Small-Business Answer Book
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Q:I'm ready to spread the word about my business but don't have much to spend. How do I promote my business on a budget?
A: Every business needs to promote itself to win new customers, but traditional advertising is expensive, and some forms of promotion--like spam and fliers placed on cars, for example--can make you more enemies than friends.
It's not a bad idea to set aside a small, annual budget for traditional advertising. Decide which advertising medium--radio, TV, direct mail and so on--will best help you reach your target customers, and define your peak times for advertising throughout the year. Also think about how you might team up on promotions with another company that suits your product or service. This company might be a supplier or a well-known local business that has some synergy with yours.
Next, get web-savvy. An easy-to-use website is one of your best promotional tools, as well as a low-cost opportunity to teach customers about what you sell. Think about how you can incorporate certain online tools, such as an opt-in e-mail promotions program, meant to help you reach your target customers. A few other tips for promoting your business on a budget:
- Be able to describe what your company sells in 10 seconds or less.
- Give customers a discount on their next purchase for referring a new customer.
- Generate press coverage by pitching yourself to journalists as an industry expert available for comment.
- Ask customers to provide testimonials for your product or service.
- Sponsor a local event.
- Send thank-you notes to customers, suppliers and other people you come in contact with.
- Relax--building awareness of your brand takes time.
Q:Can I get a business loan? What kind should I apply for?
A: Most entrepreneurs need to borrow money at some point. The good news is, there are many different loan programs. Unfortunately, that's also the bad news. In other words, the money's out there, but it can be confusing to decide which loans to apply for, especially because many loans fund specific things. Here's a quick breakdown of some common loan types.
SBA loans: The SBA backs various types of small-business loans made through local banks and agencies. These loans can be used to buy equipment, inventory, furniture, supplies and more. For information on SBA-backed loans, visit www.sba.gov/financing/sbaloan/snapshot.html.
Line-of-credit loans: These short-term loans let you access a specified amount of money that's deposited into your business checking account on an as-needed basis. You pay interest on the amount that's loaned to you. Line-of-credit loans can be used to buy inventory and pay operating costs for working capital, among other things, but not to buy real estate or equipment.
Revolving lines of credit: When a lender offers a certain amount of money to a borrower and allows the same amount to be borrowed again upon repayment, it's a revolving line of credit.
Loans from friends and family: Money borrowed from friends and family can come with the best low-interest repayment plan you'll ever get. Borrowing from loved ones, however, carries risk. Set up a repayment schedule in writing, and stick to it so Thanksgiving dinner doesn't become a family battleground.
Angel investment: Of course, most family members won't eagerly write you a check for $250,000 to fund your startup. This is where an angel investor comes in, particularly between the first and second years of your company's existence. Angel investors, however, typically demand equity, a high return on investment and a well-defined five-year plan in return.
Q:My online orders are down. How do I improve customer service online?
A: If your online orders are down, faulty customer service could be to blame. The best thing to do is to think like the first-time buyers visiting your website. Your business is an unknown commodity to these people, and they have many unanswered questions: Is this a legitimate company? What if I pay for a product, and they don't ship it? Who do I contact with a question or complaint? How do they handle returns and refunds? Meanwhile, customers who have already bought from you had these questions answered when they placed their first orders.
The goal of any commercial website should be to make customers feel like they're actually holding or seeing your product in person. One way to increase customers' comfort levels is to have information-driven pictures accompanying your product descriptions so there's no confusion about the products. It's also important to make your site easy to navigate so it quickly answers customers' questions about deliveries, payments, shipping and refunds. And make sure your website contains your company's complete contact information, including the company's mailing address, phone numbers and important e-mail addresses.
Next, get serious about delivering good service. Create a strict time frame for responding to customers, and install an automatic e-mail response generator that lets customers know their orders have been received and also lists the items to be shipped. Send another e-mail when the order actually ships. Amazon.com is a good model for this strategy.
An automatic e-mail response to customer e-mails sent via your company website is another way to let customers know their message went through and that it will be answered shortly. Even better, make a company representative instantly available through e-mail and phone. With online sales in particular, you must practice the three A's: accuracy, availability and accountability. Practice makes perfect, and the payoff will be huge.
Pricing, Paying Yourself and Lowering Taxes
Q:Pricing has always been an issue for me. How do I know when to raise or lower my prices?
A: Setting your prices too high or too low is a common problem for entrepreneurs. Set them too high, and you can lose customers to the competition. Set them too low, and your profit margin will suffer.
Pricing takes into account a number of factors, including market conditions, the target customer and the entrepreneur's own intuition. Many entre-preneurs arrive at their pricing by measuring their costs and then adding a percentage (25 percent, for example) on top. This percentage, or profit margin, is where the trouble lies.
New entrepreneurs usually start by pricing lower than the competition to gain some traction in the marketplace, but their prices can stay too low for too long. It might be time to increase prices if your competitors all charge more than you do, your profit margin is steadily shrinking due to rising operating costs, or the business doesn't have enough capital to expand even though the customer base has grown. If you're fearful about your customers' reactions to a price increase, remember that small, incremental increases are generally easier for them to accept. There are even ways to increase prices without looking like you're raising them, like ending the use of discounts, coupons and product samples. Rest assured that most customers will stick with you if they find value in your product or service.
Many people will advise against lowering prices because your company will give up too much margin. One situation where you may want to lower your prices is if you're losing valued customers who say you've gotten too expensive. Depending on your product, you may be able to improve your profit margin instead by lowering your overhead and operating costs--such as by renegotiating the prices your suppliers charge.
Q:How much should I pay myself?
A: This is a particularly tricky question. As a sole proprietor, it's your choice how much to pay yourself, and it can be tempting to pay yourself too much, especially if you're living hand-to-mouth while waiting for the business to grow.
A good rule of thumb is to pay your business costs before you pay yourself. Estimate the minimum dollar amount your company will reliably generate every month in terms of steady business, and then deduct your monthly overhead (electricity, office supplies, rent, payments to suppliers and so on). These costs must be paid before you get paid, unfortunately. Smart entrepreneurs also set a small portion of their income aside every month for annual taxes (estimating the amount is where an accountant comes in handy). The net amount left over is your monthly take-home pay.
For the first year, it's better to err on the side of caution and pay yourself less instead of more until you get a feel for your overall expenses, including surprise costs such as local business taxes and equipment purchases. As your business settles in, you can set up a 401(k) or SEP-IRA that deducts a specific amount from your business account once a month. If you already have one going, you can increase the amount that's deducted each month.
Another tip: Set up a separate checking account to keep the company's money separate from your personal money. This way you can accurately track how much you've paid yourself come tax time, and it's something the IRS likes to see.
Q:My tax burden is killing me. How can I lower my taxes?
A: As you might imagine, taxes are a big topic for business owners. Lowering your tax burden can be done, and here are a few ways to do it.
Look for additional deductions. There are many business expenses you may deduct from your overall income, including training, advertising costs, interest on business loans--the list goes on. You'll want to be careful, however, that you don't trigger an IRS audit. Your accountant can help you find hidden deductions.
Start a retirement account. Federal law allows sole proprietors to put up to 20 percent of their annual income into a retirement account such as a solo 401(k), a SEP or a Keogh. Sole proprietors who set up the company as a corporation can sock away up to one-quarter of their income. This one move will significantly lower your taxes, and it's also an important step for your personal financial solvency.
Hire family members. By spreading the income around, you can increase the amount that is taxed at lower tax brackets. Check with your accountant to make sure you do it right, and make sure family members get paid fairly.
Hire independent contractors. Hiring independent contractors instead of employees automatically lowers your payroll taxes.
Pay overhead expenses early. Your electric and phone bills might not be due until mid-January, but pay them by December 31 if your cash flow allows so these deductions can be applied to this year's taxes instead of next year's taxes.
Changing Your Biz Name and Up-to-Date Tech
Q:Should I change the name of my business? I've been pondering this for a while, but I want to make sure it's a good decision.
A: Naming a business can feel like naming a child: You only get one shot, so you'd better get it right the first time. But that's not necessarily true. Some kids grow up and change their names, after all, and a growing business can do the same with some strategic thought. Here are four factors to consider when thinking about a potential name change.
1. Is Your name too complicated? A foreign name, funny spelling or a word length that rivals super-califragilisticexpialidocious can seem cool early on, but your company is doing itself a disservice if people always mispronounce it or they can't remember it. Your message could be getting lost in translation because of your company's name.
2. Is Your name too generic? It may be time to consider a name change if yours is too similar to a competitor's, or it doesn't get across what you offer. Write down the names of your local competitors, and ponder how your name stacks up.
3. Can You afford it? Changing your company name isn't cheap. You'll have to change your marketing materials-ads, logos, company stationery and so on-and make legal changes if the company is incorporated. Think about everything you'd have to change, then estimate the overall cost.
4. Do You still have low brand equity? A name change can work if your company still has low brand equity-that is, the estimated monetary value added to your brand because people know who you are. On the other hand, if your local brand equity has grown greatly, a name change could end up costing more than it's worth.
Q:Computers, mobile phones and other technologies seem to be improving by the minute. How do I stay current with today's ever-changing technology?
A: The first step is to decide which technologies are most important to your company. Take a quick inventory of your needs and the technologies you use most around the office, why you use them and how you use them. This step will focus your research so you're no longer trying to keep up with every piece of technology that hits the market. Some other tips:
Read up. Technology and trade magazines, blogs and newsletters can keep you informed. Many trade magazines offer a technology section targeted to your industry. Sites like www.technorati.com also include product blogs and articles for business owners.
Talk to a techie friend. Most of us know someone who works in the technology field or simply loves technology and is hip to new products. Ask this person to have coffee or lunch with you occasionally to catch up on technology trends.
Ask other entrepreneurs. When you're networking at events, bring up the topic of technology to learn what other entrepreneurs in similar industries are using at their companies.
Another thing to consider is how current you really need to stay. In general, if the technology you have still works for you, you may not need to upgrade just yet.
For more answers to your most pressing business questions, visit our Small-Business Answer Desk
Chris Penttila is a freelance journalist in the Chapel Hill, North Carolina, area.