THE KISS PRINCIPLE IN MICROBUSINESS

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CHAPTER 15

PROTECTION, PROMOTION AND CONTROL

When I finally start my business, there are certain aspects of the operations I must plan in advance. This type of planning concerns the physical organization of my business to protect me, my employees and my assets against unpredictable occurrences, it also covers the types of permits I must get from various levels of government to lawfully operate, it relates to the choices I must make to make my business known to my future customers and how will I inform myself on the progress of my efforts and how will I control this progress.

Even though the running of a business is subject to no other rules than good sense and prudence, the various levels of government have, over the years, found it wise to regulate and tax certain aspects of business. These regulations have emerged from several concerns, sometime contradictory, such as the need for additional funds or a concern over the rights of individuals, the rights of the public and even of animals.

Depending on the kind of business I will run, I will have to find out which taxes I will have to pay, which permits I must get and what regulations apply to my specific operations. These vary from the simple business permit, to construction permits, to retail tax licences, to local or long distance transportation permits, to licences to operate an airplane; the list is practically endless.

These regulations, as they apply to me, are usually enforced by three levels of government, Federal, State and Municipal. In my specific case I might even find that I need a County permit, but this is not quite as prevalent as the other levels of government.

My accountant and my lawyer can help me through this maze. I will then be able to run my business worry free, as I will have secured all the necessary authorizations and paid all fees and taxes.

The next important area of concern is insurance. What type of insurance should I buy to protect my business? my employees? my assets? my profits? my work?

There are several types of insurance to cover practically any risk, some insurance companies even provide all inclusive insurance policies to cover my assets, my liability for damages resulting from poor or faulty products, faulty work, and they will also cover my profits if, as a result of disaster, I have to stop doing business.

In general, I should cover myself against:

-loss of assets through disaster - automobile and truck accidents - public liability

- employee liability

- loss of business due to disaster

- health insurance for myself and my employees

- life insurance including disability

According to the type of business I intend to start, I will need specialized insurance. To find out I will ask the advice of an insurance agent or broker. When I will have outlined my needs he will be able to recommend the type of insurance coverage best suited for me while suggesting alternatives as well. To make wise choices, I must consult professionals.

Next, I must decide how to make my new business known to my potential customers. How will I advertise my opening, and what type of promotion shall I use to attract customers? Once more I am faced with several choices:

ADVERTISING

- Local newspapers

Some local newspapers are distributed free to all households in a given area (town, county, suburb, etc.) They rely on advertisers to pay for the paper, so they can offer it for free. They usually have a large circulation. Other local newspapers rely both on subscriptions and advertising for their revenues, these usually have a smaller circulation. They reach fewer people.

- Local radio stations

Radio can repeat my message as many times as I want and am willing to pay for. Radio rates are usually higher than newspapers, but they reach more people.

- Television

In general, this is considered the best way to advertise but it is very expensive and may be too costly for me.

To decide what advertising method I am going to use, I must first decide how much I am prepared to spend on initial advertising, then contact the various media to find out what they can offer for my money. Then, I must come back to my description of "my customer", the outline I did earlier. From this information, I can choose what type of media is most likely to reach my customer. Some media, through research of their own, can provide me with the profile of their readers, listeners or viewers. I can ask this profile from them and find the medium most suited to my needs. This profile of their audience can be compared against the profile of my customer. I can then make a choice while respecting my budget.

PROMOTION

Promotion differs from advertising in that it usually provides some direct incentive to the customer to buy at a certain place or to buy a certain product. It usually is more selective than advertising. Promotions can be advertised and advertisements are not promotions.

Here are some types of promotions:

- an opening discount of x% on all merchandise in the store - a discount of y% on certain products or services

- an extension of the basic guarantee, at half price or free - buy three get one for free

- coupon rebates on selected products, on first purchase, on selected services

- invitation to an opening celebration, a wine and cheese party, flowers to the ladies, balloons for the children, etc.

The list is limited only by my imagination.

Once I have decided how I will inform my customers of this promotion, I have several methods available to reach my target customers.

- I can have pamphlets printed, coupons made. Then I can recruit people to distribute these door to door, for a fee of course.

- I can use a distribution service to circulate my pamphlets or coupons.

- Finally, with my family's help, I can do my own distribution.

- I can get the coupon printed, as a cut-out, in my ad in the local paper. I can have the pamphlet inserted inside the local newspaper.

- I can advertise on the radio, inviting people to pick up their coupon at the store or the office.

Promotional methods will vary according to my analysis of my customer and on how likely he is to respond to or otherwise be interested in my promotion. Each type of business uses different promotions to attract different customer types.

A good method, to find out what is being done, in my business concern is to collect as many various promotional materials from my competitors. Then analyze these promotions to determine if they are effective. My analysis will help me select the most efficient method of reaching and interesting my customer. There is nothing wrong with imitating success.

ACCOUNTING AND CONTROL

One of the most important tools of management is the set of accounting books. These books will record all my business transactions, sales, expenses, profits, and will provide me with information to help me manage successfully.

Here again, depending on the type of business I propose, I will may need different sets of accounting books. These are the books generally needed by most businesses. To complete the list for my specific operations, I will ask the advice of my accountant.

- General ledger: this will summarize all my transactions.

- Sales journal: in it I will record all my sales.

- Purchasing journal: I will keep track of all my purchases.

- Payroll ledger: I will record salaries and wages, including benefits and deductions.

- General journal: in it I will keep track of transactions and adjustments that occur only infrequently.

- Accounts receivable ledger: to keep track of payments and amounts owing to me.

- Other specialized books: these will keep track of shareholders, accounts payable, capital expenses, long term contracts if any, long term investments or borrowing through bonds or debentures. These are very specialized and will be set up as the need arises.

These books will help me (my accountant) draw up periodical statements to put financial information in an easy to read format. The more usual statements are:

- The balance sheet: this is a financial snapshot of my business at a given date, which tells me how much I am worth, as owner of the business and tells me where my money is tied up, in what assets, as well as, what I owe to others, my liabilities.

- The profit and loss statement: this, in summary form, is the history of my business over a period of time, usually one year, but monthly interim statements are recommended, to help me keep track of what is happening in my business and to help me take corrective measures at the proper time. This statement gives me my sales for the period, the cost of my sales, my gross profit, my expenses during that same period and if I made a profit or a loss on these sales.

- Source and application of funds: this statement tells me where I got my money from (profits, my suppliers, borrowing, sale of assets, etc.) and what I used it for (more inventory, new truck, new machinery, equipment or building, etc.)

- Cash flow statement: this statement tells me if I generate enough cash in my business to take care of all my obligations.

- Other statements: dividend statements, etc.

All the preceding statements are drawn up to facilitate my understanding of my business, to help me find out in time that certain things must be corrected and finally to provide my bank, my partners or shareholders, with information about the health of my business. These will be the tools I will use most often when I manage my business.

As I proceed along the road to my goals, I realize that in order to be a successful manager, I must be willing to wear several hats. The following is my assessment of my managing skills and questions about which hats I will wear myself and which hats I should let others wear, to improve my chances of success.