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Small
Business
for
Canadians And Americans
by Larry Easto
A Pearson Company
Toronto
Canadian Cataloguing in Publication Data
Easto, Larry
The complete idiot’s guide to small business for Canadians
Includes index.
ISBN 0-13-090078-8
1. Small business—Canada—Management. 2. New business enterprises—Canada—Management. II. Title.
HD62.7.E277 2000 658.02_2_0971 C00-931443-1
© 2000 Pearson Education Canada Inc.
Toronto, Ontario
All Rights Reserved. This publication is protected by copyright, and permission should be obtained from
the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any
form or by any means, electronic, mechanical, photocopying, recording, or likewise. For information
regarding permission, write to the Permissions Department.
ISBN 0-13-090078-8
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THE COMPLETE IDIOT’S GUIDE TO and Design are registered trademarks of Macmillan USA, Inc.
This publication contains the opinions and ideas of its author and is designed to provide useful advice in
regard to the subject matter covered. The author and publisher are not engaged in rendering legal,
accounting, or other professional services in this publication. This publication is not intended to provide
a basis for action in particular circumstances without consideration by a competent professional. The
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A Pearson Company
Contents at a Glance
Part 1: Before You Start 1
1 So You Want to Run Your Own Business? 3
Many of us would rather earn a living by working for ourselves
than by working for someone else. If you would like to pursue the
self-employed option, think about what you will be getting into.
Is it really the right thing for you?
2 The Family That Works Together Sometimes Works 13
Some small businesses are really extensions of the family. As a
result, family things like computers and furniture, money, and
even people are used for business and family purposes. This
arrangement can work well for suitable families.
3 What Can You Sell? 21
Like it or not, when you run a business you have to sell something
to someone. From the almost limitless number of choices
available, what can you sell?
4 Do You Start from Scratch...or Buy a Business? 33
Starting your own business from scratch is not your only option.
If you have the money, you can buy an existing business or even
buy the know-how.
5 Keeping It Legal 43
Warning! Running your own business can be dangerous to your
legal well being. Maybe you need a lawyer to help protect you.
Part 2: On Your Mark 53
6 Preparation for Your Business 55
Setting up a business is like setting up a new home: You get to
buy all sorts of neat things. And the best part is that some or all
of these purchases are tax deductible!
7 Plan to Succeed 67
If you build it they will come...maybe! But first you have to plan
what you are going to build and how you are going to build it.
8 Where Will the Money Come From? 77
It takes money to make money. Don’t count on winning a lottery
to start your business. Where will you get the money to buy all
the neat things you think you need to start your business?
The Complete Idiot’s Guide to Small Business for Canadians
iv
9 Making Sense of Financial Statements 85
Think of your financial statements as storybooks using numbers
instead of words. If you don’t know how to read them, you won’t
know if your story has a happy ending.
10 Don’t Take Risks—Manage Them! 97
Life can be risky, but running a business need not be. You can
manage some risks, and for others...there might be insurance.
Part 3: Growing Your Business 107
11 Marketing Is More Than Advertising and Selling 109
Forget the slick television advertising campaigns. Marketing is
whatever you do to get more business for your business.
12 Plan to Market 119
Even if you do have a better mousetrap, don’t count on the world
beating a path to your door. You can’t just sit back and wait for
things to happen—you have to make things happen. In marketing,
good things don’t happen to those who wait.
13 What Do Your Customers Need and Want from You? 127
Try as you may, you simply cannot run a business without
customers. So don’t ignore them. Get to know them as well as
possible and treat them so well that they will want to keep
coming back to you.
14 How to Distinguish Your Business from
the Competition 135
You are unique. There is no one else in the world just like you. So
why should your business be like anyone else’s? Make your business
as unique as you are. It’s the best way of distinguishing
yourself from the competition.
15 Quality Service: Your Best Competitive Advantage 145
Regardless of the specifics of what your customers say they are
looking for, they all demand quality service. As long as you provide
better quality service than the competition, your customers will
keep coming back.
16 Ensuring Your Customers Are Happy 155
Happy customers are good for business. Not only are they likely to
return, they might even tell others how much they like you. How
much do your customers like you? Ask them; you might be surprised.
v
17 How to Promote Your Business...Your Way 165
So how do you tell the world about your better mousetrap? There
are many ways of doing it. But make sure that your message
is not lost among the thousands of others competing for your
customers’ attention.
18 Wired Marketing...Using the Internet 177
The Internet is not an orderly arrangement of information as we
have been told. It is more like a vast poorly indexed swamp of
information, some of which can be quite helpful. Regardless of
what you call it, using the Internet for marketing can be useful.
But don’t even think of going there without having considered
carefully what you want to do.
19 How to Obtain More Business for Your Business 187
Forget about those unfortunates who are not yet customers of
yours. Concentrate on those wise people who have seen the light
and chosen to do business with you. They can help you generate
more business for your business. Maybe they can even help those
poor lost souls who are not yet clients see the light and choose to
do business with you.
Part 4: Expanding Your Business 197
20 Referrals Are Win-Win-Win Scenarios 199
You can’t do it all, but you can do a lot. Especially with a little
help from your friends. Don’t try to do more if you know you
can’t. Refer the work to others—everyone wins!
21 You Can Accomplish More by Subcontracting
Some Work to Others 207
If you like control—and what business owner doesn’t?—you will
love subcontracting. Somebody else does the work and you get to
supervise and, what’s even better, get paid for it.
22 Hiring an Employee—The Traditional First
Expansion Step 217
Hiring an employee can give you more than an extra pair of
hands. Between the added hassle of government regulations, your
employee’s wrongful acts, and who knows what else, having one
or more employee can add big-time stress to your business life.
Contents
The Complete Idiot’s Guide to Small Business for Canadians
vi
23 A Joint Venture Is Like Living Common Law 227
How would you like to join forces with a compatible business to
be able to offer more to your customers? Try a joint venture—it is
like trying out a merger before making a commitment.
24 A Merger Is a Marriage of Two Businesses 235
The fastest way to expand your business to offer more to your
customers is to take over another business. Merger is one business
strategy that can work as well for small businesses as it
does for big businesses.
Part 5: Keeping Your Business Going or Selling It 245
25 Keep Fit for a Healthy Business 247
What would happen to your business if you suddenly suffered
but survived a serious heart attack? Heart attacks and many
other health problems can be prevented. Don’t allow your own
poor health to jeopardize the well being of your business.
26 To Survive, Your Business Needs Cash Flow 255
If you look after the pennies, the dollars will take care of themselves.
How well are you managing your pennies? Are there
enough of them coming in to make up for those that escape?
There had better be!
27 Transform Your Business to Cope with a
Changing World 261
Death and taxes used to be the only two things that were
inevitable. Now, change is also inevitable. Just because some
changes are beyond your control, it doesn’t mean that you idly
stand by and let them happen. You can always do something.
28 You’ll Need a Plan to Get Out of Your Business 271
All good things come to an end—even running your own business.
Your challenge is to get out of your business while at the same
time keeping as much of your sanity and money as possible.
Appendix A: Glossary of Terms 279
Appendix B: Government Information and Contacts:
Registration and Employment Standards Requirements 281
Appendix C: Canadian Books for Small Business 297
Index
vii
Contents
Contents
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvi
Part 1: Before You Start 1
1 So You Want to Run Your Own Business? 3
You Need to Earn a Living . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
There Are Also Personal Reasons. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Are You Playing Business? The Business-Hobbyist. . . . . . . . . . . . . . 5
The Problem with Business-Hobbyists. . . . . . . . . . . . . . . . . . . . . . . 5
A Part-Time Business and a Full-Time Job . . . . . . . . . . . . . . . . . . . . 7
How Entrepreneurial Are You Anyway? . . . . . . . . . . . . . . . . . . . . . 8
Entrepreneurial Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2 The Family That Works Together Sometimes Works 13
Family Money Becomes a Business Asset . . . . . . . . . . . . . . . . . . . 14
The Cash Flow Roller Coaster . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
What You Give to Your Business Takes from Your Family . . . . . . . 15
Can I Please Use the Computer? . . . . . . . . . . . . . . . . . . . . . . . . . 15
Do Family Members Belong in Your Business? . . . . . . . . . . . . . . . 16
Family Members as Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Family Members as Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Divide and Manage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Ownership Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Management Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Family Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3 What Can You Sell? 21
Selling Your Own Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Advantages of Selling Your Own Product . . . . . . . . . . . . . . . . . . . . 22
Disadvantages of Selling Your Own Product. . . . . . . . . . . . . . . . . . 23
Selling Items That Other People Produce . . . . . . . . . . . . . . . . . . . 24
Advantages of Selling Items Produced by Others. . . . . . . . . . . . . . . 26
Disadvantages of Selling Items Produced by Others . . . . . . . . . . . . 26
Supplying Intangibles: Be a Service Provider. . . . . . . . . . . . . . . . . 26
Advantages of Being a Service Provider . . . . . . . . . . . . . . . . . . . . . 26
Disadvantages of Being a Service Provider . . . . . . . . . . . . . . . . . . . 27
Families and Individuals Need Services. . . . . . . . . . . . . . . . . . . . . 27
And So Do Businesses and Other Organizations . . . . . . . . . . . . . . 28
Who Will Buy Yours Goods or Services? . . . . . . . . . . . . . . . . . . . . 28
Small Businesses Are Service Businesses . . . . . . . . . . . . . . . . . . . . 28
Some Goods and Services Are Suitable for Both Types of Customers . 30
What Business Should You Start? . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Complete Idiot’s Guide to Small Business for Canadians
viii
4 Do You Start from Scratch...Or Buy a Business? 33
Starting from Scratch...Doing It Your Way . . . . . . . . . . . . . . . . . . 34
Getting Free and Low-Cost Information and Advice . . . . . . . . . . . . 34
You Might Need Some Professional Advice. . . . . . . . . . . . . . . . . . . 35
Your Biggest Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Ready for a Daunting Challenge? . . . . . . . . . . . . . . . . . . . . . . . . . 35
What About the Uncertainties? . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Hey, I Want That One...Buying an Active Business . . . . . . . . . . . . 36
What’s Good About Buying a Business? . . . . . . . . . . . . . . . . . . . . 37
What’s Bad About Buying a Business? . . . . . . . . . . . . . . . . . . . . . 37
What About Buying a Franchise? . . . . . . . . . . . . . . . . . . . . . . . . . 39
The Good News About Franchises . . . . . . . . . . . . . . . . . . . . . . . . 40
And The Bad News About Buying a Franchise . . . . . . . . . . . . . . . . 40
5 Keeping It Legal 43
New Relationships Mean New Responsibilities . . . . . . . . . . . . . . . 44
Protect Your Personal Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
What’s the Right Business Format for You?. . . . . . . . . . . . . . . . . . 45
Sole Proprietorship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Choosing Your Lawyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Part 2: On Your Mark 53
6 Preparation for Your Business 55
Make Sure That You Will Have Customers . . . . . . . . . . . . . . . . . . 56
Planning Your Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Business Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Setting Up Your Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Telecommunications Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Answering Machines and Answering Services . . . . . . . . . . . . . . . . . 60
Computers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Fax Machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Photocopiers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Multifunction Machines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Specialized Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Office Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Do You Need a Motor Vehicle? . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
What About Licences, Permits, Tax Registrations, Etc.? . . . . . . . . . 64
ix
Contents
7 Plan to Succeed 67
Why Plan? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Creating Your Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
What Results Do You Hope to Achieve? . . . . . . . . . . . . . . . . . . . . 69
Who Will Your Customers Be? . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Who Are Your Competitors? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
How Much Will You Charge? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
On the Financial Side . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
What Else Do You Need? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Use Your Plan—Don’t Archive It! . . . . . . . . . . . . . . . . . . . . . . . . . 76
8 Where Will the Money Come From? 77
Start With Your Own Resources . . . . . . . . . . . . . . . . . . . . . . . . . . 78
How Much Do They Really Love You?. . . . . . . . . . . . . . . . . . . . . . 79
Can You Lend Me a Few Dollars? . . . . . . . . . . . . . . . . . . . . . . . . . 79
Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Demand Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Who Wants to Invest in My Business? . . . . . . . . . . . . . . . . . . . . . 82
Where Else Can I Get Financial Help? . . . . . . . . . . . . . . . . . . . . . 83
Government Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Leasing Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
9 Making Sense of Financial Statements 85
Why You Need Financial Statements . . . . . . . . . . . . . . . . . . . . . . 86
Forward-Looking Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Sources and Uses of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Forecasting Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Cash Flow Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Historical Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Choosing an Accountant to Prepare And Interpret Your Statements . 92
10 Don’t Take Risks—Manage Them! 97
What Is Risk Management? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
So How Can You Manage Risks? . . . . . . . . . . . . . . . . . . . . . . . . . . 98
What About Those Risks Beyond My Control? . . . . . . . . . . . . . . . 99
What’s Normal? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Property Insurance Is Good. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Life and Casualty Insurance Is Also Good . . . . . . . . . . . . . . . . . . 103
Common Insurance Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
The Complete Idiot’s Guide to Small Business for Canadians
x
Part 3: Growing Your Business 107
11 Marketing Is More Than Advertising and Selling 109
Approaches to Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
The Production Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
The Sales Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
The Marketing Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
What Marketing Does for You . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Everybody Seems to Be Doing It . . . . . . . . . . . . . . . . . . . . . . . . 113
How the Big Guys Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Why Marketing Is Different for Small Businesses . . . . . . . . . . . . 115
12 Plan to Market 119
Marketing in Your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Planning Your Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
The Steps to Successful Marketing. . . . . . . . . . . . . . . . . . . . . . . . 121
Identify a Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Identify the Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Outline Your Strategry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Putting It All Together: Your Marketing Plan . . . . . . . . . . . . . . . 123
Sample Marketing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Keeping It Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
The Dos and Don’ts of Marketing Planning . . . . . . . . . . . . . . . . 126
Do. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Don’t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
13 What Do Your Customers Need and Want from You? 127
You and Your Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Who Are Your Customers? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
List Existing Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Identify Ideal Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Profile Ideal Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
What Do Your Customers Need? . . . . . . . . . . . . . . . . . . . . . . . . 130
What Do Your Customers Expect? . . . . . . . . . . . . . . . . . . . . . . . 130
Reliability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Responsiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Assurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Empathy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
What Customers Are Not Looking For. . . . . . . . . . . . . . . . . . . . . 133
14 How to Distinguish Your Business from the
Competition 135
Distinguishing Yourself . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
What’s Special About Your Service?. . . . . . . . . . . . . . . . . . . . . . . 138
xi
Contents
What’s Special About Your Products? Your Service! . . . . . . . . . . 139
How Your Unique Features Become Benefits to Your Customers 140
Marketing Aspects of Your Business Assets . . . . . . . . . . . . . . . . . 142
Your Network of Contacts Also Distinguishes You . . . . . . . . . . . 142
15 Quality Service: Your Best Competitive Advantage 145
How Quality Gives You the Competitive Edge . . . . . . . . . . . . . . 145
The Four Basic Principles of Quality Service . . . . . . . . . . . . . . . . 146
Deliver Quality Service Consistently . . . . . . . . . . . . . . . . . . . . . . 146
Provide Appropriate Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . 150
Deliver What You Promise; Don’t Promise What You Can’t Deliver . 150
Add Value to Standard Services. . . . . . . . . . . . . . . . . . . . . . . . . . 151
The Five Basic Truths About Customer Service . . . . . . . . . . . . . . 152
16 Ensuring Your Customers Are Happy 155
How Did You Do? Measuring Customer Satisfaction. . . . . . . . . . 155
Informal Techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Formal Techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Making a Good Thing Better. . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
17 How To Promote Your Business...Your Way 165
Who Should You Tell About Your Business? Why Tell Them? . . . 166
Making Personal Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Networking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Memberships in Clubs and Organizations . . . . . . . . . . . . . . . . . . 167
Planned Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Speeches/Formal Presentations . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Conducting Seminars and Workshops . . . . . . . . . . . . . . . . . . . . . 167
Print Communications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
Direct Mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Writing for Publication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Public Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
What Approach Is Best for You? . . . . . . . . . . . . . . . . . . . . . . . . . 169
Communication Priorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
18 Wired Marketing...Using the Internet 177
How an Internet Presence Is Like Traditional Marketing . . . . . . . 178
A Means to an End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
Requires Effective Management. . . . . . . . . . . . . . . . . . . . . . . . . . 178
Integrate the Internet with Other Marketing Tools . . . . . . . . . . . . 179
Provide Information About Your Business . . . . . . . . . . . . . . . . . . 179
Networking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
But It’s Also Different from Traditional Marketing Tools . . . . . . . 180
The Complete Idiot’s Guide to Small Business for Canadians
xii
Global Reach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Multipurpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Provide Pictures, Sound, and Film Files . . . . . . . . . . . . . . . . . . . . 180
Create 24-Hour-a-Day Service . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Open International Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Provide Up-to-Date Information Quickly . . . . . . . . . . . . . . . . . . . 181
How Can the Internet Help with Your Marketing Activities? . . . 181
Identify New Business Opportunities . . . . . . . . . . . . . . . . . . . . . . 181
Identify Customer Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
Distinguish Yourself and Your Business . . . . . . . . . . . . . . . . . . . . 182
Identify External Challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Develop More Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
What Can You Not Do on the Internet? . . . . . . . . . . . . . . . . . . . 183
E-Business, E-Commerce, E-Eeeekk!. . . . . . . . . . . . . . . . . . . . . . . 184
19 How to Obtain More Business for Your Business 187
The Basic Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
What’s Good and Bad About These Approaches? . . . . . . . . . . . . 188
The Four-Step Sure-Fire Way to Obtain More Business . . . . . . . . 189
Identify Existing Customers for Existing Goods or Services . . . . . . 189
Identify Existing Customers for New Goods or Services . . . . . . . . . 192
Identify New Clients for Existing Goods or Services . . . . . . . . . . . 194
Identify New Clients for New Goods or Services . . . . . . . . . . . . . . 196
Part 4: Expanding Your Business 197
20 Referrals are Win-Win-Win Scenarios 199
Continue to Help Your Customer...Make a Qualified Referral . . . 200
Qualifying Other Businesses and Your Customers. . . . . . . . . . . . 200
Making the Referral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
Your Customer Wins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Needs and Wants Are Met . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Preferred Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Reassurance That You Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
The Other Business Wins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
New Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
No Direct Marketing Effort. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Peer Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
And You Win . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Expand Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Maintain Relationship with Existing Customers. . . . . . . . . . . . . . 205
Enhance Relationship with Other Businesses . . . . . . . . . . . . . . . . 205
Referral Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
When Not to Make Referrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
xiii
Contents
21 You Can Accomplish More by Subcontracting Some
Work to Others 207
Subcontracting Is a Well-Established Business Practice . . . . . . . . 208
Subcontracting Versus Referrals . . . . . . . . . . . . . . . . . . . . . . . . . 209
Advantages for Your Customers and for You. . . . . . . . . . . . . . . . 210
Some Other Things to Consider About Subcontracting. . . . . . . . 210
Selecting a Subcontractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
Contracting Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
22 Hiring an Employee—The Traditional First
Expansion Step 217
Before You Hire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
What Will the Employee Do? . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Recruiting the Best Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
Responsibilities as an Employer . . . . . . . . . . . . . . . . . . . . . . . . . 222
Sorry, It Just Didn’t Work Out. . . . . . . . . . . . . . . . . . . . . . . . . . . 224
Termination Without Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
Termination with Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
23 A Joint Venture Is Like Living Common Law 227
What Is a Joint Venture?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
What a Joint Venture Does for Its Members . . . . . . . . . . . . . . . . 228
Locating Venture Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
Maintaining a Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
Ending a Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
One Party May Buy the Other Out . . . . . . . . . . . . . . . . . . . . . . . 232
One or Both Parties May Sell to a Third Party . . . . . . . . . . . . . . . 232
The Parties May Agree to Dissolve the Venture. . . . . . . . . . . . . . . 232
24 A Merger Is a Marriage of Two Businesses 235
What Is a Merger?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Purchase Another Business And Combine It with Yours . . . . . . . 236
Its Ability to Look After Customers . . . . . . . . . . . . . . . . . . . . . . . 237
An Established Customer Base . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Merge with Another Business, or 1 _ 1 _ 1 . . . . . . . . . . . . . . . . 237
Potential Merger Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
The Merger Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Serving Your Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
What You Want . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
What Each Partner Brings to the Merger. . . . . . . . . . . . . . . . . . . 239
A Merger Checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
The Complete Idiot’s Guide to Small Business for Canadians
xiv
Part 5: Keeping Your Business Going or Selling It 245
25 Keep Fit for a Healthy Business 247
If You Plan to Go the Distance, Look After Yourself . . . . . . . . . . 247
Exercise: Even a Little Helps . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Eating Healthy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
You Deserve a Break . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Do You Love What You Are Doing? . . . . . . . . . . . . . . . . . . . . . . 251
If You Don’t Love What You Are Doing...Change Something . . . 252
26 To Survive, Your Business Needs Cash Flow 255
Manage Your Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
Managing Cash Inflow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
Managing Your Cash Outflows . . . . . . . . . . . . . . . . . . . . . . . . . . 259
Need More Money?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
27 Transform Your Business to Cope with a
Changing World 261
When Everything Around You Is Changing . . . . . . . . . . . . . . . . 261
When You Initiate Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Watch Where You Want to Go, Not Where You’ve Been. . . . . . . 264
So Where Do You Want to Go?. . . . . . . . . . . . . . . . . . . . . . . . . . 265
You Can’t Get There Alone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
Work with Your Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
Involve Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
28 You’ll Need a Plan to Get Out of Your Business 271
Planning an Exit? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
Choosing Your Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
The Family Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Employee Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274
Sale to a Third Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Winding Up Your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
Don’t Just Sit There, Do Something . . . . . . . . . . . . . . . . . . . . . . 277
Are You Ready to Start Your Own Business?. . . . . . . . . . . . . . . . . 277
Are You Ready for More Business for Your Existing Business? . . . . 277
Are You Ready to Expand Your Business? . . . . . . . . . . . . . . . . . . 278
Are You Ready to Get Out of Your Business and Move On? . . . . . . 278
Appendices
A Glossary of Terms 279
B Government Information and Contacts: Registration
and Employment Standards Requirements 281
C Canadian Books for Small Business 297
Index 297
xv
Foreword
You have a dream. It’s a vision of the future that gives you a warm glow of contentment.
Close your eyes and you can see it now: there you are, running your own business. No
one is barking deadlines at you, or dishing out orders. You are in charge. You have created
your own small company, with dozens of smiling customers handing you large sums of
money, just for doing something you love to do. Happiness, prestige, and financial wellbeing
are yours.
Now wake up! The cold hard light of day is shining and something ugly is staring you in
the face. Running a successful small business is not easy. If it was, most wouldn’t fail the
way they do.
The sad fact is, the people who may buy your goods or services don’t make decisions
based on whether or not it will help you achieve your goals. They want value at the
right price—and are likely to have little to no appreciation of the charm of buying from
someone who just started their own business.
Dreams do come true, though—and Larry Easto knows how. In this thorough and practical
guide, he blows away the clouds and lays out a foundation on which a solid business can
be built. He starts by helping you to set realistic expectations, and includes a questionnaire
by which to evaluate your own entrepreneurial instincts. Then he takes you step by step
through the process of designing, building and running your company.
You’ll meet Nancy and her computer assistance service, Lorne and his home-video production
company, as well as a variety of other small entrepreneurs who are grappling with the same
kinds of decisions you may face. There are loads of examples here from which to learn.
And most importantly, to my mind, Mr. Easto doesn’t mince words about the difficult
issues that the would-be businessperson must resolve. Going into business with family
members can be a headache. Partnerships are tricky. Friends who invest in your business
expect to get their money back even if your business fails. It’s up to you to find ways to
beat your competition, find new customers, get financing, and hire the right people.
Fortunately, the details of how to handle these issues are laid out, chapter by chapter.
How I wish some of the entrepreneurs we’ve featured on Venture had read this book before
they started out! The business program I host on CBC Television has covered hundreds
of start-ups over the years, some of which were incredibly successful, some of which
crumbled and collapsed. What factors produce success? Those who invest the time and
effort in researching the marketplace and planning their business definitely improve
their chances. (Every now and then a complete dreamer lucks out with a fabulous idea
and makes it big, even while being completely unprepared, but those cases are rare—
plus, do you really want to gamble with your life savings?)
So do your homework. Take this book, add your business idea and make it happen. Being
able to put ‘President and CEO’ after your name doesn’t have to be only a dream!
DIANNE BUCKNER, host of CBC’s Venture
xvi
Introduction
Small business is booming.
According to Statistics Canada, there are approximately two million Canadian businesses
that employ fewer than twenty people. Collectively, these businesses contribute more
than $50 billion to the economy.
Not surprisingly, organizations from public, private, and not-for-profit sectors are all
eager to support small business. Governments at all levels provide a wealth of advice and
information (but no money) for business startups and new businesses. This support is
offered in the interest of keeping the economy growing. Private sector organizations—
businesses ranging from IBM to your neighbourhood home-based bookkeeper—provide
free advice and information in the hope that small business owners will reciprocate this
kindness by purchasing their goods and services. Not-for-profit organizations—such as
educational institutions and charities—provide information and training as part of their
educational mandate and also to generate some much-needed revenue.
Clearly, there is no shortage of advice and information for actual or potential owners of
small businesses. This being the case, why bother writing this book?
Why This Book?
Although there is a wealth of support available for small businesses, most of it is
information driven. It usually takes the form of loads of standard dry information
presented in print, electronic form, or in personal presentations. In many cases, it’s like
receiving a load of topsoil for your new garden. Like the topsoil before a new gardener,
information is dumped in front of the potential or new business owner. Just because it’s
available, it doesn’t necessarily mean that the wannabe gardener or business owner
knows what to do with it.
Instead of simply adding more information to the pile, this book is intended to help
you learn the skills that you need to succeed in your own business. And these skills are
based on what owners of small businesses actually do, not modified versions of practices
followed by big business organizations.
I have also tried to recognize the reality that most successful small businesses are unique:
They reflect the individual personalities of their respective owners. In practice, this
means that the book is relatively free of “shoulds” and “oughts.” There are no directives
telling you that you should follow a specific formula for developing your business plan,
or that you ought to set up your financial forecasts to meet the exacting standards of the
auditor general. In running your own business, you inevitably modify generally accepted
xvii
business principles to meet your own needs and wants. That same approach is part of
the philosophy behind the book.
Regardless of your interest in small business, I hope this book is as helpful as I intended
it to be. Read, use, and enjoy!
How to Use This Book
The book is a comprehensive reference for all small businesses, regardless of size or
maturity. It is divided into five parts, each of which deals with a separate stage in the life
of your business, from pre-startup to windup.
Part 1, “Before You Start,” helps you to look at personal considerations involved with
running a business, such as your own entrepreneurial attitude and the possible involvement
of your family. It also helps you decide what you will sell in your business and
whether it’s best for you to start from scratch or buy an existing business or franchise.
Part 2, “On Your Mark,” will get you ready to go once you have decided to run your
own business. It will help you identify what you need to get into business: the material
items, plans, money, and know-how necessary for success.
Part 3, “Growing Your Business,” tells you everything that you will need to know
about marketing your goods and services. Whether you are just starting your business or
are looking for more business for your existing small business, this part will help you
attract and retain customers.
Part 4, “Expanding Your Business,” is your guide to adding resources to increase
your ability to serve customers. And hiring more staff is not always the best way to
expand your business. You can make referrals, subcontract work, enter into joint
ventures, or merge your business with another one.
Part 5, “Keeping Your Business Going or Selling It,” recognizes two realities of
running a business. First, it takes energy and good health to continue to operate a
business. And second, there comes a time when the owner must get out of the business.
This material will help you keep your business going; or, once you have decided it is
time to leave, help you to extricate yourself from your business.
Thinking of Running a Business?
Skim the book from start to finish. If, after you have reviewed the contents, you get
excited enough about the prospect of running your own business to take the plunge,
reread Parts 1, 2, and 3. This time, read the material carefully, answering all of the
questions as thoroughly as you can. Once you have completed your business and
marketing plans, put the book aside to concentrate on implementing your plans. Keep
the book handy as a reference as you develop your business.
Introduction
The Complete Idiot’s Guide to Small Business for Canadians
xviii
If, however, after skimming the material you decide that running your own business is
not really right for you, put the book aside and get on with your life as an employee.
The good news is that your interest in running your own business has only cost you the
purchase price of this book and the time you spent reading it. You will not have lost any
money trying to get a business going, only to find out that that approach to earning a
living is not right for you.
Like to Expand Your Existing Business?
All businesses, whether new or old, need more business. Part III, “Growing Your
Business,” will help you develop more business. Because marketing is so important to
small businesses, this is the biggest part, containing nine chapters. Although especially
useful for newer businesses, these marketing chapters offer help to all businesses,
regardless of how big or how old they are.
And to make sure that you can handle the avalanche of new work that will come from
your marketing activities, take a look at Part 4. This will help you to start thinking about
how you can expand your business.
When you have so many customers that you need help looking after them, check out
Part 4. This part offers five alternative approaches to expanding your business. And you
thought your only option was to hire staff!
Having Trouble Keeping Your Business Going?
Maybe you no longer have the energy or the interest to keep your business going. Or
maybe cash flow problems are driving you crazy. Or perhaps the time has come for you
to get out of your business. Part 5 will help, whether the problem is personal energy and
motivation or cash flow difficulties, or if it is just the right time to cash in your chips
and move on.
As a comprehensive reference, this book will help all small business owners, from
pre-startup through growth and expansion to sale or windup.
Although intended primarily for small business owners, this book will also be useful to
everyone who knows anybody who runs a small business. Whether you are a family
member, employee, customer, supplier, or simply an interested observer, you can use
this book to help you understand the growing small business phenomenon. Who
knows? Once you understand what they do, there is no telling how you can help small
business owners.
xix
Extras
The Complete Idiot’s Guide® to Small Business for Canadians presents tips and advice.
Throughout the book these elements enhance your knowledge, provide examples, or
highlight important pitfalls to avoid.
Introduction
Shop Talk
“Shop Talk” boxes contain stories about my own and other people’s experiences in running
a business. They are designed to illustrate an important point made in the text.
Entrepreneur Beware
“Entrepreneur Beware” boxes
provide warnings of risks or dangers
to be avoided. By heeding these
warnings, you can avoid a great deal
of trouble.
Building Block
A “Building Block” is an important
point to remember. Remembering
these points will help make your life
a lot easier.
Hot Tip
A “Hot Tip” is a fast tip that will
also help simplify your life as a business
owner.
Acknowledgments
Like all books, this one owes its existence to the contributions of many people. First there
are the hundreds of small business owners who have continued to help me learn about
the many aspects of running your own business. Next there are those book-loving people
who help turn the idea for a book into something tangible. It is nothing short of fabulous
to work with editors and other production people who share the author’s commitment to
the book. Heartfelt thanks to all who worked on this book, especially to Paul Woods who
worked so hard to help make Prentice Hall the new home for this book.
And of course there is the ongoing family support. Once again my wife endured my total
immersion in writing a book. Thank you, Connie. Special thanks to my daughter Megan,
who made a major contribution to the material at the back of the book: the list of
Canadian Small Business Books and as a newly qualified archivist, she prepared the index.
In recognition of her life-long love of books and her new Masters of Information Studies
(U of T ’00) it is my pleasure to dedicate this book to our daughter Megan.
Part 1
Before You Start
Starting a business is not an impulse decision. Obviously you must consider the
predictable issues regarding the business itself. But you must also consider a variety
of personal, family, and legal issues before making your decision.
Chapter 1
In This Chapter
➤ Earning a living
➤ Reasons for choosing to start a business
➤ Ways to get started while working at a full-time job
➤ How not to get started
➤ Find out if you are the entrepreneurial type
The grass is always greener on the other side of the fence. Many employees envy selfemployed
people, believing that when you run your own business, you can earn more
money. Although earning a livelihood is certainly the primary reason for starting and
running a business, most small business owners also have personal reasons for
choosing the self-employment option.
Attracted by the benefits that they see arising from eventually being on their own,
many people start a business as a hobby; others make a part-time commitment to
their own business. In both cases, they continue to rely on the regular income of their
full-time employment.
Realistically, not everyone can succeed in running a business. Before starting your own
business, it is important to identify what results you hope to achieve. It is also
important to assess your entrepreneurial orientation and decide if running your own
business is really the best thing for you.
So You Want
to Run Your
Own Business?
You Need to Earn a Living
Businesses, large or small, exist to generate a profit for their owners. Business owners—
whether shareholders in the case of large incorporated ventures (see Chapter 5 for a
discussion of incorporation) or owner-operators in the case of small businesses—use
these profits as a means of supporting themselves and others for whom they are
responsible. Thus, the primary raison d’ętre for all businesses is to earn a livelihood for
their respective owners.
If you already do, or think you would like to, run your own small business, you may
have various reasons for choosing self-employment as a strategy for earning a living.
Maybe you lost your job as a result of downsizing, reorganization, or merger, and chose
running your own business as the best choice for generating an income. Perhaps you
find it too confining being an employee in an organization whose way of doing things
is inconsistent and even irreconcilable with yours. More independence? Higher earning
capability? Whatever. Regardless of an individual’s stated reason for choosing to run a
small business, the bottom line is always the same: Small businesses exist primarily to allow
their owners to earn a living.
There Are Also Personal Reasons
Even though all businesses, large and small, exist for the same reason, all businesses are
not alike. Small businesses are not miniature versions of their big business cousins. There
are many differences, the main one being who actually owns the company.
As noted above, virtually all large businesses are incorporated, which means they are
actually owned by their shareholders. In companies with a large number of shareholders,
the ownership and management functions are separated. Most shareholders are more
than willing to delegate responsibility for actually running or operating the business to
paid managers, who may or may not be shareholders. It is the managers who set the
direction for the business and look after its day-to-day operations. In discharging these
responsibilities, the managers try to do what’s best for the shareholders. For shareholders
as owners, their primary interest in the business is their only interest: generating
income. Thus, what’s best for the shareholders is, purely and simply, higher profits.
There is no comparable separation of ownership and management in small businesses.
In most cases, the owners do it all, from long-term planning to day-to-day management.
In discharging these responsibilities, instead of being guided by what is best for thirdparty
shareholders, the owners are influenced by what is best for them. And what is best
for owners of small businesses is not always higher profits.
Small businesses can be—and usually are—vehicles by which their owners can experience
satisfaction, recognition, and joy, things that we all need if we are to live healthy lives.
In practice, this means that as well as existing to allow their owners to earn a living,
small businesses also help their owners achieve personal, nonfinancial goals. Essentially
Part 1 ➤ Before You Start
4
5
these goals represent results or desired outcomes
that the individual owners would like to achieve.
Examples of goals that can be achieved through
running one’s own business include the following:
➤ Earning specific awards or peer recognition;
➤ Showcasing your abilities;
➤ Doing what you love doing;
➤ Making a difference in the community;
➤ Maintaining an enriching relationship with
spouse and family;
➤ Meeting new people;
➤ Improving the quality of service to clients;
➤ Developing new ways of doing things.
If you currently run your own business, think
about why you started it. If you are thinking
about starting your own business, what goals do
you hope to achieve?
Are You Playing Business? The Business-Hobbyist
Many people are attracted to the idea of running
their own business. They like the idea of doing
their own thing, a term left over from the ’60s,
which generally means being one’s own boss.
Instead of choosing to run a business as a strategy
for earning a living, they start businesses primarily
for other goal-oriented reasons, some of which
are listed above.
The Problem with Business-
Hobbyists
Much like a hobby generates pleasure and
satisfaction for the person doing it, so does
playing business. In most cases, playing business
is a harmless activity. There are, however, two
areas of difficulty that might arise for businesshobbyists.
Chapter 1 ➤ So You Want to Run Your Own Business?
Building Block
Just as there are many reasons for
choosing to earn a livelihood by
running a small business, there are
many benefits that owners can expect
from their businesses. Obviously a
decent income is important. But
so is the satisfaction of doing a
good job. We also appreciate the
recognition of others for our efforts
and, above all, the joy of achieving
our goals. These are some of the
joys that owners commonly report
receiving from their small businesses.
Entrepreneur Beware
Unless you have better-thanaverage
financial management skills,
don’t start your own business just
to make money. Get a job that pays
you well, and invest your money
wisely. This approach will ultimately
allow you to generate more wealth.
Part 1 ➤ Before You Start
6
At least superficially, the business hobbyist has an unfair advantage over the competition.
Unencumbered by the normal economic constraints of running a business, the businesshobbyist
is free to do work for no or low cost to customers. For these people, simply
doing the work is more important than getting paid for doing it. If they don’t have to
support themselves and their families from business activities, there is no urgency in
getting paid the market rate for the services.
Providing services at a cost significantly lower than the competition has two problematic
side effects. First, it brings into question the cost and value of comparable services
provided by other businesses that must build overhead and livelihood expectations into
their pricing. Clients are generally more concerned with what something costs them, than
with what it costs the supplier to produce it. Thus, when they see one supplier providing
a specific service at a price significantly lower than the competition, they assume that
the competitors must be overcharging. Based on a totally erroneous interpretation of the
data, they develop unwarranted negative perceptions of the business.
Further, in order to stay competitive and protect their market share, the competition
might be forced to lower its prices to match those of the business-hobbyist. Although
this may be a good thing for customers, price competition by hobbyists seldom benefits
suppliers. When prices are cut, profits and customer service also decline. More than one
business has been forced to close its doors as a victim of price-cutting wars. Obviously,
the presence of a few business-hobbyists in a market segment is unlikely to affect the
price of the services of established competitors. However, the appearance of many
business-hobbyists will probably reduce the prices, profitability, and service of full-time
businesses providing comparable services.
Shop Talk
I have a relative who, when announcing his business, described it as “a new business without
a business plan.” He was really proud of his newly developed Web site. The site listed three
technical-related service areas in which he had expertise but failed to identify targeted
clients and how they might benefit from these services.
The real purpose of his so-called business activity was not to earn a living for himself. The
primary purpose of the Web site was to showcase his technical talents, much like a portfolio.
Presumably, dressing the portfolio as a business activity enhanced its credibility.
In effect, my relative was doing little more than “playing business,” just as children play
house or play school.
7
The second area of difficulty involves the liability of the business-hobbyist. Once you
start a business, especially providing services, you hold yourself out to the public as
having specific skills. In delivering these skills, you are expected to meet the standards of
other businesses offering the same skills. If a failure to meet these standards results in a
customer suffering loss or damage, you are responsible for the loss or damage. You
cannot escape this liability by saying that what you called a business was not really a
business but was more like a hobby.
Assume, for example, that a business-hobbyist is approached by the owner of Wayne’s
Widgets, who would like a Web site designed to facilitate sales over the Internet. After
the site is up and running and widgets have been shipped, several purchasers report that
their credit card numbers have been misused and the common factor appears to be that
they all purchased widgets through Wayne’s Internet Web site. Investigation indicates
that a hacker gained access to Wayne’s Web site
and located the database where customer
information, including their credit card numbers,
was stored. Further investigation indicated that in
designing the Web site, the business-hobbyist had
neglected to block access to a key directory as
instructed in the manual.
Clearly the theft of the credit card numbers arose
as a result of negligence on the part of the person
who designed Web sites as a hobby. Does the fact
that this work was done through a business that
was in fact a hobby reduce or eliminate liability
for the Web site designer? Of course not! Why
should it? Why should a business-hobbyist be any
less liable for the consequences of actions than a
fully committed business owner?
A Part-Time Business and a
Full-Time Job
If you are interested in running your own
business, but are not yet ready to make a full-time
commitment, starting a part-time business is a
better approach than starting a business as a
hobby. The difference between a part-time
business and a full-time business is the extent of
the commitment. Starting a part-time business is
different from running a hobby business because
you commit to a part-time business whatever
Chapter 1 ➤ So You Want to Run Your Own Business?
Entrepreneur Beware
If you play business, you are responsible
for any damages that your
customers might suffer as result of
doing business with you.
Hot Tip
In starting and running a part-time
business, the same considerations
apply as those for running a full-time
business. This includes all aspects
from preparing a business plan to
generating more business. Simply
modify the budgets and forecasts to
reflect the reduced time and financial
commitment.
Part 1 ➤ Before You Start
8
resources—time, energy, money, etc.—that you have
available and that are necessary to get the business
up and running.
Even though you are running a business on a parttime
basis, make sure that the rates you charge for
your goods and services are comparable to those of
your competitors. There are several reasons for this.
The quality of these goods and services are at least as
good as or even better than your competitors’. If
they weren’t, you wouldn’t even consider offering
them for sale, would you? Since they are
comparable, why should they be offered at a lower
cost? To offer them at a lower cost might suggest
that you and your business are not quite as good as
the competition.
Running a part-time business is a no-lose scenario. If
you start the business on a part-time basis and it
becomes successful enough that you are prepared to
operate it full time...congratulations! You are off and
rolling. If, however, you gave it your best shot and
found out it’s not what you want to do, no problem—
you still have your regular job to fall back on.
How Entrepreneurial Are You
Anyway?
Once you have decided that you would like to run
your own business, the next step is to determine
whether or not you possess suitable personal
characteristics. The following self-assessment can
help you determine your entrepreneurial
orientation.
Entrepreneurial Assessment
The following questions deal with your personal
background, behavioural characteristics, and lifestyle
patterns. Answer the questions by marking the
response that most accurately reflects your attitude.
Answer every question as honestly as you can.
Hot Tip
In a part-time business, compete
on the basis of value instead of cost.
Anyone can attract business by
offering lower prices. Charging
competitive prices can show how
successful you might be in running
your own business. If you offer
deeply discounted rates, you don’t
know if clients will continue to deal
with you when you start charging
the rates you need to survive over
the long term. On the other hand,
if you charge market rates and
customers continue to come back
to you, you can expect to succeed
over the long term.
Building Block
Starting and running your own
business is a full-time commitment.
In many cases, business owners work
harder and more is expected of them
than when they were employees.
The good news for most, however, is
that we love what we are doing more
than we could ever enjoy working
for someone else. Although not always
easy, running one’s own business is
usually an all-consuming and very
satisfying way of earning a living.
9
Part 1: Attitudes Toward Risk Taking
Definitely Probably Probably Definitely
Yes Yes No No
1. I am prepared to make sacrifices in my
family life and to take a cut in pay to
succeed in my own business. ________ ________ ________ ________
2. I take risks for the thrill of it. ________ ________ ________ ________
3. I enjoy doing something just to prove
that I can. ________ ________ ________ ________
4. I enjoy tackling a task without knowing
all the potential problems. ________ ________ ________ ________
Part 2: Personal Initiative and Discipline
Definitely Probably Probably Definitely
Yes Yes No No
5. Once I decide to do something, I will do
it and nothing can stop me. ________ ________ ________ ________
6. When I begin a task, I set clear goals and
objectives for myself. ________ ________ ________ ________
7. After a severe setback in a project, I am able
to pick up the pieces and start over again. ________ ________ ________ ________
8. I am usually able to come up with more
than one way to solve a problem. ________ ________ ________ ________
9. I believe in organizing my tasks before
getting started. ________ ________ ________ ________
10. I find myself constantly thinking up
new ideas. ________ ________ ________ ________
11. I can concentrate on one subject for
extended periods of time. ________ ________ ________ ________
12. I find unexpected energy resources as I
tackle things I like. ________ ________ ________ ________
13. I am likely to work long hours to
accomplish a goal. ________ ________ ________ ________
Chapter 1 ➤ So You Want to Run Your Own Business?
Part 1 ➤ Before You Start
10
Part 3: General Attitudes
Definitely Probably Probably Definitely
Yes Yes No No
14. When I do a good job, I am satisfied in
knowing personally that the job has been
well done. ________ ________ ________ ________
15. I like the feeling of being in charge. ________ ________ ________ ________
16. When I think of the future, I envision
myself running my own business. ________ ________ ________ ________
17. I try to do a better job than is expected
of me. ________ ________ ________ ________
18. Personal satisfaction means more to me
than having money to spend on myself. ________ ________ ________ ________
19. I try to find the benefits in a bad situation. ________ ________ ________ ________
20. I persist when others tell me it can’t be done. ________ ________ ________ ________
21. I enjoy being able to make my own
decisions on the job. ________ ________ ________ ________
22. I can accept failure without admitting
defeat. ________ ________ ________ ________
23. I strive to use past mistakes as learning
processes. ________ ________ ________ ________
24. I find that answers to problems come out
of nowhere. ________ ________ ________ ________
25. I prefer to make final decisions on my own. ________ ________ ________ ________
Scoring:
4 points for each question answered “Definitely yes”
3 points for each question answered “Probably yes”
2 points for each question answered “Probably no”
1 point for each question answered “Definitely no”
Interpretation of your score:
Above 75 Definitely Entrepreneurial
Your combination of personal background and behaviour and lifestyle patterns should give
you the basis for a successful business.
11
50–74 Possibly Entrepreneurial
You might have the basis for succeeding in your own
business. The process of preparing your business plan
can help clarify your entrepreneurial orientation. If
the information that you gather excites you about
the prospect of running your own business, you will
probably do well. On the other hand, if the prospect
of running your own business scares you, think
carefully about whether or not to proceed.
26–49 Probably Not Entrepreneurial
Other possibilities may be more suitable for you.
Under 25 Definitely Not Entrepreneurial
This is self-explanatory; you will probably work best as
an employee.
Chapter 1 ➤ So You Want to Run Your Own Business?
Hot Tip
Regardless of your score, discuss the
results with your personal contacts,
primarily your family and closest
friends. They may see a side of you
that you do not see. Their comments,
combined with your score on
the assessment, will provide you
with a very good indication of success
in your own business.
The Least You Need to Know
➤ The primary purpose of running your own business is to earn a living.
➤ Personal goals can be as important as earning a living. These reasons have more
to do with personal satisfaction than achieving financial goals.
➤ Playing business is not a good way to get into business. It can pose some risks
for you as well as for full-time competitors in the marketplace.
➤ Running a business is a full-time commitment.
➤ Not everyone has an entrepreneurial orientation. Some people function better
as employees.
Chapter 2
The Family
That Works
Together
Sometimes
Works
In This Chapter
➤ Where does the money come from?
➤ What to expect financially
➤ Putting family in your business—or not
➤ Ownership, management, and family issues
How do you plan to finance your business startup? If you are like most new business
owners, you will draw on personal and family savings to pay the startup expenses and
keep the business going until the cash starts to flow in. Although this is a very
reasonable and common approach, it will affect your family’s normal activities. In
most cases, this will mean your family having less, rather than more money available,
at least for a while. Obviously, it is important to prepare your family for this
eventuality and plan accordingly.
Your new business will consume more than just money: It will also absorb as much
time and energy as you are prepared to devote to it. Like the money that you invest in
your business, the time and energy that the business consumes is unavailable for
family purposes. For some families, this is not a problem because other family
members play active roles in the business.
Family Money Becomes a
Business Asset
Business ventures, like all human endeavours, give
rise to numerous clichés. From the business
perspective, “it takes money to make money” is
particularly annoying because it is so true. Certainly
the primary purpose of a business is to generate
revenue. Just as certainly, you must spend money
to generate this revenue.
Virtually all owners spend their own, or their family’s,
money to start their businesses. Personal or family
funds that are allocated for business purposes are
obviously not available for family use until the business
is profitable enough to return the owner’s initial startup
investment. With fewer funds available for the family,
it may be necessary to make a lifestyle change.
The Cash Flow Roller Coaster
It’s not just at startup time that owners will be
required to contribute money to their business
operations. Few businesses experience consistent cash
flow. For most, there are periods when cash floods in.
For retailers, it’s the Christmas season; for the
accounting profession, it’s tax season. Conversely,
there are periods when cash flow is more like a
trickle. These are the times when everyone except
creditors appear to have forgotten that the business
exists. More money is going out than is coming in.
Without a bank line of credit, this money will come
from—where else? —the owner’s personal resources.
Once again, money going into the business will be
temporarily, perhaps permanently, unavailable for
family or personal purposes. Members of your family
should be forewarned that this situation might
occur. Unless you have had the foresight to make
provisions for a dry season, any shortfall must be
covered by personal funds. If, as an employee, you
customarily took a vacation during spring break you
might have to change your plans if February and
March are cash-trickle months.
Part 1 ➤ Before You Start
14
Building Block
Whether actively involved or not, all
family members are affected by the
startup of a new business. To minimize
disruption, it is important to
understand that family and business
cannot be fully integrated. Many
issues apply to managing the business
that do not apply to maintaining a
family and vice versa. Identify these
issues and resolve any problems
before either the business or the
family life is jeopardized.
Entrepreneur Beware
Lifestyle changes that come from
starting up a business usually have to
do with having less money available.
For the sake of family harmony,
make sure all family members are
aware of what is happening and
how long the situation is likely to
last. You are more likely to get the
support of your family if they know
sooner, rather than later, about the
demands the business will make on
the family’s financial resources. It is
difficult to succeed in running your
own business; don’t make it any
harder by jeopardizing the support
of your family.
15
What You Give to Your Business
Takes from Your Family
Running your own business can consume an
inordinate amount of time, attention, and energy.
As well as the obvious time spent—the time that
you actually run the business—there is the time
you spend thinking and worrying about it. Few
owners can completely forget about their
businesses, regardless of how hard they try.
Like money, your time, attention, and energy are
limited resources. Also like money, whatever is
allocated for business purposes is unavailable for
family or personal enjoyment. Make sure your
family knows about and is supportive of the new
demands on your time.
Can I Please Use the Computer?
As well as financial and personal resources, your
new business might also require the use of other
family assets such as the computer, the car, or
even some space in the family home. The good
news here is that part of acquiring and
maintaining these assets can be claimed as an
expense for tax purposes. In other words, you
can write off (over time) part of the cost of any
family assets used for business purposes.
The bad news is that instead of writing off the
entire cost of the assets, you can only write off
the percentage of use that corresponds to actual
business use. Similarly, if you use part of the
home for business purposes, you can claim a
portion of the home occupancy expenses as an
expense for tax purposes. Your tax return
contains a schedule that allows you to calculate
allowable claims for business use of automobiles
and home offices. The really bad news is that you must maintain detailed records to
support these claims. In most cases, the actual tax savings are minimal.
Chapter 2 ➤ The Family That Works Together Sometimes Works
Hot Tip
To minimize the disruption in
personal or family cash flows arrange
a bank line of credit before you
need it. As with all bank financing,
it is easier to obtain these services
when you don’t need them than
when you do.
Hot Tip
To balance your time between your
business and your family, designate a
set period every week (such as
Friday night or Sunday morning)
that you will spend with your family,
away from tending to business matters.
Treat this as a commitment as
important as a regular meeting with
clients. Not only will it contribute
to domestic harmony, but it will also
give you a break from your business,
allowing you to be more refreshed
when you resume.
Part 1 ➤ Before You Start
16
Do Family Members Belong
in Your Business?
Family Members as Employees
When business owners look for help, they
frequently look first to members of their own
family. This approach yields several benefits. It
keeps money in the family. The owner can
transfer money to family members and claim
the transfer as a deduction for income tax
purposes. Further, these related employees can
probably be available for as much or as little
time as required.
Unfortunately, relatives do not always make the
best employees. They may lack the requisite
skills and interest to perform required tasks.
Family Members as Owners
As well as hiring family members as employees, it is also common to include them in the
ownership and management of small businesses. Statistics Canada reports that there are
approximately one million family-operated businesses in Canada.
Entrepreneur Beware
Tax considerations aside, using personal
and family assets for both
business and personal purposes
invariably requires family discussion
and agreement about when the
assets will and will not be available
for family use. Provided you have
your family’s agreement and cooperation,
there need not be a
problem in using family assets for
business or vice versa.
Shop Talk
When I started my own law practice, we agreed that my wife would look after the bookkeeping.
After the first month-end, it was obvious that the plan would not work. Instead of just
following the time-honoured practice of entering the debits on the left and the credits on
the right, my wife wanted to know why they went there. As a result of our heated discussions
about the principles of bookkeeping, we soon learned two things. First, routine clerical
tasks are not really meant for inquiring minds. And second, my wife’s participation in
my business was far too frustrating for both of us. My secretary assumed bookkeeping
responsibilities while my wife temporarily resumed looking after our children until she
returned to work in a position more suited to her skills and interests.
17
Family businesses are not a new phenomenon. The very first small businesses, in
pre-Industrial times, were small agricultural or craft-type concerns, in which family
members were active workers. At that time, the businesses were owned and operated by
the husband or father with all other family members simply doing what they were told.
As a result of the changes that have taken place over the past few hundred years, today’s
family businesses have evolved far beyond the early agricultural and craft-based models.
Today’s family businesses tend to be more cooperative and less dictatorial, with family
members playing more active roles in the ownership and operation.
Assuming that family members have the requisite interest and skills, there are sound
reasons for operating a family business. Firstly, there is an existing bond among family
members that could facilitate their working together in pursuit of a common mutually
beneficial goal. It is often difficult to have employees commit to specific business goals.
Provided family members can agree on what they want the business to achieve, it should
be fairly easy for them to commit to achieving these goals.
Secondly, family businesses make it possible to keep things in the family. Obviously,
profits that are shared among family members, rather than among nonfamily owners,
will yield more income to the family. Family members might also be better at keeping
secrets and maintaining confidentiality than nonfamily employees.
It is often difficult for business owners to share control with others. Fiercely independent,
they sometimes find it difficult to share or delegate responsibility for making things
happen and for keeping things going. In family businesses, with control shared among
family members, owners do not really feel that they are giving up control.
A major benefit of family businesses is the simplification of succession planning. For
small business purposes, succession planning is all about planning who will operate the
business when the current owner retires or, due to poor health, cannot continue to run
it. With family members actively involved in running the business, it should be a
relatively smooth transition from one family owner to the next. This will benefit owners,
customers, suppliers, and nonfamily employees. Being familiar with how the business is
run, relatives are unlikely to introduce disruptive practices when they assume
responsibility for operating the family business.
There are also sound reasons for not starting a family business. If one or more family
members has no interest in participating in the business or lacks the appropriate skills
to make a worthwhile contribution, no one will benefit from this family participation.
Don’t assume that just because you are very excited about your business that your family
will share this excitement. Before counting on family members’ participation in the
business, make sure that they are genuinely interested and can make valuable
contributions.
Chapter 2 ➤ The Family That Works Together Sometimes Works
Part 1 ➤ Before You Start
18
Also, when family members work together, there is a tendency for domestic issues to
spill over into the work situation and vice versa. One of the good things about working
away from home is that it helps separate home and family. If, for example, you have a
dispute with your spouse or partner over something as trivial as leaving the top off the
toothpaste tube, a day apart will help both of you forget about the issue. On the other
hand, if you spend the day together working, the normal pressures of running a business
can help escalate a nonissue into a disagreement. Ordinarily minor work annoyances,
such as the printer cartridge running out of ink, can ignite into a major conflict that
would otherwise have been ignored and forgotten. Domestic differences and business
problems can be a very toxic combination.
Another area of concern is the difference in our relationships with family and co-workers
or employees. Some people treat their family with more respect than they do co-workers.
Conversely, co-workers may see the agreeable people-pleasing sides of our personalities
while we reserve our ugliness and nastiness for family viewing only. This can be problematic
if family members believe that employees receive more favoured treatment or if employees
perceive that relatives are being treated better than they are. Realistically, it is difficult to
treat family members—whether owners or employees—the same as nonfamily employees.
The relationship with each group of people is, after all, quite different.
Perhaps one of the biggest difficulties with involving family members in the business is
the risk associated with putting all of your eggs in one basket. When there are serious
cash flow problems, owners frequently cut back on the money that they and their family
members take from the business. When this happens, the family income will be severely
restricted, even temporarily suspended. If, however, family income comes from sources
Shop Talk
As much as you may enjoy being with your family, too much togetherness could be counterproductive.
Idiosyncrasies that can be easily ignored if we spend time apart, become
major annoyances if we spend twenty-four hours a day with family members. One of our
daughters, whose company we quite enjoy, has the annoying habit of cracking her knuckles.
Since she no longer lives with us, we can tolerate her knuckle cracking when she
comes to visit.
Last year when she stayed with us for a while, I became less and less tolerant of her noisy
behaviour with each passing day. Although we were sad to see her go off on a working
holiday, I was delighted that I wouldn’t hear her knuckles cracking. I found it almost
impossible to tolerate the sound of cracking knuckles, whether or not I was working.
19
unrelated to the business, the consequences of a
business cash flow problem will be minimized.
I have had countless clients who involved family
members in the business to share the wealth
during the good times, only to face the decimation
of family income when cash was tight.
Divide and Manage
The challenges faced by family businesses go
beyond the ownership and operating challenges
that face all small businesses. They also go
beyond the difficulty of balancing work and
family, an issue that anyone who works and also
has family responsibilities must face.
Family businesses represent the merging and integration of three kinds of critical issues:
ownership, operation, and family. To make a family business work, and indeed succeed,
family members must consider and resolve these issues.
Ownership Issues
➤ Who actually owns the business?
➤ If ownership is shared, what is the interest of each owner? How is this interest
determined? How is it valued?
➤ How was the ownership interest acquired? Was there an actual contribution of
money? Was the ownership interest a gift? What tax issues arise as a result of making
a gift of an ownership interest?
➤ Who has ultimate decision-making authority? What happens if joint owners cannot
reach an agreement?
➤ What restrictions apply in dealing with the owners’ interests? Can they sell their
interests or pledge them as security for loans?
➤ What happens to the owners’ interests in the event of a marriage breakup? What
buy-sell provisions apply?
➤ How will ownership interests be transferred to other family members? When can
these interests be transferred? Will they be transferred on death or on disability?
How will the interest be valued?
➤ How will the owners share the profits? If bonuses will be paid, how will they be calculated
and when will they be paid?
Chapter 2 ➤ The Family That Works Together Sometimes Works
Entrepreneur Beware
Husband-and-wife family businesses
risk breaking up when the marriage
breaks up. To minimize this risk,
make sure that any business agreements
include details about what
will happen to the business in the
event of a marriage breakup.
Part 1 ➤ Before You Start
20
Management Issues
➤ What are the goals of the business? Are all family members committed to achieving
these goals?
➤ Are there nonfamily directors or advisors?
➤ What is the role of each family member in the management and operation of the
business?
➤ How will each family member be compensated for his or her contribution to the
management and operation of the business?
➤ Will the next generation take over the business? Who, specifically, will take over?
How will they be prepared to take over the business?
➤ How will family members get out of the business?
➤ How will loyal nonfamily employees be managed? What incentives will they be
offered to ensure that they stay on with a transfer to the next generation?
Family Issues
➤ What will be done to ensure that family members remain interested in and committed
to the business?
➤ How will the current generation’s need for personal income be balanced with the
next generation’s need for equity in the business?
➤ How will family members who do not actively work in the business be treated
equitably?
➤ How will spouses and in-laws who do not work in the business be treated?
➤ How frequently will family meetings be held to discuss and resolve these and
other issues?
The Least You Need to Know
➤ Starting your own business may disrupt your normal cash flow; make sure your
family is aware of this and be sure to make plans to deal with any potential
cash shortfalls.
➤ Starting your own business can also be a major drain on your time and energy;
again, make sure that your family is aware of this and make plans to deal with
any potential problems.
➤ Employing family members in the business does not always work well for everyone.
Try to maintain a balance between family and business activities.
Chapter 3
What Can
You Sell?
In This Chapter
➤ Selling your own and others’ products
➤ Selling your services
➤ Different types of customers
➤ Small businesses are service driven
➤ Choosing a business that’s right for you
Regardless of size, all businesses sell something. There is virtually no limit to the
products and services that a small business can sell. At one extreme, people such as
artists and craftspeople can produce and sell their own work. At the other end, sales
agents and representatives will sell products manufactured by others. Today most
businesses supply services, either to families and individuals or to other businesses
and organizations.
Realistically, running your own business is not always fun or easy. There are many
things about it that are really dull for most people. If you don’t love what you are
doing, the boring parts—the parts that aren’t the main focus of your business but still
need to be done—will drive you crazy. When deciding what you are going to sell, your
challenge has two parts. The first part is to identify what you love doing; the second is
to figure out a way to get customers to pay you for doing it.
Selling Your Own Work
Many manufacturing operations require too much capital or are too labour intensive to
be viable options for small businesses. Producing large and expensive items such as
automobiles and appliances requires a great deal of capital to support sophisticated
manufacturing operations and skilled workers. Similarly, smaller items such as office
supplies and kitchen accessories also require extensive capital and manufacturing
facilities in order to mass produce low-price consumer goods and to market these items
profitably. Whether expensive and sophisticated or low-cost and simple, the production
of mass-market consumer goods is best left to large industrial organizations.
The production of unique specialty items, on the other hand, is ideally suited to small
businesses. This would include such traditional artisan-type work as the design,
production, and sale of clothes, jewellery, pottery, and other unique items. In each of
these businesses, the quality of the work produced, and not the price, would be the
unique selling feature. With effective marketing strategies, producers of these high-quality
goods can be very successful.
Advantages of Selling Your Own Product
The big advantage to selling your own product is that you have total control over every
step of the process, from design, through production and marketing, to delivery and the
ultimate purchaser. This means that you can customize your product to meet your
customers’ needs and wants, and that you can do this at almost any stage of the process.
It also ensures a higher level of consistency between a product’s actual features and how
the product is promoted to customers. Since you are producing and selling your work,
the potential discrepancy between promotional claims and real-life features is eliminated.
Another advantage of selling your own product is the personal relationship that
develops between producer and purchaser. To counter today’s anonymous mass-market
world, many of us like to buy items directly from the people who produced them. This is
as true of specialty foods and books as it is of arts and crafts. This connection between
purchaser and producer adds a personal element to the item, which in turn increases the
customer’s perceived value of what he or she bought. The perceived value is enhanced
by the one-of-a-kind nature of personally produced items.
This illustrates another advantage of selling items that you produce yourself: They are
unique. Unlike mass-produced standard items, there is nothing else exactly like them.
Purchasers feel good about acquiring and owning items that presumably reflect their
own unique personalities.
When customers feel good about a purchase, they will proudly talk about the item, and
in doing so, will promote the producer to family, friends, and acquaintances. Customers
who value what they have purchased are satisfied customers, the best asset any business
can have. It really is true that word-of-mouth advertising is the best type of advertising.
Part 1 ➤ Before You Start
22
23
Disadvantages of Selling Your Own Product
There are three major disadvantages of selling goods that you produce yourself. First,
because time is limited, there is a limit to the number of items that you can produce.
This in turn restricts your sales and revenue potential. It is, of course, possible to hire
help and expand your operation. This involves assuming supervisory and management
tasks, responsibilities that might not be a welcome addition to your burden. Further,
when other people are involved in the production of your work, some aspects will become
standardized in the interests of efficiency. This can reduce the uniqueness of your work.
The second drawback is that it is difficult to find repeat customers for the same
nonconsumable items. In order to continue to sell to your satisfied customers, you must
develop new items. Once they have one custom-made and personalized widget, they are
unlikely to want or need more. You must then develop and produce gadgets, gizmos, or
geegaws to sell to them.
Chapter 3 ➤ What Can You Sell?
Shop Talk
I continue to be amazed and delighted at how happy people are to receive a signed copy
of one of my books. It is not uncommon for these people to promote my books to their
friends and acquaintances. This is good promotional value, considering that all I did to
earn it was to personalize a book by signing it and adding the purchaser’s name. A similar
process can work with other personally produced goods.
Shop Talk
Having published books myself and also having had books published by established publishers,
I know firsthand the joy of passing a manuscript on to a publisher. For me, it means
that someone else will look after editing, formatting, producing, and marketing, and will
do all of those other things it takes to get the book into the hands of the reader.
Part 1 ➤ Before You Start
24
The third problem is common to all people who
work alone. It is the result of having total control of
what you do: You have to do it all yourself. From
design and manufacturing, to marketing and
customer service, you have to do it all. This can be a
frustrating and onerous responsibility.
Selling Items That Other
People Produce
Many successful independent businesses distribute
products manufactured by others. Typical businesses
fit into the distribution chain in a variety of stages
of the process, from purchasing directly from the
manufacturer to purchasing from subdistributors
and selling to the consumer. Examples of the items
produced in these businesses include cosmetics,
jewellery, cleaning supplies, and a great variety of
other products.
A business can distribute products produced by others through a variety of operating
formats. Wholesalers, distributors, and retailers purchase goods for resale. By selling
goods at a higher price than their purchase price they generate revenue to cover the cost
of goods purchased and to make a profit from their own work. These people must pay
for the goods they purchase for resale, regardless of whether or not they succeed in
reselling them.
A franchise operation is a common method of distributing goods. Franchises have been
described as the most successful marketing concept ever created. A franchise
organization is in fact a contractual association between a franchisor (the manufacturer
or wholesaler) and the independent franchisees who purchase the right to distribute the
franchisor’s products.
An estimated 4500 franchisors provide a broad range of franchise opportunities in
Canada. Many of the opportunities represent great potential for small business operators.
Suitable service areas include beauty and health, business, computer, education,
maintenance, photography, and publicity. Dozens of directories and handbooks are
available in public libraries and bookstores that detail various franchise opportunities.
These resources also outline what to look for and what to avoid when purchasing a
franchise. The next chapter addresses the topic of franchising in greater detail.
Another growing trend is the use of multilevel marketing. As the name suggests, this
involves a number of different levels of distributors. The manufacturer sells products to
Hot Tip
If you plan to sell goods that you
produce yourself, focus on highquality
higher-priced items. This
will help increase the marketability
of your work and the profitability
of your business. Customers seldom
object to paying a premium for
quality work.
25
a high-level distributor, who in turn resells the
products to the next level of distributor. This
lower level distributor sells to yet a lower level
distributor, and so on. The purchasing and
reselling continues until, ultimately, the products
are sold to the end user. Examples of companies
that use this multilevel marketing approach are
Amway, Mary Kay Cosmetics, and Tupperware.
Contemporary advancements in communications
technology and services—such as overnight
delivery from factory to home—increase the
attractiveness and profitability of these businesses.
As with franchises, there are a number of resources
available to provide guidance with respect to
these multilevel business opportunities.
Yet another approach to distribution, suitable for
the small business format, is the use of
representatives or agents who represent specific
manufacturers or producers. These people never
actually own the products that they sell. They
take orders for the manufacturer or supplier and
are paid a commission on their sales. Unless
otherwise agreed, commissions are payable when
the supplier receives payment for the goods sold.
Growing nostalgia has given new life to the
expression that everything old is new again.
Collecting and reselling anything that is old—
furniture, jewellery, books, newspapers, trading
cards, clothes, and so on—has become a major
source of revenue for many people. Trading in
nostalgia is ideally suited for small businesses.
Not only is a fixed place of business unnecessary
to sell the products, it is often restrictive.
Shows, fairs, and other exhibition locations can
be found at the nearest shopping centre, at
downtown and suburban hotels, and at flea
markets everywhere. The stock-in-trade is hauled
from home (or storage) to the show, where it is
set up and offered for sale. Unsold items are
returned to home base to await the next sale.
The management and administrative work is
usually completed in home offices.
Chapter 3 ➤ What Can You Sell?
Hot Tip
The fact that we now live in a global
village means that regardless of
where products are manufactured—
locally, nationally, or internationally—
they can usually be easily obtained
for distribution by independent
businesses. As with trading in
nostalgia, opportunities to import
or distribute products manufactured
by others can be found in virtually
any classified advertising section of
any newspaper. Business opportunities
can also be identified through
leisure travel. Ideas and concepts
that appear to be working effectively
in distant locations can often be
implemented domestically.
Entrepreneur Beware
Importing goods for sale in Canada
can be risky. You might get stuck
with the extra time and expense
involved in looking after warranty
problems without being reimbursed
by the manufacturer or supplier.
Part 1 ➤ Before You Start
26
Advantages of Selling Items Produced by Others
By selling goods produced by others, you can avoid all of the manufacturing, and many
marketing, responsibilities. Also, depending upon the agreement with the manufacturer,
it might be possible to avoid responsibility for actually handling the goods.
Manufactured goods come with a guarantee. At the very least, the manufacturer
guarantees that those goods are suitable for the purposes for which they are intended.
Many manufacturers also guarantee the quality and performance of their products. In
practice this means that if the goods are defective, they will be repaired or replaced at
the manufacturer’s expense. Thus, as reseller of the goods your role is to involve the
manufacturer in the process of correcting the defect.
Since it is the manufacturer’s goal to sell their goods, most provide some form of marketing
support to businesses that sell their products. Typically, this support takes the form of
national advertising and marketing communications.
In many cases, the manufacturer’s goods are shipped directly from their premises to
customers. This means that although you might sell goods produced by someone else,
you do not necessarily have to handle the goods. This can result in significant savings
regarding the handling of warehouse and related materials.
Disadvantages of Selling Items Produced by Others
Although selling goods produced by someone else might free you of legal responsibility
for defective or unsuitable products, you will not be totally free of responsibility. If and
when there are difficulties with any products that you sell, your customers will look to
you for help in correcting the problem. After all, they don’t know the manufacturer;
they know you. Not surprisingly, you can find yourself caught in a dispute between your
supplier and your customer. Regardless of who is right and who is wrong, this could well
be a no-win position for you.
Supply Intangibles: Be a Service Provider
The service sector has experienced an extraordinary rate of growth over the past decade.
During the last ten years, 94 per cent of all new jobs in North America were created by
service industries: retailing, business and financial services, engineering and design,
consulting, commercial education and training, communication, travel, and transportation.
Advantages of Being a Service Provider
The nature and delivery of services, especially those that are information-based, have
changed dramatically with the advances and widespread availability of technology. We
no longer need large factory-type office facilities equipped with huge computers to work
27
with information. With laptop computers and cellular-phone technology, we can gather,
process, analyze, or do whatever we have to do with information at home, at our clients’
places of business, or wherever we happen to be. This has greatly increased the flexibility
of service providers.
For technologically oriented people, it has also opened up a broad and exciting range
of new business opportunities, many of which didn’t even exist five to ten years ago.
If you have more than an average level of technical skill, undoubtedly there is a business
opportunity for you. And unlike selling products, you do not have to worry about
buying, storing, and otherwise handling inventory.
Disadvantages of Being a Service Provider
Attractive as it may be to provide services, there are several major disadvantages to
consider. First, unlike consumer goods, services are intangible. The customer cannot see,
taste, feel, hear, or smell them before making a purchase decision. Since many people
traditionally make purchasing decisions based on their senses, service can be more
difficult to sell.
Services are also perishable: They cannot be stored. This means that you cannot stockpile
services in anticipation of future demand. Physicians cannot stockpile time so that they
will have more of it to help patients in flu season. Accountants cannot put some of their
unused summer availability into storage for use during tax time.
And finally, services are variable. The same service, such as hairstyling, varies from
person to person. It also might vary depending on when it is performed. For example,
if your stylist is sick or perhaps preoccupied, the work is unlikely to be as good as it
would be otherwise.
Families and Individuals
Need Services
These services are defined by the personal needs,
wants, and expectations of the person or group of
people (such as a family) to whom the service is
being provided.
Traditionally, personal services have included
mainly beauty- and fashion-related services such
as hairstyling and makeup. Now, many successful
businesses profitably provide services such as
housekeeping, caregiving, home maintenance,
and gardening.
Chapter 3 ➤ What Can You Sell?
Hot Tip
The small business format is ideal for
providing personal services. Personal
service businesses require a minimum
amount of space and equipment
and are based primarily on the
personal skills and ability of the
business operator.
Part 1 ➤ Before You Start
28
Today’s busy people often find themselves with more money than time. As a result, new
service opportunities proliferate at a staggering rate.
And So Do Businesses and Other Organizations
Businesses and not-for-profit associations purchase services for one of two reasons. The
first is the simplest and most basic: to meet their own day-to-day organizational needs,
such as bookkeeping and other administrative activities. The second is to meet their
customers’ needs.
Services of the first type would include obtaining and delivering inventory and supplies,
running errands, taking messages, maintaining books and records, and cleaning. All
businesses require these operations to some extent; few require them on a full-time basis.
An example of the second type is an advertising agency that hires a graphic artist to help
design a brochure for a client.
Who Will Buy Your Goods or Services?
Obviously, it is not enough to provide goods and services. Someone must buy what you
are offering for sale.
For the sake of simplicity, it is possible to classify customers as either “consumers,”
which include individuals, families, and other domestic arrangements, or
“organizations,” which include all customers who are not consumers. More specifically,
public-sector organizations (governments), private sector organizations (businesses), and
not-for-profit organizations such as educational institutions, charities, and voluntary
associations comprise the organizations category.
The table on the next page illustrates a simple method of matching what you will sell
and to whom you will sell it. It also includes examples of goods or services that might
be offered to each category of customer.
These are only a few examples of the kinds of goods and services you can offer to
different types of customers. They do, however, help illustrate two important features of
today’s small business world; that is, small businesses are service businesses, and some
types of products and services are suitable for both classifications of customers.
Small Businesses Are Service Businesses
All small businesses are in some way service driven. Even though the first two categories
in the table involve the sale of products, service is the critical element in each. There are
two areas in which the service element can be found. The first is in the customization of
products. Whether selling to consumers or organizations, people who produce the
products that they sell can frequently customize these products to meet the needs and
29
Chapter 3 ➤ What Can You Sell?
Goods and Services Offered to Consumers
Consumers Organizations
(individuals (public, private, and
and families) not-for-profit organizations)
Goods that Arts, crafts, giftware Arts, crafts, giftware
you produce Gourmet food products
Goods that Health and beauty products Cleaning products and supplies
others produce Household cleaning products Specialty products
and supplies
Specialty products
Services Career counselling Accounting/auditing
Catering Administrative support services
Closet organizing Computer consulting
Dating service Education/training
Decorating Human resources services
Exercise/fitness coaching Interior designing
Financial planning Janitorial services
Health and beauty services Legal/paralegal services
Housekeeping/maid service Marketing services
Home inspecting Mediating
Image consulting Meeting planning
Landscape maintenance Photography/video production
Party planning Public relations
Personal shopping Space planning
Shop Talk
The difference in the level of service generally received by a customer from a small and large
business is best illustrated in the example of an Avon sales representative and a cosmetics
clerk in a large department store. An Avon sales rep visits customers in their homes at mutually
convenient times and helps with the selection of cosmetics and related products. Free of
distractions—such as distorting fluorescent lighting, other shoppers, and a blaring PA system—
the Avon representative can concentrate full attention on helping the customer. Seldom can
clerks in large retail operations provide the same level of focused customer service.
Part 1 ➤ Before You Start
30
wants or to reflect the personality or characteristics of their customers. This is true
whether the products are works of art, a craft item, or food. Large organizations that sell
mass-market consumer goods—especially when those goods are produced by others—
simply lack this ability.
Second, whether proving goods that they have produced themselves or were produced
by others, small businesses can offer better and more personal service to their customers.
This improved service usually results from a more personal relationship between small
business people and their customers than is often possible with larger business organizations.
Some Goods and Services Are Suitable for Both
Types of Customers
Clearly, some products such as arts, crafts, giftware, and cleaning products can be offered
to both the consumer and the organization market. Similarly, there is nothing that
makes services such as catering, home inspection, and landscape maintenance
intrinsically more suitable for consumers than for organizations. What makes a
difference is how the products and services are marketed. Part III, which deals with
marketing issues, will help you develop appropriate marketing strategies for each of the
market classifications.
What Business Should You Start?
There really is no single business good for everyone.
When considering what business is best for you,
consider your interests and abilities. The most
successful businesses emerge when customers pay
you for what you love to do.
If your business is built on a passion, whether it’s
computer programming, arranging flowers, or
cooking, you have probably spent a great deal of
time learning and doing it. It is reasonable to
assume that you are good at what you love doing.
It’s also reasonable to expect that you have a solid
commitment to doing it.
Further, for most of us, running our businesses is
more than simply a strategy to earn a living. Of
course, we expect to generate a decent income. But
we usually expect more than that. We also expect to
enjoy our work.
Building Block
Small businesses are driven more by
their owners’ love of what they are
doing than by objective and standard
procedures, which are often
borrowed from big business. If you
genuinely love what you do in your
business, you will find ways of coping
with the aspects that bother you.
If you don’t love what you are
doing, all of the many frustrations
will be obstacles to your success.
31
Running your own business is not always fun. Not everyone sees administrative tasks
such as record keeping as enjoyable let alone exciting. Some aspects of running your
own business can be very frustrating. Unless you truly enjoy pain and suffering, it will be
hard to maintain your commitment when you feel overwhelmed by the responsibilities
of operating your business. But if, as a computer consultant, you love looking after your
customers’ computer problems, then you will find a way of dealing with the neverending
administrative work. Similarly, if, as a graphic artist, you love undertaking design
work, you will find a way of coping with marketing research or whatever else it is in
running your business that drives you crazy.
Chapter 3 ➤ What Can You Sell?
The Least You Need to Know
➤ To succeed in selling goods that you produce yourself, make sure that they are
unique and, whenever possible, personalized for your customers.
➤ If you sell goods produced by others make sure that they are of good quality
and that they carry a suitable manufacturer’s guarantee.
➤ Small businesses can offer more personal, and often better-quality, services
than large business organizations.
➤ To succeed in your business, you must love what you are doing.
Chapter 4
Do You Start
from Scratch...
Or Buy a
Business?
In This Chapter
➤ Thinking it through: Looking at all of the options you have
➤ Key points to consider when deciding on a new business, an existing business,
or a franchise
➤ Tips on what to look for, whichever way you go
➤ Where to find resources to help you get started
Having made the decision to run your own business, you face three basic choices. You
can start your own business from scratch, you can purchase an existing business, or
you can purchase a franchise. Each approach has its own advantages and disadvantages.
Starting from scratch involves deciding what kind of business you want to start and
operate and then putting all the pieces together to make it happen. The obvious
advantage is that you have total control over all decision making. This allows you to
customize your operation to reflect your personal preferences. However, creating a
successful business from scratch can be a very challenging and uncertain process.
When you buy an existing business, the systems and procedures are already in place;
you simply carry on what the pervious owner did to make the business successful.
Although it is expected that existing customers will continue to do business with you
as the new owner, there are no guarantees.
The third option, buying a franchise, generally carries the lowest risks. You are buying
an operating system that has proven to be successful for other operators. Assuming
that you follow the fanchisor’s procedures, buying a franchise can be worth the relatively
high costs involved.
Starting from Scratch...Doing
It Your Way
Starting your own business is like building a new
house. Subject to existing laws and regulations, you
are free to do whatever you want, wherever you
want and however you want to do it. Bearing in
mind the comments made in Chapter 3, you choose
the goods or services to be sold and target your
potential customers. You even develop and
implement your own marketing strategies and, best
of all, get to keep all of the after-tax profits that
your business generates. Instead of blindly following
policies and procedures designed by someone else,
you can develop your own that reflect your
preferences and personality. And once you have
succeeded in achieving your goals, you will have the
satisfaction of having done it yourself, your way.
Getting Free and Low-Cost Information and Advice
Governments, businesses, and not-for-profit
organizations of all sizes and kinds have all recognized
the importance of small businesses. As a result, there
are plenty of free and low-cost resources to help
with business startup. These resources include
workshops, seminars, books, software, and Internet
sites. Government support is based on the economic
importance of small businesses, while business support
is marketing-driven. In supporting business startup
programs, other businesses hope to attract new
businesses as purchasers of their goods and services.
Much of this information and advice is really quite
helpful. Unfortunately, much of it is also very bad.
Before committing time, and perhaps money, to any
of these startup resources, tak