Friday, December 21, 2007

Doing Business (3.) Mind Your Money

Keep records So, it all comes down to the money. Do you have enough to start a business? Keep a business running? Service a business? There is a certain amount of start-up cash you will need, but you can control the flow of money of an internet business more easily than a bricks-and-mortar business. Using handdyed yarns as our example, let's say you have enough to pay for one year of internet host, programming services of a web designer to get you looking good, basic shipping supplies and enough raw material to dye up for the coming month. Sales will start out slowly, that is probably going to be the case. Maybe you're thinking that this would be a great time to dye up enough for three month's inventory. Resist the urge to borrow money, put materials on a credit card, or go into debt to finance growth at this unproven stage of your business. Once sales pick up, use a portion of the income to fund the purchase of raw materials for future orders. Do not fund your working capital through debt. Do not do it.
Set your company books up even before you make your first sale, using a computerized bookkeeping program. I use QuickBooks Pro and love it, but be sure to realize that just because you can put checks into a computer program, you are not an accountant. Sometimes the financial programs make us think we know more about accounting than we actually do. These programs will print out your business reports in a flash, and I strongly suggest that you invest in a program and learn how to use it because you want to keep an eye on the bottom line at all stages of your business growth.
The 'bottom line' is just that... the bottom line on a financial report. The most basic profit and loss report will group all income and expenses together in these general groups. The bottom line on a financial report is 'net profit,' and I like to think of it as the net or filter that holds any money after all the expenses and cost of the materials is taken out. The bottom line is your true profit.
  • Sales
  • -Cost of Goods
  • =Gross Profit
  • Gross Profit
  • -Expenses
  • = Net Profit

Control Expenses You will make the most profit if you control the primary expenses, and the main one will probably be the cost of materials. Buy as close to the source as possible; that is, don't buy at retail price. Establish wholesale prices with the suppliers you want to work with. Here is where having a Federal Tax ID number will serve you well and present your business as a viable business. If you have a resale account with your state, you probably will not pay taxes from in-state suppliers, or even with office supply stores or suppliers of other materials. So, shop for your pricing, compare the different suppliers' pricing and products, and establish wholesale accounts right away.

Assuming that your business will require you to ship packages out, here's a good tip which will save you lots of money and time. Set up an online account with the US Postal System. They provide free shipping boxes and have a carrier pick-up service, both will yield savings of money and time. I used to buy recycled brown boxes from a good supplier but the price of shipping was almost equal to the price of the boxes. It was killing me! Once I switched over the USPS's boxes, my shipping expenses were cut. Their largest box is 12x12x8, so this will not accomodate larger orders, but it is still a great way to save on shipping supplies. For packing paper, find a major printer and ask for their leftovers from long runs. In my town, there is a printing press which prints one of the country's major magazines, and I get ends of rolls of glossy magazine paper. Beautiful, creamy stuff, and I love touching it almost as much as I love touching the wool and spinning fibers I sell.

To set us a USPostal Service account, go to Order the free shipping supplies, and start to schedule carrier pick-up. I schedule one month in advance, and keep a reminder on the door, just in case there is a new postman. Sometimes my name is not on their pick-up list, so I just keep that sign on the door that says "USPS Pick-Up Today. Thank you!"

For office supplies you need, use your tax resale account number to establish a tax-free account. I use Staples' online store, and one of the things I love about Staples is that they do not charge a delivery fee. Yes, free shipping on my large boxes now. I saved a ton of money just in that change of supplier.

Ask for discount or wholesale pricing Now, please use your manners when you approach new suppliers. Ask if they have a wholesale price structure and request a copy of their policies and prices. Remember, they don't have to give you an account. How we write often is not a reflection of our personalities, but our writing style, spelling and punctuation habits, use of smiley-faces, etc. definitely paint a picture of who we are and how we approach business. Present yourself as a competent person who will be a good business partner for your supplier.

Control impulse spending Just because you have a business, and if you're smart, you are not paying state taxes, this doesn't give license to buy anything you want. Don't fall into the trap of using company money to buy personal stash. Don't do it!

Whatever you do, keep your checkbook up to date, pay your bills on time, do not go into debt to fund start-up purchases, research the best sources for your supplies and materials, and be a good customer to your suppliers. Good manners and good business go hand in hand.

Thursday, December 20, 2007

Doing Business (2.) Lay the Groundwork

Planning and preparation -- you just can't get enough of either, as you start your new venture. Here are some basics every new business owner should take care of before launching the business.
Legal Structure You may need to do some research on this important basic, or talk to an accountant, lawyer, or small business counselor. Do not start a business without imagining the possibility of future growth and how that will impact your taxes, buying power, credit, business credibility. My advice is to organize your business as a separate entity from your personal and family finances. Keep it separate and keep tabs on sales, expenses, profit. A sole proprietorship is the simplest form of doing business, where there is no difference between the individual and the business. Your sales are counted as income, business expenses are written off on your taxes (with good documentation), and the profit or loss is considered in your personal income tax return.
Better to create the business as a separate entity, with it's own tax identification number. Consider the options carefully. Fifteen years ago, when I directed a Small Business Development Center and counselled start-ups, we used to recommend the simple form of a corporation: Sub-Chapter S Corp. That creates a separate entity, gives basic protection to the owner from lawsuits and liabilities created by the business failure or catastophe. That is the way my own business is organized, but more recently the LLC has become more popular. This, too, gives the owner some distance from any liabilities. Both are managed through separate bookkeeping, and the profit or loss is passed on to the owner at the end of the year. They are actually much simpler than the sole proprietorship's efforts to keep money allotted for business or family. I can't make a recommendation for you, though. This is an important step in establishing your business, and you need to get professional advice you trust.

Name of Business is important. Remember that this is how your efforts will be recognized and recalled in the future. I see so many people naming their business with little foresight. The name you choose will identify you to your customers, and more importantly, to potential customers. Choose a name which allows growth in the products you may sell in the future, and in possible future growth. Don't limit yourself to a product or align yourself too closely with a demographic. For instance, I see so many of my customers naming their businesses after their children. I'll use my dog's name as an example, so that would make me 'Teddy's Mom' or 'Mom to Teddy' or 'Teddy Bottoms' or 'Teddy Feet.' See how young those names look? how limited? They immediately announce that I am young, a mother first, a business woman last, and that I have a fixation on my kid's diapers or feet. Maybe what I wanted to say was that I sell handdyed yarn which could be used for diaper covers and socks. In ten years -- hopefully!-- I would look back and cringe at such cute names.

Tax Registration Once you've decided on the legal structure for your business and a good name which will allow your business to grow in the future and still have a good name, it is time to register your business with the government. Don't ignore this step! It will save you problems in the future. First, get a federal tax identification number. Go to and register online for a tax id using the name you have chosen and stating which legal structure you have chosen for your business. This step is important. Don't think immediately that if you have a tax id number then you will have to pay lots of taxes. Learn a little more. Expand your thinking. Having a business tax ID will immediately give your business credibility as you apply for credit with your suppliers, create a line of credit as your inventory demands, and keep your business and personal finances separate.

Also investigate your state's sales tax requirements. Internet business sales are taxed differently in each state. Here in Virginia, I pay sales tax only on Virginia sales, so I collect the sales tax from my customer and then pay it to the state. No expense to me, just passing on a tax.

Bank Account / Credit Card Once you get your Federal Tax ID number online, then open a new bank account in the name of the business. When you go to the bank, take a copy of the FID# with you for your banker. Get a credit card with low interest, too. This will probably not be one which pays you back in airline miles or credits for gifts. Remember, you are looking for the most efficient way to handle your business finances, so shop for a low interest credit card. NOT a debit card. Debit cards open your bank account to the possibility of fraud because they are a direct link into your account. Guard your credit information carefully. Create files for your bank account and credit card, and pay credit card charges each month to avoid paying interest. Keep a separate accounting of your business expenses and do not use company money for personal spending. I recommend getting a good computer bookkeeping program, and personally use QuickBooks Pro. Go to a big office supply store and spend some time reading the packages of these programs, and buy one and keep it up. Balance your checkbook every month, and go online and double check your business account to be sure that there are no fraudulent withdrawals against it, and no unnecessary bank service charges.
When my business went into a growth phase, I let slide the keeping tabs on my account except for end of the month reconciling. One month, when balancing the account, I saw a one dollar withdrawal for a middle east relief fund, $40 to a bank in Paris, $1,000 to an online word search, and $4,000 to an online financial investment company. None were authorized. All were fraudulent. It took a good six weeks for the money to be returned to my account, including filling out multiple forms for the bank on each fraudulent incident. A real headache. The one thing they all had in common was the use of my debit card number. That was an expensive lesson. Please learn from my mistake and get a credit card for your business account, not a debit card.

Internet Platform How you present yourself online is tied up with how much effort you are planning to put into your business at the beginning. Many of my customers hold down fulltime jobs and run their online businesses parttime. They dye yarns over weekends, skein and ship them in the evenings. There are business models which tell us what the profit points are when we should make a move towards more independence. You may want to start out with a 'cart' or 'store' on a host seller like eBay, HyenaCart, and Etsy. (I have links to HyenaCart and Etsy instructions for getting set up on my website LINKS page.) These are good ways to get started. They do the website work for you, and all you do is sign up, upload your pictures and descriptions, and start selling, basically. These are the easiest and most efficient forms of eCommerce.
A step up is a website of your own. In recent years, host companies have learned that they can make money and create loyal customers -- something we all strive to do in our business life -- by offering packages to the startup business. You can sign up with a host and create a simple website with them. Some even offer to program the site for you. Others have simple fill-in-the-blank types of programs. A couple of these host servers are and, and there are lots of others. They also have payment mechanisms to choose from.
PayPal is probably the most popular payment mechanism out there. It is actually very safe because once a person joins, they never enter their credit information again, just their password, and then have access to funds in their account or to use of a credit card attached to their account. Of course, nothing is perfect. I know. I used PayPal for the first few years of my business, and am now changing over to a more complex site and a true eCommerce site where I can accept any credit card I choose, with daily deposits into the business checking account. I have chosen to keep PayPal as an option, but not as the only form of customer payment. Let's face it: not everyone likes PayPal, so I want to create options. Of course, this is a more expensive option for me as a business owner, but the time and volume of sales warranted the move to a fully automated eCommerce site. Actually, I am a little behind the curve on this one and should have been at this point 18 months ago. My slow decisions were the result of not knowing enough about the possible programs, costs of changing the website over to a new one, benefits of eCommerce, and at what point I should have moved up to maximize profits. I learned a lot during the past 18 months.

Remember: plan, plan, plan. When we are in control of the facts, we have a more intelligent basis from which to act. Think of yourself as a business person and make business-like decisions. Look at the big guys. See how they have created a 'brand' for themselves and customer loyalty? It is all about planning, and these beginning steps are the basis of a well-run business.

Sunday, December 16, 2007

Doing Business (1.) Make Plans

This post, and some which will follow as a sort of series, is aimed at the start-up internet business owner. While it uses yarn as the product, the ideas apply to any new business venture.

The very best businesses happen because of good planning, not because of luck. Most people are not skilled at all aspects of running a successful business, but I contend that anyone can learn and acquire the basic skills of running a business, watching the competition, understanding the effect of the economy on your field. It takes good planning, a strong work ethic, a realistic approach to life, and the ability to learn from mistakes and the strength not to repeat the same mistakes. To start and run a successful internet business the owner needs to consider some basics: time, finances, future.

Time is limited because of whatever reason applies to you. Do you have a fulltime job? Are you starting a parttime venture? Are you a work-at-home-parent with sporatic blocks of time available for a business? Do you have demands on your time which involve family committments? Have you lost your job? Do you have time to make the product you want to sell and to run the business, too? Do you have time to invest in learning about the how a good business in run?

Finances are just as important as a person's will to start a new business. The best plan will fail if you cannot afford to put it into action. Start-up capital will be needed for every business. It is true that the actual costs of getting a website up and running (if you choose the route of establishing an individual website for your business) can be controlled through the use of good resources, and going only as far as your money will allow you to go. Best course: write down all costs associated with three phases of your business: Start-up costs, initial inventory and launch, how to manage costs of holding adequate inventory for at least the first two years of business.

Future: I often think of a terrific TV ad which featured a happy group of entrepreneurs who were launching their first internet business. They gathered around the screen to watch the hits, and then the orders as a ticker slowly turned over. As the order ticker started to spin faster and faster, their reactions went from joy and pride to wonder to dismay! That ad says it all. How will you finance the demand of product if your venture takes off? How will you keep family finances secure and still grow you business? Basically, a good rule of thumb given by the SBA is not to put your home in financial jeopardy or use up the equity to finance a new busness. Savings and personal credit are probably the two best financial resources for the startup business. Banks are not in the business of financing startups, and there are no grants for the first time, start up. At the beginning is the time to examine all aspects of committing to this big step. Imagine how your life will change if and when the business takes off. Will you run it out of your home? Rent a warehouse? Move? Hire family members, or outsiders? Are you willing to give up control of the business to employees? Will you expand or contract business activities to maintain a desired lifestyle? Will you be willing to quit your job?

Write down every idea about time, finances, and future growth which occurs to you. Keep notes and as they grow, divide them into folders (physical or on a word processing program). Whatever you do, keep notes of this planning stage. Some ideas will be the basis of a brilliant marketing strategy down the road. Some will be unrealistic but you will learn if you can spot the reason why some ideas just won't work and others attack your needs. It will help you as you begin to develop a budget and make plans to launch your new venture.

I firmly believe that entrepreneurs can improve the quality of their lives by putting their dreams to work. In fact, I often say that the purpose of my businesses, over the years, has been to improve the quality of my life.

Tuesday, December 11, 2007

December Shipments are Slow

We are hearing from customers that orders are not arriving in the usual three to four days lately. Since the beginning of December we have had many queries about whether or not an order had been shipped. We do use Priority Mail, which is supposed to arrive within four days; however, it is slow at this time of year.

Thursday, December 06, 2007

Are you in business, or playing at it?

I remember, from years ago, reading some good business advice which said if you are starting your own business, try to look like the big guys. If you think about it, this is excellent advice! The major yarn companies build brand awareness through the naming of their company, repetition of their logo, naming of their website, Internet moniker, yarns, etc. Everything ties together so that when the customer thinks of the company, one or all of these interlinked ideas or images comes to mind, making their yarn easy to find and to buy.

In my own business I try to follow this advice, and I wish that more of my customers would follow it, too. In previous posts, I have tried to gently suggest that customers simplify the number of different names they go by. For instance, when we set up an eMail account, we choose the name that will be seen by the recipient of our eMails. Signatures are another opportunity to reinforce your name/company/yarn names in the customer's mind. These two pieces of information should form a cohesive idea in your customer's mind, not confuse her/him.

Many of my customers maintain a separate eMail address for their PayPal account. Here is another opportunity to put all of this info into one neat package. BUT what I usually see is a separate name for PayPal email, personal email, signature, and even company name. Four different names for one person or customer. If I have to search through the history of eMails to find out who is writing, time is lost and the experience is frustrating. I always feel like the customer with so many cutsey names/eMail addresses/automatic signatures is just playing at having a business; they are not a serious contender. I am sure it will come as a surprise to some, but everyone does not think a business name/eMail/Internet moniker/alternate eMail address is as clever or as imaginative as you may have intended.

So! Advice to work-at-home-moms who are trying to sell handdyed yarns on the Internet: make all your names and addresses have a logical connection. If you stop and think about how the major companies handle these sorts of business issues -- the very basics of how their customers will communicate with them -- then you'll see excellent examples of business communication in action. Do business; don't play at it. You'll actually sell more when you begin to think of your internet sales as a viable business and give it the respectful consideration it deserves. Good luck!