method for understanding and serving your customers better, as noted by Cleverism.

In order to determine the price, you’ll need to survey customers and improve your understanding of the things they are looking for with the service. This enhanced understanding won’t just help you determine the price, it’ll also help you provide better service. This also translates into a huge benefit to the customer.

Using accountants as an example, value pricing involves setting a fixed price in advance for a service measured by the value it creates for the client. 

For accountants who have always billed by the hour, as Firm of the Future notes, value pricing requires a paradigm shift. Instead of thinking first of the cost (in hours) of providing a service and basing the price from the cost, the accountant, instead, thinks first of the value to the client to create the price, then makes sure that the price is justified by the accountant’s cost.

In other words, focusing on the value added to the client and providing a fixed price infuses confidence into a more effective selling process as Firm of the Future observes:

Clients are more comfortable with price certainty,which isa feature of value-based pricing. If you are billing by the hour, you may have many clients who are accustomed to, and feel okay, with that arrangement. However, you may also have clients who cringe when they open your bills (though they don’t say anything) or potential clients who decide to do business elsewhere over the fear that the bill will be more than your estimate.

Drawbacks of Value Pricing

Value pricing can be more tedious at first, especially as you work to clearly grasp client needs, define the scope of the work, pin-point value-adding opportunities that your customers might not even know they need, and then zeroing in on a price derived from the client’s perception of the value received.

As noted by this writer’s comparison, value pricing is not simply a matter of artificially marking up a service or product. It requires an understanding of what customers want and need, and the ability to provide that for them. The disadvantage to value-based pricing is that it alienates the customer base motivated by affordability.

Conclusion

Value-based pricing takes a lot of hard work to implement and maintain. It does seem, however, that significant benefits can be reaped from value-based pricing in terms of increased profits and efficiencies for the service provider and its customers.

Do you happen to be one of many who has dreamt about going into business for yourself but couldn’t put your finger on what kind of business to start? Perhaps you have an idea of what kind of business to start but fear has got in the way of taking the plunge. A degree of fear and trepidation are understandable, and maybe even a good thing, in the sense that they translate into being ultra-careful and not impetuous. In other words, becoming a business owner should not be taken lightly.

You might have many reasons for delaying the pursuit of your dream business, and you might have already analyzed your options. But have you ever considered owning and operating a franchise? Operating a franchise can give you a leg up toward being a business owner. The following information will shed light on why you should give the franchise option some serious consideration.

As noted by Market Watch, a franchise is basically a “business in a box.” It's a model for the operation of a business that has proven successful. This proven model includes the investment costs, a manual, and built-in support from the franchiser as well as a network of other franchisees who have experienced most of the challenges you will face while operating this business. The most attractive feature of buying a franchise, at least from the buyer's point of view, is simple: you can investigate purchasing a franchise more easily than purchasing a stand-alone non-franchised business.

Here are some additional advantages that go with buying a franchise, as stated by Entrepreneur:

1. Track Record of Success. Any good franchise company has developed a method of doing business that works well and produces successful results. 
2. Strong Brand. One of the biggest advantages of franchising is that the company is building a brand on a regional or national basis that should have value in the eyes of customers you're trying to attract.
3. Training Programs. A good franchise company has training programs designed to bring you up to speed on the most successful methods to run the business.
4. Ongoing Operational Support. Franchise companies have staff dedicated to providing ongoing assistance to franchisees. 
5. Marketing Assistance. The franchise company has marketing assistance to provide you with proven tools and strategies for attracting and retaining customers. 
6. Real Estate Assistance. Most franchises have manuals and other documentation, as well as staff, to help you find the right site and negotiate the best possible deal on your site.
7. Construction Assistance. Franchise companies can also provide a wonderful benefit in helping you design the layout of the business and select the right contractors to do your build out.
8. Purchasing Power. A good franchise can take advantage of the buying power of the entire system to negotiate prices for everything you need at significantly lower levels than you could achieve as an independent operator.
9. Risk Avoidance. The biggest reason to buy a franchise is that, if you're smart, it will help you avoid much of the risk of starting a new business. 

Okay, so far we’ve done a pretty good job of hyping the benefits of owning a franchise. But even a second-grader knows that it’s an imperfect world. Nothing is ideal. Certainly there must be some disadvantages to owning a franchise. Here are a few, as noted by Small Business:

1. Costly Investment. The start-up costs for franchises vary depending on the type of business, demand and industry. Start-up costs often are a disadvantage for franchises. Top franchises like McDonald's and Dunkin' Donuts could cost over $1 million, depending on location.
2. Access to a Limited Territory. Franchise agreements protect owners by not placing franchises from the same brand within a predetermined radius. While that's helpful in many ways, it also limits the number of customers a franchise can reach and service.
3. Strict Operations Guidelines. Owning a franchise does not offer the same freedoms as starting a company of your own. Each franchise gives franchisees a set of guidelines they have to follow or run the risk of losing the right to operate. 
4. Risk Reputation. While there's a benefit to running a business that's visible in the market, it can be a problem if the business has a bad reputation because of other locations. 
5. Limited Exit Strategy. No matter how small or large the business or how long it's been in operation, every operation needs an exit strategy. While most owners have several possible ways to exit their businesses without outside sources interfering, franchises have strict rules. 

The links below, as seen in this article on the topic, are included to provide additional information:

• More information on buying a franchise

• Entrepreneur Magazine The Top 10 Franchises of 2015

• Entrepreneur Magazine The Top Franchises in Every Industry

• List of franchises and their costs

A necessary step in the initial stages of setting up your new business is to determine which form of business ownership structure to adopt. The ownership structure that may prove to be most appropriate will depend on circumstances such as:

• how many owners there are (ownership sharing)
• the type of product you will be producing
• the number of employees you will have working for you
• the extent of protection desired in order to protect both the business and the ownership at the personal level from any liability losses

This article provides a brief overview of what structures are available and the pros and cons of each. The most popular structures in use are as follows.

• Sole Proprietorship
• Partnership
• Corporations (C-Corps)
• LLCs
• S – Corps
• Nonprofit Corporations

Sole Proprietorship

A sole proprietorship is the simplest structure. There are no documents to file or fees to pay, and this is in stark contrast to what is required to form LLCs and corporations. You are the sole owner of your business, and you must simply begin business operations to commence a sole proprietorship.

It’s important, however, to be aware of your personal liabilities in this structure. As Small Business notes: “in terms of the legal entities involved in a sole proprietorship, you and the sole proprietorship are the same thing. This means that you will pay taxes on any business profit as income on your personal taxes, and if your business has any liabilities (like a court judgment or a past due debt), you are personally liable for them.”

Partnership

According to the IRS, a partnership is defined as a relationship existing between two or more parties who join to carry on a trade or business. Each party contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return. Partners are not employees and should not be issued a Form W-2.

Corporations (C-Corps)

In forming a corporation--as explained by the IRS--prospective shareholders exchange money, property, or both, for the corporation's capital stock. A corporation generally does the following things:

• It takes the same deductions as a sole proprietorship to figure its taxable income.

• It can also take special deductions.

For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax, and this means two things:

• the corporation does not get a tax deduction when it distributes dividends to shareholders

• Shareholders cannot deduct any loss of the corporation

LLCs

Perhaps the main reason you would want to organize your business as an LLC is to shield yourself from any personal liability that may arise from your business' dealings.

As Small Business notes, “an LLC, just like a corporation, provides limited liability to the owners of the LLC for the business' liabilities, including debts, judgments and others.”

Taxes, however, differentiate an LLC from a corporation. An LLC is not a separate tax entity, and ownership of the LLC are required to pay personal income taxes on any share of profits they receive during the tax year in question.

As SmallBusiness.com emphasizes, organizing your business as a LLC makes sense in two situations:

1. If the business is engaged in a dangerous activity that makes it more likely to be sued, or if the business has the potential of racking up large amounts of debt, then a corporation or a LLC may be a good idea to shield the owners from personal liability.

2. If any of the owners of a business have large amounts of personal assets that they want to shield from any potential liability associated with the business, a corporate or an LLC could be the best option.

S Corporations

S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

The IRS says the following about S corporation reporting:

Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

A corporation must meet the following additional requirements to qualify for S corporation status:

• Be a domestic corporation

• Have only allowable shareholders

• May not be partnerships, corporations or nonresident alien shareholders

Nonprofit Corporations

As the legal site NOLO states in regards to nonprofits and why a nonprofit is formed: “a nonprofit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit can raise much-needed funds by soliciting public and private grant money and donations from individuals and companies.”

In general, the federal and state governments do not tax nonprofits on any money taken in that is related to their organization’s mission to benefit society.

A Not For Profit (NFP) organization operates not for the purpose of generating and distributing profits to the owners, but the purpose of generating and distributing profits--i.e. revenue less normal operating expenses--in furtherance of some public good or one or more social causes.

A NFP is not prohibited from generating profits from operations that are donated or distributed to other public good target entities, nor is it prohibited from donating profits to its employees in the form of normal compensation, especially when the NFP would not be physically able to generate the profits needed for donating to other target causes without the efforts of their employees.  Sustainability of the NFP is crucial to fulfilling its mission. Note that “sustainability” is achieved from both donated profits that the NFP generates and donates to another entity as well as from donations that the NFP receives.

As noted by NonProfit.pro, a nonprofit serves the public interest. In general, the purpose of this type of organization must be charitable, educational, scientific, religious or literary, and these organizations can be unincorporated or incorporated. An unincorporated nonprofit cannot be given federal tax-exempt status or the designation of being a 501(c)(3) organization as defined by the Internal Revenue Service. When a nonprofit organization is incorporated, it shares many traits with for-profit corporations except that there are no shareholders.

Perhaps the most desirable trait of the NFP is the potential availability of tax exempt status. Among several organizational requirements in order to receive tax exempt status is that the organization must satisfy an “Organizational Test” under the Internal Revenue Code Section 501 (C) (3).

To be organized exclusively for a charitable purpose, the organization must be a corporation (or unincorporated association), community chest, fund, or foundation. A charitable trust is a fund or foundation and will qualify.

However, an individual will not qualify. The organizing documents must limit the organization's purposes to exempt purposes in section 501(c)(3) and must not expressly empower it to engage in activities that are not in furtherance of one or more of those purposes except as an insubstantial part of its activities. This requirement, as noted here by the IRS, may be met if the purposes stated in the organizing documents are limited by reference to section 501(c)(3). 

If you are giving thought to starting up a NFP then we highly suggest that attention be given to the following frequently made mistakes, which are nicely summarized in this list from NonProfit:

• Poor Initial Research

  Research is essential before determining if a need exists for a new organization to address it. Can the need be addressed if you partner with an existing organization?

• No Business Plan

  An NFP organization is a business. In order to survive, it must have at least as much money coming into the business as it has going out in services and expenses.

• 
  

  Not for a Charitable Purpose

  Does it qualify as a charitable cause? If you are unsure, research similar organizations for information.

• 
  

  Failure to Register

  Registration of nonprofits is required in most states. Registration protects citizens of states from becoming victims of fraud. Registration of charities, paid solicitors and fundraising counsels help to maintain a responsible environment for charitable work.

• 
  

  Failure to Keep Good Records

  As a business, the organization will be required to file various reports of business activity. You just can’t make things up.

• 
  

  No Funding Plan

  Raising money is a tough and competitive requirement of most nonprofit organizations. Without funding, there is no way to sustain a nonprofit organization.

• 
  

  Not Complying with IRS Statutes

  You must file a federal tax return and you do need to learn what the federal government requires of nonprofit organizations as a trade-off for receiving significant tax breaks by being a 501(c) (3) NPF. The IRS has a website dedicated to exempt organizations.

• 
  

  Misjudging Time Requirements

  Running a nonprofit is not a hobby. If you think that you can run a nonprofit organization part-time, you need to have others helping you or you will fail.

• 
  

  Not Building an Effective Board

  Leadership is critical and an effective board is one that is composed of talented, dedicated and working people.

• 
  

  Not Investing in Professional Talent

  At a minimum, you will need a lawyer and an accountant to help you get started. Having certain systems set up by experienced professionals will save money in the long run.

The foregoing is intended just as a simple overview of the basics involved with starting up and maintaining a Not For Profit organization and is not intended to be all inclusive. We recommend that you refer to the following links in order to further deepen your understanding in this area:

• http://www.nonprofit.pro/nonprofit_organization.htm

• https://www.irs.gov/charities-non-profits/charitable-organizations

• https://www.irs.gov/charities-non-profits/churches-religious-organizations

• https://www.irs.gov/charities-non-profits/other-non-profits

• https://www.irs.gov/charities-non-profits/contributors

The term “project management” refers to a more specialized management and control process that is associated with particular activities that fit within the definition of a “project.”

Projects are unique (not routine) activities undertaken by an organization in order to achieve certain goals that inherently carry a higher degree of risk than normal. The theory is that the risk associated with the defined project can be better managed, mitigated and controlled by applying what’s referred to as the project management process or “framework.”

In addition to being unique, projects are characterized by their temporary life-span. Eventually, the project’s goal will have been achieved. Once achieved, the project managers and all other team members move on to do something else.

For example, a project can be initiated for the specific purpose of implementing an ERP system. An organization that has embarked on the ERP project is assumed to have the singular goal of implementing only one ERP system, not more than one ERP system. Organizations typically don’t have more than one ERP system. (However, there are some exceptions to this assumption in the event that the organization is “international.”) Thus, the project’s goal is deemed to be unique. Once the ERP system has been successfully implemented, the project process ceases to exist and terminates. The project’s life-span, or “duration,” as it is sometimes called, is therefore temporary.

As PMI.org (Project Management Institute) notes, in project management “all projects must be expertly managed to deliver the on-time, on-budget results, learning and integration that organizations need. Project Management, then, is the application of knowledge, skills, tools, and techniques to project activities to meet the project requirements.”

The project manager is the individual who is charged with the responsibility of ensuring that the project goes smoothly, is completed on time, and that the project’s goals are achieved. Unfortunately, projects don’t always go perfectly as planned. It is incumbent on the project manager to learn from his or her mistakes, and then apply what’s learned from the previous project to subsequent projects.

The following project management mistakes, as noted by author Bethany Cartwright, are intended to highlight potential problematic issues that can be encountered during a project management engagement:

1. Getting the Wrong People and Giving the Wrong Tasks

   Consider which tasks people can accomplish the best. Projects don’t go well when people feel they can do some tasks better than the person who is already working on it. This requires a firm understanding of each team member’s strength, weakness, and temperament.

2. Failing to Get Everyone on the Team Behind the Project.

   Sales skills are not just for customers. Good sales skills are necessary for selling a project’s vision to the team working on it. When people don’t care about what they’re doing, they won’t do it well or sometimes at all. If you want your project to have energy, you have to make sure your people have energy too. In other words, don’t assume that your team will automatically “get the vision.” Prepare an effective presentation--just as you would do with a sales presentation for big clients--and put real effort into selling the purpose and value of the project to your team members.

3. Lack of Communication and Meetings

   When making your plan, remember to set up meetings and different ways of effectively communicating, according to your team’s needs. Don’t be afraid to go virtual. Award-winning team collaborative tools like Slack could go a long way in creating the right kind of environment for the project.

4. Being Too Optimistic and Not Being Flexible

   Expect problems. If you posture the mindset of the team to expect problems, accept them when they come, and calmly work to move the project past those problems, it will bring down your stress level when it happens. If you create a sense of unrealistic optimism, it will make the team environment fragile, and any unexpected problem could be the leak the sinks the ship and ruins the team’s morale.

5. Micromanaging

   As the project manager, try to subdue the micromanaging side of your personality and realize that micromanaging only puts stress on both the micromanager and the micromanaged. It also conveys a lack of trust, as if you felt your team was not trustworthy, and this can damage the team’s effectiveness and your ability to lead the team.

6. Using Bad Software or Using Software Badly

   Project management software, such as the one mentioned in point three, can be extremely useful for organization and communication during the project, but it’s not an end-all-fix-all. Make sure the project team is comfortable using it and don’t force feed a team technology just because you think it is great, especially if the team already has a good system in place that works well.

7. Using the Wrong Methodology

   Whether you’re using an agile or waterfall method, make sure your method matches the project. Waterfall methods are great for streamlining detailed projects, and agile methods are best for a collaborative environment that thrives on creativity and flexibility. Whichever it is, make sure you and your team are comfortable with how the project is organized, or it won’t end up well.

   Let’s just focus on the negative--i.e. dwelling on the dangers to avoid. It’s also good to focus on what you should be doing. Here are five skills the project manager needs:

8. The Ability to Delegate and Communicate Effectively

   Your role as project manager is to see the project gets done, not to actually do every single detail. Be detail-oriented, but enable your team to work for you by doling out the responsibility.

9. Creativity and Flexibility

   If you, as project manager, can be flexible when problems do arise, it’s also helpful to be creative with your solutions to those problems. Don’t be afraid to try less traditional or innovative methods.

10. Organization and Multitasking

    Being organized will keep you afloat among all of the multitasking that will be necessary to completing the project. Don’t phone in your organizational life, in other words. Take the necessary steps before the project begins to get yourself organized and ready to take on the variety of tasks coming your way.

11. Time, Resource, and Budget Management Skills

    If the budget is already set up, it’s your job as project manager to manage it. If you’re the one creating the budget, you need to be able to include it in your strategic project plan.

12. Team Building and Conflict Management

    If the team enjoys each other’s presence, the project will be more efficient. That is your goal. But if they can’t get along, it’s your job to ensure that the project runs efficiently despite that. Be prepared to practice skilled conflict management and make sure you understand the types of personalities that will be on your team. Be strategic and think ahead. Try to spot conflicts before they happen as you take stock of who will be on your team.

It is widely agreed that all small businesses, no matter which industry, go through similar definable stages of growth. Researchers have found that each growth stage has certain “personality traits,” so to speak, which distinguish one growth stage from another. There are discernable characteristics of each growth stage which, if recognized and understood, can be useful for understanding and identifying the organization’s progress. Having this insight in hand puts the organization in a better position to understand what needs to be done to successfully make its way through the growth path. In addition, knowing the financial demand on an organization when it reaches a particular stage will prepare the organization for what happens when the particular growth stage is reached.

The Harvard Business Review completed a helpful study for understanding the growth stages of small businesses. The study tracks five distinct stages of small business growth. While the report acknowledges the unique challenges that different small businesses encounter, it observes how the following five stages relate to the majority of SME’s (Small Medium Enterprise):

1. Existence (Startup) Stage

   It is imperative for the organization to cultivate a customer base before doing anything else. Don’t make the mistake of investing in strategic assets such as elaborate computer systems and office furniture before even having a revenue stream. The bottom-line for the “existence” stage: the focus should be on letting the world know you exist--i.e. establishing customers--and then, once that is done, you can allow a solid customer base and revenue stream to justify additional investment in strategic assets.

2. 
   

   Survival Stage

   Once you have a product that people will buy, survival should become the primary concern. This stage is characterized by being able to make enough money to cover your costs. It’s about differentiating yourself from your competitors in a way that satisfies your market and makes consistent finance growth possible.

3. 
   

   Success Stage

   Once a company is economically healthy and is generating better profits to ensure success, the company can stay at this stage indefinitely. This stage requires financial management, organization development, and delegation to a growing management team. Few founders have the temperament to successfully continue to lead an organization beyond this stage. At this stage, the business owner has to decide if he or she is going to disengage from the business or go for growth.

4. 
   

   Takeoff Stage

   If the decision is to grow, then delegation and financing will become key problems. You’ll need competent management who can handle growth and the complex business and evolving business environment that goes with it. This is a pivotal time, and it requires a careful balance pursuing between rapid growth and long-term sustainability.

5. 
   

   Maturity Stage

   Controlling your substantial financial resources will be one your biggest challenges if you manage to create a mature company. But the biggest challenge of all will be cultural. Once you reach the maturity stage, another major problem is lack of innovation. In many cases, companies must diversify their services and secure new revenue streams to avoid stagnation and to keep up with market changes.

Although business experts disagree on the number of distinct growth stages in a business life cycle, they typically agree on what occurs during each critical stage. The five stages above touch on all of those common occurrences in a company’s growth.

In summary, when the business owner has knowledge of typical challenges faced in upcoming growth stages, it gives the owner the upper hand as he or she positions the business for growth and success.

Owning a business is a dream shared by many. The dream of an independent professional lifestyle, self-made financial success, and “being the boss” is not uncommon. Unfortunately, the proportion of those entrepreneurs who have invested valuable time, money, and heart-felt emotions in search of the independent “being the boss” lifestyle have fallen short of the mark. Also unfortunate is how the pain and suffering endured throughout the effort of trying to start one’s own business is not confined to just the individual investor but also to the rest of the family. The impact of the effort is not just financial, but it is also translated into late nights, foregone vacations, missed graduations, etc.

A huge investment is thus made by everyone involved, in other words.

In fact, it’s not unreasonable to say that there seems to be more entrepreneurs who have pursued starting their own business but have unfortunately failed in the endeavor, for whatever reason, than there are who have achieved success.

One trait shared by most successful entrepreneurs, however, is that they not give up trying to be successful in the face of challenges. Furthermore, there seems to be no better elixir for a happy spouse than a successful start-up business, which might explain why there are so many start-up family businesses.

But just “wanting to start a business” is not good enough. Starting one’s own business is essentially the combination of goals, a plan (including “mini-plans”) with a business strategy. Starting a successful business involves settings goals and milestones, and then achieving those milestones and goals. The startup process requires an understanding of why goals and milestones are achieved just as much as an understanding of why goals were not met and efforts failed.

One of the keys to a start-up’s success is to define at the outset a systematic, and logical—that is, not emotional—approach of identifying and analyzing key “actuators of success.” This means getting to know the key performance triggers (operational, financial, etc.) that should be in place if the business is to be a resounding success. This article attempts to define popular approaches to logically planning for a successful start-up business.

One popular approach is to work with an outline of steps similar to the following steps shown below. These steps identify a logical and systematic approach toward starting your own business:

1. What’s The Idea?

“A journey of a thousand miles begins with a single step” (author unknown).” The point of this quote is that you’ve taken the single step of acknowledging that you desire to start-up your own business. You don’t know what the idea of the business is, but you have determined that you want to start your own business.

Before you can get much further, however, you need to determine the idea behind the business. What’s the idea? The answer to this question is basically what is the unsatisfied need that your new business is going to satisfy? Is it a completely new idea? Is it a better way of satisfying a pre-existing need? Whatever it’s going to be you need to know what it is so that you can have a firm idea of what your product will or will not be. Without “the idea”—and without a firm understanding of “the problem” that “the idea” solves for people—it won’t be possible to ascertain the profitability of the product and be able to determine whether your efforts are going to be worth the trouble.

2. Make A Business Plan

Once you think you’ve locked down the idea it’s time to figure out the dollars and cents of taking the product to market and realizing a reasonable profit from being in business for yourself. This step requires creating a business plan. A business plan is basically a financial statement depiction of revenue (or cash) and expenses (cash out). Too often the revenue and expense assumptions are too “pie in the sky” because the entrepreneur at this stage is typically very reluctant to accept assumptions that cast a shadow of doubt concerning his/her dream. Having an outside third party to either create the business plan or review the business plan for reasonableness is highly recommended because the independent review adds credibility to the numbers in the business plan. Credibility in the numbers is imperative if the business plan is going to have any weight in front of potential investors or lenders.

3. Make A Marketing Plan

Crucial to any business, whether a start-up or even an up and running business, is the marketing plan. The marketing plan should be integrated into the overall business plan so the financial impact of the marketing plan is taken into account when evaluating the future profitability of the business. The marketing plan is based on market research and helps to determine not only how much money is available for advertising but also how, or in what ways, marketing funds will be spent. Spending money on marketing is not a waste of money. Spending money on advertising or other marketing strategies (i.e. outbound and inbound marketing) is essential to the process of informing the marketplace that you’re a player who is in the business of satisfying a much needed product.

4. Get Financing

“It takes money to make money,” and, “It’s better to use someone else’s money than it is to use your own money,” are two popular sayings that apply here. There are a variety of sources of capital available to help start-up businesses at their inception. They differ primarily in terms of what they charge (interest) cost and how viable your new business appears to be. One of the key things that most potential lenders are impressed with is a professionally done business plan (previously discussed) including pro forma financial statements and cash flow. What is even more impressive to many lenders is if you have already delivered or sold some limited amount of product. More traditional sources of financing can take the form of the following:

• Traditional Lenders (Banks)

• Venture Capital/Angel Financing

• Friends And Family

• Crowdfunding

The general principles above give you a blueprint for the steps involved in starting your own business. As exciting as starting a business can be, overall it’s crucial to approach the planning process with as little emotional sway as possible and to check your subjective view points with objective third party input. As it says in the Book of Proverbs: “Plans fail for lack of counsel, but with many advisers they succeed” (Prov. 15:22).

Before entering a discussion of ways to grow your business it would be worthwhile to investigate what growth really is.

One of my favorite business axioms is “the only constant is change.” When discussing the topic of growth, what we’re really talking about is change. Growth refers to an organization’s ability to manage and implement changes within the organization.

Why is it a good thing to make changes to an organization? This is a realistic question that needs to be addressed even by profitable businesses. The process of growth (change) is largely recognized as a necessary step to surviving and competing within a business environment that is continuously changing outside the organization.

A common argument in favor of the decision to take on a growth initiative is that if the organization doesn’t grow then it will die. There is no middle ground. No organization operates within a vacuum. A business operates within a business environment that is shared with other businesses. The other businesses are constantly engaged in a business plan that results in an environment that becomes more challenging and competitive. Competing niches and more advanced products are releasing that typically threaten the viability of your organization. Without well-managed growth, more forward thinking and opportunistic competitors will eventually threaten the existence of your business.

Consider this comment by a Reddit reader on the topic:

In business, being dynamic/adaptable is the key. No market or technology is going to stay the same forever. The items/services that you customers want can change on a whim. The things that your competition is offering will change. Sometimes disruptive technology will come along and completely alter your business model. Overall, companies grow for the same reasons that people grow their careers. They want more stuff/profit, they want to be better suited for emergencies, and they want to have money on hand to take advantage of opportunities when they arrive.

So how do we achieve effective growth?

Know Thyself (Before You Do Anything Else)

The whole process begins with thorough, painstaking self-evaluation.

Getting to know your organization’s strengths and weaknesses is crucial to learning what your business is good at doing and what it isn’t good at doing. This step is about learning who or what your business is and identifying its personality traits, so to speak. Why is this important? It identifies where you need to focus your resources and areas that you hope to improve by way of the growth process. Expect this process to require a significant amount of time. Hopefully, your internal reporting system will have recorded transactions in sufficient enough level of detail so as to facilitate the identification of opportunities for improvement.

Another byproduct of this analysis is to establish priorities for what needs to be changed or the areas requiring growth. The higher the priority the greater the attention that needs to be given to the matter of change.

As InsideBusinessMag notes:

Any growing business has resource constraints — limited people, time, and capital — so it is critical that the entrepreneur spend his or her time on the most important areas that can drive success. These priorities may vary with the type of business or the phase of growth. To set priorities, entrepreneurs must have concrete and useful data about their business, communicate the priorities to their personnel, and implement processes to ensure that these priorities are carried out. One entrepreneur whom I interviewed prioritized his focus simply as customers, quality and cash flow. For him, if an issue did not impact directly and materially one of those three areas, it could wait.

Four Ways To Grow Your Business:

1. Expand your line of products or the services you offer
    
   This alternative could prove to be one of the easiest to put in place depending on how much of your organization’s current infrastructure is already “tooled” to produce the new products and services. For example, with a couple of tweaks the organization can take advantage of machinery and equipment already in place to create a new and worthwhile product line.

2. Do business in the global economy
    
   It’s fairly easy to lose sight of the fact that in today’s business climate we operate within what’s called a global economy. This fact makes it relatively easy to compete for profitable business opportunities to sell and buy goods and services outside our borders. It is highly recommended that your organization’s growth model include a feasibility analysis of growing in the direction of international business.

3. Relocation
    
   In some cases relocation can be voluntary and in other events can be mandatory. Rising cost of living is a major influence, and it can easily force the organization out of the area to find less expensive locations. Relocation can also become a reality if your organization is acquired by another that maintains its management team elsewhere.

4. Merger & Acquisition (M&A)
    
   With this growth alternative, the organization in one fashion or another consolidates itself with another organization. The end product of the M&A can resemble a partnership in which each partner contributes its strengths into something complementary that the other partner does not have. The idea behind the M&A is to join together two or more businesses into a new multifaceted organization that has more strengths than either one has individually. The so-called strengths can be market niches, technologies, global opportunities, and more.

Find more examples of ways to grow your business here.

Perhaps the most significant transaction faced by any business owner is the sale of his or her business. Inevitably, a variety of factors will play a role both before and after consummating the transaction. Most, if not all, of these factors will have a direct bearing on the success of the adopted exit strategy which will translate into the maximum possible return, or profit, to the seller.

As with many strategic decisions affecting the direction of a business’s “life,” the seller needs to follow a systematic approach to defining and executing the exit strategy. This will greatly help the seller achieve what he or she wishes to achieve from selling the business.

Not Planning Ahead

As Next Avenue notes, a problem that frequently arises, however, is lack of planning. “Planning” translates into “preparation.” Many small business owners begin thinking about selling only a few months before they’re ready to retire. Instead, you should prepare well ahead of the nine to 12 months it typically takes to sell a business. That way, you’ll help ensure the business is ready to sell when you are. Start by defining your personal retirement goals. As you develop your plan, work backward from the date you want to sell, building in conservative, realistic timeframes for milestones between now and the ultimate transaction with a buyer.

Amazingly, nine out of ten business owners don’t have a written, up-to-date exit plan, according to the White Horse Advisors Survey of Closely-Held Business Owners. Lack of planning is the No. 1 reason private business sales fail to meet the owner's’ objectives.

Failing To Use Expert Advice

According to the Small Business Administration, closing a business is a delicate multi-step process. It is highly recommended that you enlist professional help. Expert advice may come from lawyers, accountants, business brokers, auctioneers, tax experts, bankers, and the IRS. 

Failing to engage expert advice can easily turn into a disaster. This might be more forgivable in the case of a sale to a family member who has historically been close to the pulse of the business for many years.

But at the end of the day, when the sale is to a non-family member engaging experts is imperative. The seller may be a successful expert at manufacturing widgets, but that doesn’t necessarily translate into being a financial guru who is an expert accountant. Hiring a business broker introduces the expertise of someone who can provide an objective 3rd party viewpoint when it comes to assessing the value of the business. The seller may understandably view his or her business through a prejudiced perspective and assume that the business is worth more than it is. If the business is to be sold, then the valuation of the business has to be realistic.

Selling You, Not Your Business

As this article recommends, it’s about “selling you, not your business.” Next Avenue notes the following: the wealth of information that you’ve accumulated about running your business -- i.e. from the best day of the week to contact suppliers to the employee who trains your new sales associates the fastest -- is an essential part that needs to be transferred to your buyer.

In other words, prospective buyers are looking to buy your business, not you. It is a ruinous mistake to forget this. Do not cut your buyer off from all of the knowledge you have. The more you can transfer to the buyer your knowledge of what’s needed to run the business, the more you’ll get for your company. Most purchasers are looking for a sustainable future stream of income. To convince them of this probability, you need to provide prospects with documented processes and systems explaining how your business would work when you are not there.

And that means that if the documented processes, workflows, policies and procedures do not exist, then start creating them as soon as possible -- long before the anticipated sale date. The existence or non-existence of this information will have a crucial influence on what the business will sell for.

Whether the funding is for kick-starting a great idea for a new business or achieving a competitive advantage that will fuel future growth, little else matters as much as having the cash to make your entrepreneurial dreams a living reality.

In order to thrive, businesses typically require hard assets such as equipment, access to real estate for things such as office and warehouse space, computer equipment, etc. In addition to these hard assets are softer assets such as employees comprising the business's work force.

Without these assets, a great idea for a new business will have a difficult time positioning itself to flourish. Acquiring access to these assets is crucial if the good idea is going to have a chance at making itself a going concern.

The pressures felt by the entrepreneur who has a great idea can be overwhelming and daunting -- especially when those pressures come with the seemingly impossible task of obtaining necessary financing to make the dream come true. This article is intended, however, to shed some light on several avenues, or funding alternatives, that are available to the entrepreneur and that are intended to satisfy the new business’s funding requirements.  

SBA Programs

Perhaps one of the most well known funding alternatives is the financing available through the Small Business Administration (“SBA”). One of the advantages of the SBA is that it offers products specifically geared toward small businesses.

This definition from bplans.com zeroes in on the nature of an SBA Loan:

“[The loan] is not a direct loan from the SBA itself. Rather, it is a loan that has been made by a commercial lending partner, but that the SBA has guaranteed for these partners and that has been structured according to SBA requirements. This helps to minimize the risk for both partners and borrowers. Only those without reasonable access to other funding sources are eligible for such a loan.”

Angel Investors (“VC”):

VCs are early stage investors who are not intending to be there for the “long run,” at least not initially. VCs typically provide “kick-start” financing. Because of the high-risk complexion of that early stage, a VC is making an investment during one of the riskiest times of the investment’s life span.

For this reason, the new business owner should expect to pay a premium rate of return for the VC’s participation. It is not unusual, and should be expected, that the VC will expect:

• a very high rate of return, as high as 25% in many cases

• an ownership stake

• one, or more, positions on the Board of Directors

• key Executive/Operating positions.

The bottom line is that the VC expects to be richly rewarded for assuming a high risk investment in the start-up business.

Furthermore, when attracting a potential VC, the VC will closely scrutinize the sophistication and quality of the existing management team. After all, in effect, the VC and the business owner will be married to each other for the duration of the investment. According to Forbes: “Attracting angel investors is a tricky business, and no matter how exciting and positive the initial conversations may be, the devil is always in the details. Know your business plan, be transparent, back up your valuation with real projections (forget the BS hockey stick revenue models), and build a relationship based on trust.”

Do It Yourself (“Self Fund”):

In this approach, the business owner throws into the kitty everything he or she owns. This scenario means that there is no outside party (lender, investor, or guarantor). The borrower liquidates whatever personal assets he or she has. Also, in this approach, the borrower will often max out credit cards and leverage personal assets such as a home or whatever other assets are available.

Needless to say, self-funding is an extremely high-risk proposition to take. Should things not work out as hoped, the entrepreneur could end up losing everything. On the other hand, the entrepreneur’s actions under the self-funding approach demonstrate an exceptionally high degree of commitment to the success of the start-up business. As Forbes observes: “If you believe in your vision and have an absolute refusal to accept failure as an option, you should feel comfortable investing you own money into the business. In turn, this will make potential investors more comfortable knowing you have skin in the game. Just keep your eye on profitability!”

Small Business Line of Credit:

The primary difference between a line of credit and a regular loan is that with the loan it is drawn against usually once, that is, for the full-approved amount of the loan. With the line of credit, on the other hand, it is drawn against on an as-needed basis. When the business’s cash position permits a pay-down of the line of credit’s outstanding balance, the borrower is typically permitted to do so.

The credit line situation is potentially less expensive than the loan situation because the outstanding principal amount of the line of credit is only for funds that have been put to immediate productive use, and hence, the associated interest charge is for immediate productive use instead of just sitting in a bank account somewhere. However, the fees (other than the interest cost) for putting a line of credit in place are usually more expensive than a simple loan.

The bottom line is that the beauty of a line of credit is that the borrower can draw against the line of credit as frequently as needed (subject to outstanding principal limitations), and repayments less than 100 percent of the outstanding principal amount can be made as frequently as it makes good business sense to do so. It is incumbent on the borrower to pay attention to sensible cash management practices because of this flexibility associated with maintaining a line of credit it.

BPlan.com says this about the line of credit option: “for startups, a line of credit can help get your business off the ground, as many new businesses have limited capital needs, and a loan can quickly eat into your profits. For businesses that are already on their feet, a credit line offers a safety net, as well as great flexibility that business owners can use creatively to their advantage.”