Start Thinking of Taxes

It's holiday time once again! From Veteran's Day, Thanksgiving, Christmas, Kwanzaa, Hanukkah -- it's that time of the year to celebrate.

Before you get carried away with the celebrations (and food!), you need to start thinking about your taxes. Tax time is not one of my favorite things. But like many things in life, it is something that you have to do whether you like it or not.

In my view, as long as I owe the government tax dollars, then it means business is good. But I also do not want to pay Uncle Sam without knowing what the law allows me to deduct as business expenses.

November is the time to catch up on what you are allowed to deduct to minimize your taxes. Do you need new computers? Do you want to buy new software? Do you need to spend advertising money? Have you opened a self employment 401K account? It's time to wade through your receipts, or start talking to your accountant about tax strategies.

It's also the period to start reading all these tax books for whatever changes in the tax laws that may affect you. I have recently received my yearly free copy of J.K. Lasser tax books, and here are some tips from these tax experts:

• Take the Bite Out of April
• Multiple Tax Bills and Mid-Year Law Changes Increase Savings and Complexity
  

Where People Shop for the Holidays

The National Retail Federation has released a survey conducted by BIGResearch “Holiday Consumer Intentions and Actions Survey” that shows consumer behavior and shopping trends for the 2006 holidays. The survey, which polled 7,623 consumers, looked at where people plan to shop and how they intend to use the Internet for this year's holiday shopping.

Holiday shoppers are expected to spend $791.10 each this year, and a growing number is going to use the Internet for their shopping. According to the study, respondents will use the Internet for an average of one-fourth (28.9%) of their shopping.

Here are some interesting data from the study:

• 47.1% plan to purchase holiday items online, though 70.3% will use discount stores; 61.6% will go to the department store; 49.3% will go to the grocery/supermarket; and 48.4% in specialty stores
• Those earning $50K+ more likely to use the Web at 57.8%
• About 38.1% regularly research products online before purchasing them in person or in store
• They mostly research online electronics (39.3%); apparel (20%); appliances (19.6%); home improvement items (18%)
• A fifth (23.6%) use Google first to research products online

You can read about the study from the NRF website

Factors that Contribute to the Survival of Small Businesses

We don't want to start a business by thinking about its failure. As Ayn Rand said in her book The Fountain Head, "you don't start by giving up." But are there factors that can improve your chance for success?

SBA has a study entitled "Redefining Busines Success: Distinguishing Between Failure and Success" by Brian Headd that looked at the characteristics that result in better chances of survival. The study also looked at the factors that were characteristics of closure.

The study showed that

66 percent of new employers survive two years or more, 50 percent survive 4 years or more, and 40 percent survive six years or more

According to the results of the study, the factors that can improve the likelihood of survival are as follows:

• Being an employer firm
• Having starting capital of more than $50,000
• Having a college degree = higher education give the business owner increased resources to use for the business
• Starting a business for personal reasons = gives owner increased motivation to keep the business going

Other factors also seem to improve chances for a business survival, though to a lesser extent:

• Previously owning another business
• Multiple owners
• Being home-based at startup = because costs can be kept low

On the negative side, the factors that can contribute to the failure of a busines are:

• Being relatively young owners
• Being in services or retail trade
• Not having any startup capital
• Being in an urban/suburban area

The study concludes that "having the resources to be or get larger and the motivation to persist leads to survival."

You can read this interesting SBA study (in PDF version)

Business Survival: Buying into a Franchise or Starting a Business

An interesting question was posed today at Yahoo Answers. Given the failure rate of new businesses, can going through the franchise route improve your chances for success?

I answered the question by exploring the advantages of franchises:

1 - Franchises are already established businesses. Franchises have already proven that the business concepts work and that their business ideas are valid, hence the franchisors are replicating the business through franchising. They already know that there is a demand for their products

Sole proprietors, on the other hand, have to determine their business idea is viable, and whether there is a demand for their products or services.

2. A franchisee cannot be approved without proving that they have the resources and capital needed to run the franchise effectively. They have the resources in place.
Sole traders often operate on the fly and on the shoestring, trying to make do with what they have. Unfortunately, lack of resources mean lack of opportunity to do many things needed to run the business well. Hence they fail.

3. Franchises have the benefit of branding. They come in with a "good name" that is familiar, if not well known to the consumers. Think of a Subway franchise -- consumers already know Subway is, what are their products, and often already have an opinion of the products. Compare that to Nenita's Subs and Fries, which no one knows about

4. Franchises have the support of a knowledgeable management team who already knows what works, what does not work, and how to run the business. Hence, they offer training, even helping franchisees find the best location for the business. They have already studied what works in terms of the store decor and layout.

Franchisees are coming out of the gate with all these information, data and knowledge that a sole proprietor has to learn through trial and error

5. Supply chain for franchises is already set -- the franchisee don't have to spend time looking for the best suppliers for the business in terms of both quality and price because the franchise owner already did that for them.

Compare that with the sole proprietor who may need to spend the better part of their initial startup period looking for suppliers, manufacturers, etc.

The Problem of Starting a Business with No Money and Poor Credit

Many are faced with the problem of wanting to start a business but have no money compounded by poor credit.

I won't say that you can't start a business, because you can. You can start your business with no money -- but it will not be easy. If you're willing to work hard, and be creative and willing to learn, you can surely do it.

With poor credit, getting a low-cost loan from the Small Business Administration will not be an option. In SBA's document "CREDIT FACTORS A POTENTIAL BORROWER SHOULD KNOW" http://www.sba.gov/financing/preparation/qualify.html you can qualify for an SBA loan if you have equity investment and collateral -- which both means money. SBA wants to see that you yourself is invested in your business, so they want to make sure that you have money in your business as well. Without money, then you cannot be approved.

Here are some articles that can give you ideas of what to do when you want to start a business yet you do not have capital:

Starting a Business with Little Cash? http://www.powerhomebiz.com/vol30/nocash.htm
10 Rules for Starting A Business on a Shoestring Budget http://www.powerhomebiz.com/vol70/shoestringrules.htm
No Money? No Problem! http://www.entrepreneur.com/article/0,4621,288954,00.html
Seth Godin's Bootstrapper Bible http://www.changethis.com/8.BootstrappersBible
How to Start a Business With No Money http://www.smbtrendwire.com/start-business-no-money/

I suggest you read the following books as well. Borrow them from your library or buy them from your favorite bookstore

- No Cash, No Fear: Entrepreneurial Secrets to Starting Any Business with No Money by Terry Allen
- Starting on a Shoestring: Building a Business Without a Bankroll by Arnold S. Goldstein
- The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything by Guy Kawasaki

Top 10 Fast-Growing Ways of Reaching Customers

The independent agency network ICOM recently completed a study on the fastest growing ways of reaching customers. While Internet is the king, they found that the "the forms that are growing the fastest aren't the same in different parts of the world."

Blogs, e-mails and group sites were the fastest growing forms of marketing in Europe, North America and Asia. But viral marketing is equally strong in North America, outdoor and product placement in Asia, and SMS and guerrilla marketing topped the list in Latin America. The results are based on data from 58 respondents in 25 countries from 34 member agencies.

Below are the top 10 growing forms of outreach:

1. Blogs/e-mails/group sites
2. Viral marketing
3. Internet (interstitials/message embeds, etc.)
4./5. Commercial messages on hand-held devices
4./5. New formats of outdoor
6.-9. Brand experience (brand-sponsored games, etc.)
6.-9. Guerrilla marketing
6.-9. Search engine marketing
6.-9. SMS
10. Program development (with product integrated into content).

While I wish I could share the actual study, you can read the news release here

The Risks of Starting a Business

One of the major fears of starting a business is the risk involved. What would happen if you invest your money in a business, while potentially profitable, offers no certainty of success? What if the business fails?

Business is risk. There's not one business that can provide a business owner with 100% success guarantee.

If you are hesitant or scared to start a business because of its perceived risk, I suggest you evaluate the level of risk of the business and determine whether you want to take on that risk. In the risk management field, this is called "risk appetite." The most successful entrepreneurs are those who are able to face the risks and overcome them.

Make a list of the potential risks of the business. Understanding how the nature of your business affects risk is important in determining where to apply resources in order to help mitigate those risks. Recognizing areas of business risk will help you to optimize allocation of your resources.

For example, if you want to start a hair salon business, your risks may include (though not exhaustive):

• quality of location that you can get, which can affect your level of foot traffic and even the insurance you can get for the business
• potential for fire given the flammable nature of most hair products
• electrical safety due to the number of electrical appliances used in the business
• top hair stylists may leave, bringing with them your clients

Then indicate the level of probability that the risk will occur:

• Is the likelihood that this risk will happen HIGH?
• Is the likelihood that this risk will happen MEDIUM
• Is the likelihood that this risk will happen LOW

Finalize the list with the steps you can do to manage and minimize the risk.

This type of assessment can help you determine if the risks are well worth it -- and if you have the resources, skills and knowledge to actually overcome the risks.

If you are comfortable with the level of risk, especially when compared to the returns, then invest in the business. If not, then look for a safer business for you to invest or work with someone you think is better equipped to handle the risks of the business. Or maybe consider that entrepreneurship is not for you and you may be better suited for something else.

Best Banks for Entrepreneurs

If you are thinking of getting a bank loan to finance your business, you may want to check with Small Business Administration's "Banking Studies: Small Business Lending in the U.S."

The study lists the best banks in each state in terms of their small business lending activities. The data also includes the microloans offered by these banks. While the latest study is 2004, the study is still very relevant and helpful to anyone looking to get a bank loan

Read about the best small business banks in America