Keeping your records up-to-date, in a safe place and for the required legal period is tedious, but essential for your small business. Whether you store them in a shoebox in a manila envelope or use an advanced electronic storage retrieval system, you need a reliable way to keep your records. The size and complexity of your business will dictate what methods you use. The important thing is to have a system in place from the beginning and to use it routinely. Why the Need for Recordkeeping? The primary reasons a small business needs to keep accurate records are: Detail tracking means keeping an eye on your customers, inventory, and sales. Without this data to refer to, you’ll never know if you are profitable or making progress towards profitability. Keeping in touch with new and old customers, monitoring what types of goods they buy, and when, helps you plan your production schedule and marketing efforts. The more personal attention you can give a customer, the more favorably they will view you and your company. When you keep detailed records, you can reference them and keep an eye on preferences and buying habits. Planning is done by tracking where you’ve been, where you are and where you are going with your business. You do that by looking at the day-to-day activities and financial records of your company. It is harder to plan next year’s inventory if you do not have the data about what you ordered this year and last year, and how it sold. Documentation for legal compliance and tax preparation can have grave consequences for your firm if they are not complete. These issues are looked at in more detail below. Legal Compliance The primary records you need for legal compliance are contracts, leases, other legal agreements, licenses, and permits. Contracts come in a variety of forms: It is important to have them available so you can check the terms, conditions and obligations of both parties. You need to follow the terms of the contract in order to keep them legally in force. Always keep the original copy of all legally executed contracts for your legal safety. Government agencies at the local, state, federal and even internationally issue licenses and permits that may be instrumental for your business. Examples include a license to operate your business in a given municipality, a seller’s permit, home occupation permit or food preparation permit. States license certain professionals like doctors, accountants, and architects. You might be legally required to display these permits at your place of business. Contractors might be required to show proof of insurance. If you cannot produce the right licenses and other documents, you can be liable for fines or litigation. Payroll and Personnel There is a broad range of federal, state, and local laws that require any business with employees to produce current and old records for payroll and employment. You need to track many types of information, including: This is a lot of records to keep for the average small business. Hiring a payroll service simplifies the process, as does using accounting and financial software. You can also reduce your record keeping by using an employment agency or by working with independent contractors. Tax Requirements Tax requirements at the local, state, and federal level are complicated and ever-changing. A new business can be overwhelmed by the demands of tax collectors. You need to keep your new records organized, but you also need to hang on to old ones. New records are essential for filling out tax forms for the current quarter and year, but forms going several years back can also be demanded by officials when they audit. Getting the help of a professional accountant to keep your records up-to-date and organized is an investment in peace of mind. When tax collectors from any government level come calling, you will not have to put your business on hold while you try to figure out where everything is. Records should be kept only as long as the government demands and then shredded. For example, tax returns need to be kept on file permanently. However, employee withholding records should just be kept for seven years. Keeping records longer than is mandated for compliance can put you at risk of litigation. It also uses up space and takes time to keep in good condition and organized. So keep your records for the mandated period, and then get rid of them. Your records, whether employment, legal or financial, contain the day-to-day story of your business. You need them to make realistic, useful plans for the future. You must be able to produce them to stay in compliance with legal requirements. Setting up a system for organizing and storing them, then using the system consistently, are essential steps for the prosperity of your company.

Recordkeeping Basics

View Resource Recordkeeping Basics
Selling products or goods to customers is the reason many companies are in business. To be successful, that means you must have the products on hand for them to purchase. However, to be profitable, you will have to make efficiency with inventory control integral to the success of your business. The topic may seem unexciting when compared to sales, marketing, and product innovation. However, inventory management needs to be treated as a critical part of your everyday business endeavors, one that is at the frontline to customer satisfaction. To help you get a handle on this core part of your business, here is a look at the ins and out of managing your inventory. Types of Inventory Inventory is your product stock, the goods you sell, and any materials you need to run your business successfully. Depending on your type of business, there are different types of inventory. Raw materials Raw materials are typically commodities such as minerals, chemicals, steel, wood or basic food items that your business uses to create components or finished products. They may also be things you purchase from external suppliers that have already been assembled or manufactured, such as nuts and bolts, electronic components, and canned food. Raw materials can also include goods that are only partially finished, which you then take to completion. For example, if you sell vegetable juice, the raw materials include vegetables, flavorings like sugar or spices, preservatives, and the juice container you sell. The raw materials for a computer company would include circuit boards, diodes, chips, and the housing for these components. Work-in-Progress Materials What you have in the form of materials and parts that are waiting for you to transform them into something else are considered work-in-process materials. It also refers to partially assembled items that are in line to be made into a finished product. Goods that you have finished, but haven’t packaged yet are also work-in-progress materials. Using the earlier example, cucumbers and carrots are raw material inventory for the juice company. When they have been transported from the storage area and into the assembly line, they now become work-in-progress inventory. Finished products These are items that are ready to be shipped or sold to customers, which can include retailers or wholesalers. These can be stored on the shop floor or in a special storage area. Other Types of Inventory Your company needs a range of goods on hand to stay in business, including items for maintenance and repair, as well as those needed to stay in operation. These types of inventory are given names that designate their purpose. Inventory Costs It costs money for you to purchase inventory, process it, store it, and sell it. In order to make a profit, you must include these costs with other operational costs, balancing all of them against the price you charge for the product. Inventory costs can be broken down into different types as well: Best Practices for Managing Inventory The better you closely manage your inventory, the more efficient and profitable your company can become. Here is a look at three strategies that will help you stay on top of your inventory. Don’t keep too much in stock. If you have too much inventory on hand, you’ll have lots of cash tied up in its purchase. Additionally, you will have added costs for storage. Idle inventory can also become obsolete or get damaged. The way to avoid these situations is by keeping on top of your sales projections through proper forecasting. Track your inventory accurately. Maintain good records as inventory moves through your business. Make sure to take into consideration unusable inventory due to damage or poor quality. Monitor pilferage and other forms of shrinkage. You need accurate records of what you have on hand in order to control costs, maintain customer satisfaction and reach sales goals. Use reliable software to track inventory. An Excel spreadsheet might work if you are just starting out, but it is easy to mistakenly delete a file. It is more reliable to use Quickbooks, Peachtree or one of the other inventory management programs available. They make it easy to track what you have on hand, both at an item level, as well as its associated dollar value. If you want to keep your customers happy, you need to have inventory available to meet their needs. Holding excess amounts of inventory, however, can be costly and put a strain on your company’s finances. Regular inventory monitoring, strong forecasting, and detailed cost tracking will help you manage inventory levels properly. How you manage your inventory can make all the difference in the world in terms of profit margins and the competitiveness of your business. It is worth your full attention.

Managing Your Inventory

View Resource Managing Your Inventory
You need your suppliers. They need you as well. It is a win-win relationship between you and your vendors. However, it takes effort; it does not just happen. Managing your vendor relationships is essential to ensure a steady supply of materials or services that you can use for your products or to enhance your services. This means selecting suppliers with care and building a connection based on mutual trust. When you have a good working relationship with your vendors, you can navigate downturns in the marketplace and respond quickly to a big upsurge in orders. Here are several ways to ensure a mutually beneficial outcome with your suppliers. Evaluation and Selection Select your vendors with care. Don’t rush in and simply choose the least expensive price for the goods you need. Like every decision that has long-term outcomes, base it on thorough research. Follow this process when looking for a supplier: The slow, steady process of researching and negotiating lets you know what you will be paying for, when you receive goods after ordering, and if there are extra fees or expenses involved in the transaction. The last thing you want is to succumb to a fast-talking salesperson with questionable reliability. Managing Vendors Just like any major component in your business, vendor relationships need proper management. It is not usually wise to sign up with a supplier, then put the entire process on autopilot. It is always best if each vendor works with one person in your organization. They should check in frequently with their contact with phone calls and emails, and visit their office periodically. This makes the connection stronger and more personal, enhancing loyalty and awareness. It makes the vendor feel a part of your team. Make sure the person managing each vendor responds to questions and concerns quickly. Without up-to-date information, the supplier can end up providing too little or too much of a material or miss deadlines. You need to show that you respect their time and the resources they have available. You are just one of their customers, not the only one. Your aim is to encourage a strong connection. The only way to do that is with frequent contact. Always pay on time. If something happens where you cannot, get in touch with the vendor immediately. Explain what is going on, set up a payment schedule and stick to it. Nothing will get you on the bad side of a vendor faster than a spotty payment record. Even after you know a vendor well, get everything in writing. Never depend on verbal agreements or someone’s memory. Ask your supplier for progress reports so you can spot potential problems early. Getting the Most Out of Vendor Relationships As in any relationship, you teach your vendor how to treat you. Let him know directly and often exactly what your needs are. Make it clear that you expect good service. Expect loyalty from your vendor and be loyal to them. If they are going through a bad patch, try to help and don’t drop them if they have been a reliable resource for you in the past. Give them referrals. Send them more work when you have it. Don’t make outrageous demands and expect immediate compliance. Feel comfortable asking for discounts if you have been a good customer. How much you get will depend on how much business you send their way, what the terms are and how long you have been working with them. This is also where a good relationship shows its worth. Bring problems with service to the attention of your supplier quickly. Make sure you get the matter resolved, even if you have to keep working your way up the chain of command. Remember, take your time finding the right vendors. Then make the effort to get to know them, their capabilities, and their needs. Develop a good working relationship and keep communication consistent and constant. With reliable vendors as part of your team, your business can grow.

Managing Vendor Relationships

View Resource Managing Vendor Relationships
Time is money, so managing this valuable resource is good for your bottom line. Time is a finite resource, so you need to guard it well from people and events that waste it. Small business owners can be constantly confronted with small emergencies and social interruptions that can eat up their day. Meanwhile, more important goals and tasks get placed on the back burner. The latest app or a new gadget can help, but only if you first decide on your purpose and what is worth focusing on at work. Tips to Manage Time for Small Business Owners Be clear about goals. The best first step is to know what your goals are. Be clear about where you want your business to be in 10 years, five years, next year, next month, and tomorrow. This will help you clear through the clutter of unnecessary demands on your time. Decide what is important in helping you reach your goals, and concentrate on making progress toward them. Try to delegate, though this can be hard for a small business owner. Once you become clear on where your focus should be, you will find it easier to avoid time wasters. Be in charge of your time. Don’t put yourself at the mercy of others who will take minutes and hours out of your day. As a business owner, you, and no one else are responsible for how you spend your time. That means you must develop the skill to say no. Be polite and be firm. Move to productive tasks if you see that what you are doing is not serving your goals. Plan your time. Write out a schedule at the beginning of the day. Include what you must accomplish — the urgent, and what will bring you closer to your short-term and long-term goals — the important. Your schedule does not have to be minute-by-minute. It can be a simple to-do list with space for appointments and for tasks that support your goals. Without a schedule, you will find yourself unnecessarily jumping from one fire to another. With a plan to refer to, you can spend quality time in a focused manner on each task. Moreover, the important doesn’t always get crowded out by the urgent. How do you decide what is important? Use the 80/20 rule that says 80% of your results come from 20% of your efforts. It is the same concept that says that 80% of your money comes from 20% of your clients. So focus your attention on what produces money and results. Applied consistently, you will eliminate unproductive clients or tasks and increase results in the areas where you can gain the most. Delegate. Many small business owners started off wearing all hats. As they expanded, a staff was hired. However, it can be hard to transition from being the one doing the job to the one overseeing it done by others. The results are micromanaging and putting far too much time into tasks that others are being paid to do. When you trust your employees, jobs get done routinely without your input or interference. Unless there is a major problem, let your employees get on with their jobs. Don’t waste your time getting involved in problems at the staff level that don’t require your input. Avoid distractions. Facebook can be a time waster for a business owner just like it can be for an employee. Set aside 15 to 30 minutes every day for social media. Likewise for email: schedule time once or twice a day for answering it. Focus your time and attention on the things that matter for your small business. Take a proactive stance when it comes to your time, and you will be far more productive.

Time Management

View Resource Time Management
Owning your business means the freedom to set your hours, make your rules, and live your dream. It also means the chaos of setting up a company, meeting deadlines, dealing with employees and customers, and the chance to work 10 to 15 hours a day at times. The rewards may be two-sided, but the right to call be called the boss is payoff enough for many entrepreneurs. The job description for “Boss” is one that develops on the fly, and you often learn by doing. Here are some tips to make the transition a little easier. Have Money to Fall Back On Breaking even in your new business takes about one-and-a-half to three years, according to small business expert Melinda Emerson in her book “Become Your Own Boss in 12 Months”. It will cost more than you think and take more time that you planned. You’ll need enough money to cover living expenses and for startup costs. The simplest way to handle this is by starting the business while you still have a job and a paycheck. It is hard to get investors interested until you have customers and products. Cut expenses to the bone. Do whatever you need to do to make sure you have the cash for the first few months. Choose a Field You Love Starting and growing a business may be your dream, but it can easily turn into a nightmare because of the challenges finding startup money, dealing with customers, and weathering market conditions. If you love the field you are in, that can help sustain you over the bumps. Take Advice from Experts When you start a business, everyone has an opinion. One person might question why you’d leave a good job in the first place for an idea that may never work. Another person might suggest that you switch from selling apples to ice cream because the market is better. Rely on experts primarily, rather than relatives and friends for advice. Get guidance from mentors at SCORE, the Senior Corps of Retired Executives and the Small Business Administration. Ask others in the same line of work. Take classes and research trade publications. Base your decisions on respected, educated, experienced opinions. Develop a Business Plan Research and make a plan. Even if you do not stick totally to it, it will start you on the path with confidence and clarity. It does not have to be pages long, but it should at a minimum answer these questions: Get Support This is the time to tap into your network. They know people who know people, and on down the line. Find people who are positive and upbeat when you need an injection of reassurance and encouragement. Be clear about what you need, ask friends to put the word out, whether it is a contact, the best place to buy supplies for cheap or an office to rent. Offer the same back to your network, and keep growing it. Starting a business is a grand adventure in life. Be prepared for surprises, be careful with your money, connect with people, educate yourself. Enjoy it.

Becoming the Boss

View Resource Becoming the Boss
Technology is fascinating, changing daily, and confusing all at the same time. It can help keep you organized, handle tedious chores automatically, and connect you globally. It can also cost you lots of unnecessary dollars if you are not careful. Here are tips based on the experience of other small business owners who have previously navigated a technology minefield filled with the latest and greatest. Establish a Budget The first step in deciding which types of technology to invest in is putting together a budget. The newest gadgets and software run the gamut in price from a 99 cent app to a high-end scanner that costs thousands. Set up a budget and stick to it. Base it on how much you can reasonably afford to invest. Having a fixed amount to work with will reduce the temptation of the newest add-on or gizmo. Be Aware of the Full Cost. New technology is the sum of the sticker price plus the cost of implementing it. Consider these points: Fit the Technology to Your Needs Make sure the electronics you are thinking of investing in match your business lifestyle. If you constantly travel from customer to customer, bulky electronics are a bad investment. Think laptop or tablet, instead of a desktop. Do you really need to upgrade your server? Instead of buying the software yourself, would a Software-As-A-Service, or SaaS offering be more cost effective? Can you rely on the cloud? Look for Compatibility and Security Make sure that new devices you purchase will work with your existing equipment. A great piece of Mac software will not do you any good in a Windows environment unless you buy additional software. Is it secure? This is a very real hazard for a small business. Make sure that what you buy can be protected with the proper levels of security. Taking shortcuts with the cost of security could come back and severely damage your business. What Small Businesses Use A 2013 survey by the Small Business Owners Association listed these four items as essentials: Though the landline is something of a surprise, these rates show how important technology is for your small company. Start with the basics when you first invest in electronics and slowly add what you need. Cloud Computing In the survey mentioned, 43% of the owners polled had switched to cloud computing. In the last five years, cloud-based services have grown exponentially. This offers small businesses a number of benefits: Using cloud-based services offers simplicity and peace of mind, since you do not have to worry about storage and updates. You do not have to pay for software, but instead subscribe to it using a SaaS model. Today, the right technology can help streamline your business and make life easier — if you buy the right type. Do your research when you look at what’s new and exciting on the market. Ask questions before you buy and stick to your budget.

Selecting the Right Technology and Tools

View Resource Selecting the Right Technology and Tools
The decision to create a business plan is an important one, whether you are starting a new business or growing an established one. A solid business plan is fundamental to long-term business success. It serves two main purposes: While the phrase “creating a business plan” may conjure up feelings of trepidation and dread, it will not be as difficult if you break your business plan down into its more essential parts. Why Do You Need a Business Plan? Benjamin Franklin said it best: “If you fail to plan, you are planning to fail.” While a business plan will not guarantee success, failing to have one almost guarantees that you will not find the success you seek. Remember the roadmap analogy? It is an accurate one to consider. The first thing you need to do before creating the roadmap, though, is to figure out where you are heading. In order to do that, you should ask yourself four simple questions.
  1. How do you want your business to look in one year?

  2. How would you like it to look in three years?

  3. Where do you want to see your business going in five years?

  4. What would you like to have accomplished by your tenth year in business?
Seek the answers to those questions, keeping in mind profits, revenues, expansion, growth and other critical drivers and metrics for your business. What Does a Business Plan Include? In order to build the roadmap to reach your intended business destinations in a timely manner, you must include key pieces of information and analysis in your plan. The many moving parts of running your business become the fundamental building blocks of your long-term business plan. Consider each of them a pit stop along the road to business success. Business Concept Your business concept is a summation of your company in a few concise and simple sentences. It should clearly communicate the idea, design or value proposition behind your business so that a customer, investor or potential partner can quickly grasp what you will do and the value it will provide. Keep the concept statement to one paragraph. Business Strategy Your business strategy provides the detail on how you will execute the business concept. It describes your industry, explains your product or service, and the critical factors that will drive your business success. Those factors might include such things as your management team, operational plans or cost advantages. In essence, it is an executive summary that explains why your business is uniquely suited to succeed. Specific things you should consider while creating the strategy section of your plan include: Market Analysis In the market analysis section of your plan, you need to explore the ins and outs of your potential customers or markets. Most importantly, though, is to answer this one question: “How are you profitably going to meet the needs of your target customer?” Competitive Analysis In order to be complete, your marketplace analysis must pay attention to your competitors. This is necessary whether you are an established business looking to expand or a new business interested in taking business away from other established businesses in the area. Questions to ask yourself here, include: Financial Analysis This section of your business plan will look at the financial aspects of your business. As a new business you will need to include: Don’t forget to include plans for assets the business needs to acquire and the costs of the marketing plan the business intends to follow coming out of the gate. Existing businesses need to include cash flow statements, balance sheets, and pro-forma income statements, for example. Keep in mind, you should provide information that will assist potential lenders (banks and credit unions) and investors in approving loans or green-lighting investments in your business. Maintaining Your Business Plan You should not just write a business plan and place it in a drawer. To get the most benefit from it, it should be a dynamic evolving plan. You must adjust your plan as necessary with changing markets, new product concepts, evolving technology, need for additional financing, and goal achievements, just to name a few. An old business plan may not reflect reality any longer, so be sure to revisit your business plan periodically. Having a update checklist helps you to do just that. In the beginning, making a business plan may seem like a onerous task. It can be simpler if you break it down into its individual components. Once you have a plan in place, you will begin to see the effectiveness of how such a simple business tool can take the guesswork out of starting a business or growing one.

Creating a Business Plan

View Resource Creating a Business Plan
You’ve come up with a plausible idea for a business. That is great! An idea gets you to the starting gate. However, you get into the race with money. Startup financing is the means to turn that idea into a real business. Thankfully, today there are more sources of startup funding than ever before. While there are traditional financing sources from banks, credit unions, and investors, there are also new twists on startup funding with innovative crowdfunding and angel investors. Here is a look at traditional and creative methods of funding your startup. Major Sources of Startup Funding Overall, most funding for startups falls into one of the four following categories.
  1. Revenue. This is probably the most common method. You sell your product or service, receive money for it, and plow it back into the business to fund growth. It is also called bootstrapping, self-funding, and internal financing.

  2. Equity. This is selling shares in your new venture in exchange for money, services of value to the new business, or work for the venture, called sweat equity.

  3. Debt. Loans fund many startups. They can come from banks, credit unions, friends, family, and private investors.

  4. Grants. This is money that is given to help a business get going, but requires no equity or repayment of the money. Not-for-profit companies receive most grant money, but for-profit entities are often eligible as well.
Specific Types of Funding Here is a quick overview of the most common types of funding methods for startup companies. Crowdfunding. Kickstarter and Indiegogo, among others, have provided robust, innovative ways for startups to raise money. The entrepreneur takes his case directly to the public in a crowdfunding campaign. Angel Investing. Individuals with money and interest in investing in trendy ventures with strong growth potential are called angel investors. The best kind are accredited investors, with a net worth of at least $1 million or an income of $200,000 or more for each of the last two years. They often seek investments as a group. Venture Capital Investing. The entire purpose of venture capital firms is to find promising businesses in their early stages of development who are looking for funding. The money often comes with a formal agreement that covers the timeframe for the firm to begin seeing a return on their investment. Bootstrapping. Some aspiring entrepreneurs also obtain startup funding by self-funding: selling assets, withdrawing savings, borrowing against their home, maxing out credit cards, or tapping into their 401(k) savings. Friends and Family. Loans can often come from the people who know you best and are rooting for you to succeed. Bartering. Exchanging your products or services to other companies to get what you need to grow, whether office supplies, computer repair or expertise. Small Business Grants. These can come from the local, state or federal government as part of an effort to stimulate the economy. Some nonprofits also offer them. Small Business Administration (SBA). The SBA extends small loans and expertise to new businesses. Lines of Credit. Banks and credit unions offer commercial lines of credit that are well-suited for startups. With a line of credit, you only pay interest on the funds you use rather than the entire approved loan amount. Incubators. These can be universities, nonprofits, and companies specializing in this type of work. They provide labs, consulting, office space, marketing advice and sometimes money. Often they require equity in your startup in exchange. Partnership. This involves finding someone who has substantial skills, friends, or money to contribute to your business in exchange for a percentage of it. Major Customer. If your product or service is valuable to a single major customer, it might be willing to give you money for development and startup expenses. In exchange, it will have input and varying amounts of control over your production process. Most new businesses use a mix of sources for startup financing. With the many options available and a commitment to your new business, you have an excellent opportunity to turn your idea into a thriving company.

Sources of Start-Up Funding

View Resource Sources of Start-Up Funding
Your business name is usually a customer’s first introduction to you. Make a positive impression by picking a name that attracts attention and trust. It can be a hair-pulling process finding a name that resonates with your intended audience. Here are some tips for choosing a name that does, and once you find it, making it legally yours. Factors To Consider In naming your business, the goal is to find a name that arouses genuinely positive feelings when customers encounter it for the first time. It should be web-friendly and attention-getting too. Be aware of what connotations a potential name evokes. If you have a beach shop selling sports gear, for example, a corporate sounding name is probably not a good match for your company. Choose a name that will look good within a logo, on business cards, stationery and your website header. Image is important for a company, and that starts with the name. Pick a name that expresses the essence of your business, what it does, what it produces, what its purpose is. Express the emotional meaning of the company as well as give people practical information. Try to make the name short. It is easier to remember and fits more artistically on business cards and headers. If you do pick a longer name, be sure to check how it will look when abbreviated. You do not want any acronyms with unforeseen meaning! Should you use your name? This is typical for many new entrepreneurs, but it has limitations if you intend to expand. Down the road, it might make it more challenging in building a brand. If you are having problems coming up with the perfect name, the free website BustAName.com is one option that can help you come up with possibilities. Name Availability Ideally, your name should also be unique to your business. Check to see if a claim for the name exists within your state. However, even if another firm has that name, it is possible you can still use it if you offer an entirely different set of goods or services, and your location is not in the same area. Check with your state’s business filing agency to check if the name is available. Many states let you do this online. Go to the U.S. Patent and Trademark Office online and use the search tool to find out if the name you want, plus variations of it, are already trademarked. You need a name that is free and clear. Of course, a web presence is essential. One of the best things you can do for your company’s future is to find a name that is available as a high-level domain, especially a .com. It is worth reworking the name to find one that is free. You can check the WHOIS database online to find out if the registration status of the name you want. Registering Your New Name To legally claim the name you choose, you need to register it as a “Doing Business As,” or DBA, with your state filing office. This is different from incorporating a business and trademark protection. This only lets the state legal entities know that you are in business and using a name separate from your personal name. Be sure to apply for trademark, protecting the words, symbols, names, and logos that are distinct to your business. One of your company’s biggest assets is your name, so you want to keep it safe. Over the long-term, getting trademark protection is inexpensive at under $300. Lastly, register your domain as soon as you decide. Claim your corresponding social media identity at the same time. At the very least, this should include Facebook and Twitter, but don’t forget about Pinterest, Instagram, YouTube, and Google+ for businesses too.

Naming Your Business

View Resource Naming Your Business
If you are putting together a business plan before approaching lenders, you’ll want to be specific in your calculations about your market share. Figuring it out takes time and research, but is well worth the investment. It helps not just for financing, but also when you make product development, marketing, and manufacturing decisions. Understanding Market Potential The potential of the market rests with what is needed to solve a problem. Listening to music is an excellent example to illustrate how to understand a market’s potential. In this instance, the problem is: how can a music lover listen to their favorite music affordably and conveniently? Through the years, methods have included using Victrola records, long-playing records, singles, cassettes, CDs, MP3s, and products like iPods and Beats headphones. With time, a new technology will become the norm. The “market” isn’t necessarily the product: namely, an iPod or Beats headphones. The market is the music lover. The opportunity depends on how many there are, and how much of the market you can realistically expect to capture. This recurs over and over in every type of market: personal, home, office, agricultural, and industrial. You will not go down the wrong path if you keep your eye on the problem and its solution. You can miscalculate the size of the market if you focus on one type of product and the numbers sold. Do that, and you will miss the wave when new technology comes along, as it always does. Remember, you are sizing the market, not what the product you are selling. Identifying Your Niche and Segment Once you have identified the problem and corresponding solution, you can move on to the next step: defining the market niche you want to serve by identifying your target customer and market segment. For instance, if your overall market is providing customers with pool cleaning supplies and equipment, you can break that down by eliminating people that wouldn’t be interested in your product. That might include homeowners who are too busy, like families where both parents work. Another group to eliminate might be high wealth households that might hire a pool cleaning service to handle the task. Keep trimming. Eventually, you might end up with quite a small market. Many successful businesses appeal to only a small fraction of the market. Estimating Your Market Share Now that you have determined the problem, the solution, and your niche, you can use traditional methods to compute the size of a market. There are multiple approaches to zero in on a good market share estimate, including governmental databases, surveys, industry studies, and competitors. For starters, find out the number of people or businesses that need your product or service. Resources to help you estimate this include the Small Business Administration, industry associations, and statistics kept by the federal government. Pinpoint companies that sell the type of product you want to market. Then start asking questions to see how close they are to the kind of business you wish to become. This will give you a list of companies that you can reasonably assume are your competitors. Next, find out their annual sales. Figure out a realistic estimate of how much of your competitors’ market you can attract. This is a very rough guess as to your market share. Check your estimates by conducting surveys of individuals who buy these products. You can do this yourself by setting up a short, free survey online or by hiring a company that specializes in them. Keep in mind that interest in a product and service is not necessarily action in buying the product or using the service. Sizing the market is an important task for market planning and budgeting for all startups, and all along the way throughout a product’s lifecycle. Markets change however, sometimes quite rapidly, so market size estimates should be considered fluid numbers.

Sizing the Market

View Resource Sizing the Market