Showing posts with label economic. Show all posts
Showing posts with label economic. Show all posts


Before You Purchase Commercial Auto Business Insurance

Commercial auto insurance is one of the most important aspects of your business insurance program. If your business uses a vehicle, or many vehicles, you need commercial auto insurance and you will want to ask your business insurance professional some important questions. You will also want to provide your business insurance professional with a complete picture of your vehicle use.

Consider the following points and ask the following questions.

How Many Vehicles and Drivers Will the Business Insure?
Commercial auto insurers often separate coverage types based on the number of vehicles and drivers to be insured. Fleet insurance is an option for businesses that will have a number of vehicles and drivers. The number of vehicles differs with each insurer and may depend on the class of vehicle. But, fleet insurance may be a less expensive alternative than individual, per vehicle policies.

What is the Policy Definition of Commercial Use?
Your personal auto policy will exclude coverage for commercial uses of your vehicle. A commercial policy will establish a definition of commercial use as well. It is important that you read the definition and discuss this with your insurance professional. If there is any question, it is better to obtain a commercial auto policy so that, in case of an accident, there is no chance of being uninsured.

How Can You Lower Premium Costs?
Commercial auto business insurance premiums can be lowered by:

Business Location - the location of the vehicles determines premiums for theft.
Driver Records - hire only qualified drivers with safe driving records.
Choice of Vehicle - sales people may want sports cars, but five-star safety rated, domestic, mid-sized sedans have the lowest premiums.
Deductibles - can your business afford part of the risk and maintain a high deductible? If so, your premiums will be lower.
Safety and Anti-Theft Devices - alarms, GPS tracking, air bags, seat belts, and other such devices can significantly lower premiums.
Insure U for Small Business Tips on Lowering Premiums
Special Commercial Coverages and Considerations.
Certain businesses must adhere to federal and state regulatory standards in the operations of their vehicles. For example, if your business will be hauling cargo interstate, there are specific Department of Transportation requirements for insurance that must be met. You will need to make sure you and your insurance professional have a thorough understanding of those requirements. Also, if you will be delivering or hauling for others or using other's equipment such as leased trailers or rental equipment, you will need hired or non-owned vehicle coverage.

Who is the Insured?
Make sure you know the insured. Sound simple? Maybe. But, all to often businesses set up a leasing company to lease equipment to the main company and the leasing company is the titled owner of the vehicles. A common mistake is to identify the main company and not the leasing company as the titled owner on the policy. Or, the dba of the company and not the full name of the company is listed. You want the full name of the company as an insured, the titled owner, any affiliates, and dba, and all employees as insureds on your commercial auto policy.


Cost-Push Inflation vs. Demand-Pull Inflation

What are Cost-Push Inflation and Demand-Pull Inflation?

[Q:] What do the terms "Cost-Push Inflation" and "Demand-Pull Inflation" mean? What's the difference between the two.
[A:] Thanks for your question!

The terms cost-push inflation and demand-pull inflation are associated with Keynesian Economics. Without going into a primer on Keynesian Economics (a good one can be found at Econlib) we can still understand the difference between two terms.

In articles such as "Why Does Money Have Value?", "The Demand For Money", and "Prices and Recessions" we've seen that inflation is caused by a combination of four factors. Those factors are:

The supply of money goes up.
The supply of goods goes down.
Demand for money goes down.
Demand for goods goes up.
Let's look at the definition of cost-push and demand-pull inflation and see if we can understand them using our four factors.
Definition of Cost-Push Inflation
The text "Economics" (2nd Edition) by Parkin and Bade gives the following explanation for cost-push inflation:
"Inflation can result from a decrease in aggregate supply. The two main sources of decrease in aggregate supply are

An increase in wage rates
An increase in the prices of raw materials
These sources of a decrease in aggregate supply operate by increasing costs, and the resulting inflation is called cost-push inflation
Other things remaining the same, the higher the cost of production, the smaller is the amount produced. At a given price level, rising wage rates or rising prices of raw materials such as oil lead firms to decrease the quantity of labor employed and to cut production." (pg. 865)

Aggregate supply is the "the total value of the goods and services produced in a country" or simply factor 2, "The supply of goods". The supply of goods can be influenced by factors other than an increase in the price of inputs (say a natural disaster), so not all factor 2 inflation is cost-push inflation.

Of course, the next question would be "What caused the price of inputs to rise?". Any combinations of the four factors could cause that, but the two most likely are factor 2 (Raw materials such as oil have become more scarce), or factor 4 (The demand for raw materials and labor have risen).

Definition of Demand-Pull Inflation
Parkin and Bade give the following explanation for demand-pull inflation:
"The inflation resulting from an increase in aggregate demand is called demand-pull inflation. Such an inflation may arise from any individual factor that increases aggregate demand, but the main ones that generate ongoing increases in aggregate demand are

Increases in the money supply
Increases in government purchases
Increases in the price level in the rest of the world
"(pg. 862)
Inflation caused by an increase in aggregate demand, is inflation caused by factor 4 (An increase in the demand for goods). The three most likely causes of an increase in aggregate demand will also tend to increase inflation:

Increases in the money supply This is simply factor 1 inflation.
Increases in government purchases The increased demand for goods by the government causes factor 4 inflation.
Increases in the price level in the rest of the world Suppose you are living in the United States. If the price of gum rises in Canada, we should expect to see less Americans buy gum from Canadians and more Canadians purchase the cheaper gum from American sources. From the American perspective the demand for gum has risen causing a price rise in gum; a factor 4 inflation.
Inflation in Summary
Cost-push inflation and demand-pull inflation can be explained using our four inflation factors. Cost-push inflation is inflation caused by rising prices of inputs that causes factor 2 (The supply of goods goes down) inflation. Demand-pull inflation is factor 4 inflation (The demand for goods goes up) which can have many causes.

Why Don't Prices Decline During A Recession?

The Link Between The Business Cycle and Inflation

[Q:]When there is an economic expansion, demand seems to outpace supply, particularly for goods and services that take time and major capital to increase supply. As a result, prices generally rise (or there is at least price pressure) and particularly for goods and services that cannot rapidly meet the increased demand such as housing in urban centers (relatively fixed supply), advanced education (takes time to expand/build new schools), but not cars because automotive plants can gear up pretty quickly.
First, do you agree with this and if not, how do you see it?

Second, when there is an economic contraction, supply initially outpaces demand. However prices for most goods and services don't go down, and neither do wages.

My main question is why don't prices go down for goods and services? I expect for wages, it's just stickiness from the corporate/human culture... people don't like to give pay cuts... managers tend to lay off before they give pay cuts (though I've seen exceptions). Why don't prices go down for most goods and services?

[A:] Great question! Your analysis is spot on. Now on to your question:

In my article titled Why Does Money Have Value we saw that changes in the level of prices (inflation) was due to a combination of the following four factors:

The supply of money goes up.
The supply of goods goes down.
Demand for money goes down.
Demand for goods goes up.
In a boom, we would expect that the demand for goods to rise faster than the supply. All else being equal, we would expect factor 4 to outweigh factor 2 and the level of prices to rise. Since deflation is the opposite of inflation, deflation is due to a combination of the following four factors:
The supply of money goes down.
The supply of goods goes up.
Demand for money goes up.
Demand for goods goes down.
We would expect the demand for goods to decline faster than the supply, so factor 4 should outweigh factor 2, so all else being equal we should expect the level of prices to fall.
From my article titled A Beginner's Guide to Economic Indicators we saw that measures of inflation such as the Implicit Price Deflator for GDP are procyclical coincident economics indicators, so the inflation rate is high during booms and low during recessions. The information above shows that the inflation rate should be higher in booms than in busts, but why is the inflation rate still positive in recessions?

The answer is that all else is not equal. The money supply is constantly expanding, so the economy has a consistent inflationary pressure given by factor 1. The Federal Reserve has a table listing the M1, M2, and M3 money supply. (To learn about these definitions, see How much is the per capita money supply in the U.S.?). From Recession? Depression? we saw that during the worst recession America has experienced since World War II, from November 1973 to March 1975, real GDP fell by 4.9 percent. This would have caused deflation, except that the money supply rose rapidly during this period, with the seasonally adjusted M2 rising 16.5% and the seasonally adjusted M3 rising 24.4%. Data from Economagic shows that the Consumer Price Index rose 14.68% during this severe recession. A recessionary period with a high inflation rate is known as stagflation, a concept made famous by Milton Friedman. While inflation rates are generally lower during recessions, we can still experience high levels of inflation through the growth of the money supply.

So the key point here is that while the inflation rate rises during a boom and falls during a recession, it generally does not go below zero due to a consistently increasing money supply.

Why Not Just Print More Money?

Why Not Just Print More Money?
[Q:] Can you help me find a "simple" way to explain why it is not a good idea to just print more money. I’m having trouble explaining the connection between this and the dollar becoming worthless.
[A:] Thanks for your great question!

The issue of the value of money has come up in articles such as "Why Does Money Have Value?", "The Demand For Money", and "Prices and Recessions". However, I’ve never really answered the question “Why Not Just Print More Money”. So I’ll do that now.

Wouldn’t We All Be Wealthier If We Printed More Money?
If we print more money, prices will rise such that we’re no better off than we were before. To see why, we’ll suppose this isn’t true, and that prices will not increase much when we drastically increase the money supply. Consider the case of the United States. Let’s suppose the United States decides to increase the money supply by mailing every man, woman, and child an envelope full of money. What would people do with that money? Some of that money will be saved, some might go toward paying off debt like mortgages and credit cards, but most of it will be spent. I know the first thing I’d do is go down to Walmart and buy an Xbox or PlayStation 2 (if you have an opinion of which I should buy e-mail me by using the feedback form).
I’m not going to be the only one who runs out to buy an Xbox. This presents a problem for Walmart. Do they keep their prices the same and not have enough Xboxes to sell to everyone who wants one, or do they raise their prices? The obvious decision would be to raise their prices. If Walmart (along with everyone else) decides to raise their prices right away, we’d have massive inflation, and our money is now devalued. Since we’re trying to argue this won’t happen, we’ll suppose that Walmart and the other retailers don’t increase the price of Xboxes. For the price of Xboxes to hold steady, the supply of Xboxes will have to meet this added demand. If there are shortages, certainly the price will rise, as consumers who are denied an Xbox will offer to pay a price well in excess of what Walmart was formerly charging.

For the retail price of the Xbox not to rise, we will need the producer of the Xbox, Microsoft, to increase production to satisfy this increased demand. Certainly this will not be technically possible in some industries, as there are capacity constraints (machinery, factory space) that limit how much production can be increased in a short period of time. We also need Microsoft not to charge retailers more per system, as this would cause Walmart to increase the price they charged to consumers, as we’re trying to create a scenario where the price of the Xbox won’t rise. By this logic we also need the per-unit costs of producing the Xbox not to rise. This is going to be difficult as the companies that Microsoft buys parts from are going to have the same pressures and incentives to raise prices that Walmart and Microsoft do. If Microsoft is going to produce more Xboxes, they’re going to need more man hours of labor and obtaining these hours cannot add too much (if anything) to their per-unit costs, or else they will be forced to raise the price they charge retailers.

Wages are essentially prices; an hourly wage is the price a person charges for an hour of labor. It will be impossible for hourly wages to stay at their current levels. Some of the added labor may come through employees working overtime. This clearly has added costs, and workers are not likely to be as productive (per hour) if they’re working 12 hours a day than if they’re working 8. Many companies will need to hire extra labor. This demand for extra labor will cause wages to rise, as companies bid up wage rates in order to induce workers to work for their company. They’ll also have to induce their current workers not to retire. If you were given an envelope full of cash, do you think you’d put in more hours at work, or less? Labor market pressures require wages to increase, so product costs must increase as well.

So Prices Must Go Up!

In short prices will go up after a drastic increase in the money supply because:
If people have more money, they’ll divert some of that money to spending. Retailers will be forced to raise prices, or run out of product.
Retailers who run out of product will try to replenish it. Producers face the same dilemma of retailers that they will either have to raise prices, or face shortages because they do not have the capacity to create extra product and they cannot find labor at rates which are low enough to justify the extra production.
In articles such as "Why Does Money Have Value?", "The Demand For Money", and "Prices and Recessions" we've seen that inflation is caused by a combination of four factors. Those factors are:
The supply of money goes up.
The supply of goods goes down.
Demand for money goes down.
Demand for goods goes up.
We’ve seen why an increase in the supply of money causes prices to rise. If the supply of goods increased enough, factor 1 and 2 could balance each other out and we could avoid inflation. Suppliers would produce more goods if wage rates and the price of their inputs wouldn’t increase. However, we’ve seen they will increase. In fact, it’s likely that they’ll increase to such a level where it will be optimal for the firm to produce the amount they would have if the money supply had not increased.
This gets us to why drastically increasing the money supply on the surface seems like a good idea. When we say we’d like more money, what we’re really saying is we’d like more wealth. The problem is if we all have more money, collectively we’re not going to be any more wealthy. Increasing the amount of money does nothing to increasing the amount of wealth or more plainly the amount of stuff in the world. Since the same number of people are chasing the same amount of stuff, we cannot on average be wealthier than we were before.

Why does money have value?

Money answers for the E-mailers

Q: Why does money have value?
A: Money doesn't have any inherent value. It is simply pieces of paper or numbers in a ledger. A car has value because it can help you get where you need to go. Water has a value because it has a use; if you don’t drink enough of it you will die. Unless you enjoy looking at pictures of deceased national heroes, money has no more use than any other piece of paper.

It didn't always work this way. In the past money was in the form of coins, generally composed of precious metals such as gold and silver. The value of the coins was roughly based on the value of the metals they contained, because you could always melt the coins down and use the metal for other purposes. Until a few decades ago paper money in different countries was based on the gold standard or silver standard or some combination of the two. This meant that you could take some paper money to the government, who would exchange it for some gold or some silver based on an exchange rate set by the government. The gold standard lasted until 1971 when President Nixon announced that the United States would no longer exchange dollars for gold. This ended the Bretton Woods system, which will be the focus of a future article. Now the United States is on a system of fiat money, which is not tied to any other commodity. So these pieces of paper in your pocket are nothing but pieces of paper.

So why does a five-dollar bill have value and some other pieces of paper do not? It’s simple: Money is a good with a limited supply and there is a demand for it because people want it. The reason I want money is because I know other people want money, so I can use my money to others to get goods and services from them in return. They can then use that money to purchase goods and services that they want. Goods and services are what ultimately matter in the economy, and money is a way that allows people to give up goods and services which are less desirable to them, and get ones that are more so. People sell their labor (work) to acquire money now to purchase goods and services in the future. If I believe that money will have a value in the future, I will work towards acquiring some.
Our system of money operates on a mutual set of beliefs; so long as enough of us believe in the future value of money the system will work. What could cause us to lose that belief? It is unlikely that money will be replaced in the near future, because the inefficiencies of a dual coincidence of wants system are well known. If one currency is to be replaced by another, there will be a period in which you can switch your old currency for new currency. This is what happened in Europe when countries switched over to the Euro. So our currencies are not going to disappear.

The Curse of Inflation

Then why else might we think that our money might not be of value to others in the future? Well, what if we believed our money wouldn’t be nearly as valuable in the future as it is today? This inflation of the currency causes people to want to get rid of their money as quickly as possible. Inflation, and the rational way citizens react to it, causes great misery for an economy. People will not sign into profitable deals which involve future payments because they’ll be unsure what the value of money will be when they get paid. Business activity sharply declines because of this. Inflation causes all sorts of other inefficiencies, from the café changing its prices every few minutes, to the homemaker taking a wheelbarrow full of money to the bakery in order to buy a loaf of bread. The belief in money and the steady value of the currency are not innocuous things. If citizens lose faith in the money supply and believe that money will be worth less in the future economic activity can grind to a halt.
Money is essentially a good, so as such is ruled by the axioms of supply and demand. The value of any good is determined by its supply and demand and the supply and demand for other goods in the economy. A price for any good is the amount of money it takes to get that good. Inflation occurs when the price of goods increases; in other words when money becomes less valuable relative to those other goods. This can occur when:

The supply of money goes up.
The supply of other goods goes down.
Demand for money goes down.
Demand for other goods goes up.
The key cause of inflation is increases in the supply of money. Inflation can occur for other reasons. If a natural disaster destroyed stores but left banks intact, we’d expect to see an immediate rise in prices, as goods are now scarce relative to money. These kinds of situations are rare. For the most part inflation is caused when the money supply rises faster than the supply of other goods and services.

So to answer your question, money has value because people believe that they will be able to exchange their money for goods and services in the future. This belief will persist so long as people do not fear future inflation. To avoid inflation, the government must ensure that the money supply does not increase too quickly.

Thank you for your question.

What is Money?

Question: What is Money?

Answer: The Economics Glossary defines money as:

Money is a good that acts as a medium of exchange in transactions. Classically it is said that money acts as a unit of account, a store of value, and a medium of exchange. Most authors find that the first two are nonessential properties that follow from the third. In fact, other goods are often better than money at being intertemporal stores of value, since most monies degrade in value over time through inflation or the overthrow of governments.
So money isn't just pieces of paper. It's a medium of exchange that facilitates trade. Suppose I have a Wayne Gretzky hockey card that I'd like to exchange for a new pair of shoes. Without the use of money, I have to find a person, or combination of people who have an extra pair of shoes to give up, and just happen to be looking for a Wayne Gretzky hockey card. Quite obviously, this would be quite difficult. This is known as the double coincidence of wants problem:
[T]he double coincidence is the situation where the supplier of good A wants good B and the supplier of good B wants good A. The point is that the institution of money gives us a more flexible approach to trade than barter, which has the double coincidence of wants problem. Also known as dual coincidence of wants.
Since money is a recognized medium of exchange, I do not have to find someone who has a pair of new shoes and is looking for a Wayne Gretzky hockey card. I just need to find someone who is looking for a Gretzky card who is willing to pay enough money so I can get a new pair at Footlocker. This is a far easier problem, and thus our lives are a lot easier, and our economy more efficient, with the existance of money.
As for what constitutes money and what does not, the article How much is the per capita money supply in the U.S.? gives the following definition, provided by The Federal Reserve Bank of New York:

"The Federal Reserve publishes weekly and monthly data on three money supply measures -- M1, M2, and M3 -- as well as data on the total amount of debt of the nonfinancial sectors of the U.S. economy... The money supply measures reflect the different degrees of liquidity -- or spendability - that different types of money have. The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written. M2 includes M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds. M3 includes M2 plus large-denomination ($100,000 or more) time deposits, balances in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars held by U.S. residents at foreign branches of U.S. banks and at all banks in the United Kingdom and Canada."
So there are several different classifications of money. Note that credit cards are not a form of money.


8 Sources of Business Start Up Money

Part 1: Where to Find Business Start Up Money For Your New Business

So you’ve got a killer business idea and want to start a business. How are you going to get the business start up money you need to take your new business from idea to success? This rundown of where to look for the start up money you need and the most popular sources of business start up money will help.

1) Your own pockets.

This may be daunting at first glance, but it’s the most popular source of business start up money. Don’t have a start up money nest egg? Many people get the business start up money they need by mortgaging or remortgaging their homes, or selling property or possessions – even those who do succeed in getting a start up business loan. Lending institutions and investors usually expect the person starting a business to make a personal financial commitment.

2) Family and friends.

The second most popular source of business start up money. Family and friends are often willing to provide a business start up loan or sometimes even an outright gift. After all, they’re likely to be already “pre-sold” on the value of your business idea to some degree, as your family and friends believe in you.

3) A line of credit.

While not recommended as a sole source of business start up money, a line of credit is essential for the start up phase. No matter how careful and detailed you’ve been in preparing your business plan, there are always unexpected expenses and expenses that you’ve underestimated.

Before you start a business, you should already have prepared the way to access this source of business start up money by having established a relationship with your local bank manager and by ensuring that your credit rating is in good shape.

4) A start up business loan from a bank.

I’m using the term “bank” to refer to a business start up loan from a traditional lending institution (such as banks and Credit Unions). It’s actually easier than ever to get a business loan, as more people than ever have been successfully starting small businesses and the big banks have more interest in small businesses than they used to.

That said, you can't just walk in, tell a loans manager how much business start up money you want, and expect to walk out with it. Applying for any business loan is a process that you need to prepare for. See How to Get a Small Business Loan to learn how to make a winning loan presentation and get the business start up money you need.

Don’t overlook the BDC (Business Development Bank of Canada). Supporting business is their business and the BDC has several programs that directly address start up business loans, such as their CoVision program, which provides customized term financing up to $100,000 for new businesses demonstrating long-term viability.

5) A start up business loan from a business-related or government sponsored organization.

There are many organizations whose purpose is to promote economic development or provide assistance to help particular types of people succeed in business. Often (but not always) this assistance includes financial support, such as start up business loans. For instance, one of the ways the Canadian Youth Business Foundation, a non-profit organization, supports young entrepreneurs (aged 18 to 34) is by providing start up business loans of up to $15,000.

Many women’s organizations also provide financial assistance to women in business, including start up business loans. Alberta Women Entrepreneurs (AWE) is one such organization; you’ll find links to women’s organizations throughout Canada in my Women in Business library.

There are economic development organizations in place in every province and territory to provide support and services to entrepreneurs, including financial assistance. For example, in Ontario, Community Futures Development Corporations (CFDCs) operate in selected communities in rural and Northern Ontario, while Community Business Development Corporations (CBDCs) serve rural Atlantic Canada.

And the Canada Small Business Financing Program (CSBF) provides term loans of up to $250,000 to help finance fixed asset needs through business loans made directly by a qualified lender (such as a chartered bank, caisses populaire, or credit union).

You’ll find more examples of organizations that offer business loans, including start up business loans, in the Small Business Loans library.

Part 2: More Sources of Business Start Up Money

Here are three more possibilities for accessing business start up money that you should check into if you're starting a business:

6) Participating in a government-sponsored business start up program.

If you qualify, this is the best way to start a business. Programs such as the Self-Employment Program (for unemployed Employment Insurance eligible individuals) and the Seed Capital ConneXion Program for Young Entrepreneurs (for young entrepreneurs in Atlantic Canada) not only provide start up money but invaluable assistance, such as mentoring and help developing your business plan. These are just two such start up programs; there are others.

7) Finding investors.

Angel investors, venture capitalists, or private lenders all may be excellent sources of business start up money for your new business. While it’s certainly more difficult in most cases to attract investors to a start up rather than to an established venture, it’s not impossible if you have the right business idea at the right time backed by an impressive business plan. See Prepare an Investor Ready Business Plan for more on tailoring your business plan to impress potential investors.
8) Government grant programs.

While this is often touted as a great source of business start up money, it’s not, because most start ups simply don’t qualify as you'll see in The Truth About Small Business Grants in Canada. While there are government grants available, finding one that can provide start up money for your new business will be an enterprise in itself (which is probably why there are so many companies out there providing grant-finding services).

Those planning to start up “the right business” will have a much easier time finding government grant programs that may provide business start up money. For example, generating efficient, renewable energy is a priority of the federal government, so businesses involving Cogeneration (using one fuel to simultaneously produce heat and electricity) or renewable energy technologies will find more government grant opportunities than others. If you're interested in pursuing a grant as business start up money, 5 Tips for Finding Small Business Grants can help narrow your search.

Which of these sources of business start up money is best for you? Probably, like most of the people who have started businesses before you, you’ll need a combination of business start up money sources to get the money you need to develop your business. You may even want to explore all of these. Whatever you do, however, don’t depend on your personal credit cards for the business start up money you need. It’s best to wait to start your business until you have the funds you need in place rather than crippling your new business financially and perhaps ruining your personal credit rating.

7 Ways to Make Record Management Easy

Part 1: Good Business Record Management Means Less Tax Time Stress

If you took the time to make a list of all the tasks you need to do to manage your business and then ordered them in terms of how much you liked doing them, where would record management come in? Two hundred and seventy? Or even lower?

But while most of us definitely consider business record management to be scut work and tend to give it a low priority, good record management not only makes our working lives easier, but can give us real stress relief at tax time. Here’s what you can do to make record management easy:

1. Keep your business and personal expenses separate.

Sounds easy, doesn’t it? But this is the part of record management that trips up most people. If you take a potential client out for a round of golf, for instance, is that a personal expense or a business expense? (The answer is personal, because green fees are not a deductible business expense.) Vehicles that you use for both personal and business reasons are another perennial problem. You need to know what qualifies as legitimate business expenses and what doesn't, and be sure that your business record management reflects this accurately.

2. Get sufficient documentation for all business expenses.

Many business people make the mistake of thinking that "lists" are good enough for record management purposes. For instance, they have a list of purchases on their credit card statements, and think that that's good enough in terms of claiming those purchases as business expenses.

Unfortunately, the CRA (Canada Revenue Agency) is more demanding. They do not accept credit card statements or cancelled cheques as sufficient documentation for expenses when an invoice or receipt would normally be issued.

In terms of good business record management, there are two points to bear in mind:

a) Always get a receipt. Get in the habit of asking for a receipt whenever you make a purchase - no matter how small. Little expenses add up, too, and you need the documentation for your business records.

b) Label your receipts, if necessary. There are still businesses around that hand out receipts that don't have anything on them except the date the item was purchased and how much it cost – which isn’t very helpful when you're staring at a receipt trying to figure out what the item in question was and which business expense category it fits into.

When you get a receipt, look at it and write the missing/relevant information on it, such as what the receipt is for and the expense category. See 4 Tips for Handling Receipts for more on how to make keeping your receipts straight easier.

3. Get a separate bank account for your business - and use it.

While the fees for business bank accounts are notoriously high compared to personal accounts, a business bank account is absolutely necessary for good business record management. A business bank account helps you keep your business and personal expenses separate. You will deposit all your business revenues into the business account, and withdraw any business related expenses or payments from the business account only.

What kind of business bank account should you get? A chequing account – preferably one that delivers monthly statements and returns your cancelled cheques to you.

Business cheques help make your record management easy because you can use the memo line on the front of each cheque to document the business purpose of the expense.

Part 2: More Tips for Easy Business Record Management

Here are four more things you can do to make your business record management easy.

4. Have and use a separate credit card for business expenses.

Using your personal credit cards for business purposes will swiftly drop you into a record management quagmire. A business credit card greatly simplifies your business record management by helping keep your personal and business expenses separate. (It also helps make your business look more professional.)

5. Keep a mileage log of your business travel.

If you use any of your vehicles for business purposes, a mileage log will be a big help in record management. Note the mileage (or kilometer) reading on the odometer at the beginning of the year and then enter the mileage by date each time you use the vehicle for a business purpose. Keeping your mileage log in the glove box of your vehicle will make this easy. If you have more than one vehicle that you use for business purposes, keep a mileage log in each.

6. Keep all your business records for a particular tax year together and in one place.

Having your business records scattered all over the place is a real time-waster when it comes to accounting or preparing your taxes, and organizing your business record management system by fiscal year will make it much easier to find the business records you need when you need them.

Need some help setting up a filing system? See The Easiest Filing System and/or Mastering Your Filing System for tips.

7. Keep your business records for the correct length of time.

For some reason, there seems to be a lot of confusion about how long you have to keep your business records. For tax purposes, "if you file your return on time, keep your records for a minimum of six years after the end of the taxation year to which they relate" (CRA).

This six-year period of time starts from the last time you used the business records, not from the time the transaction occurred.

The CRA also has rules about the destruction of business records; see How Long Do I Have To Keep My Business Records for details.

These seven things you can do to make your record management easy aren’t difficult. Like a lot of the administrative business related to running a business, they just require establishing good habits and persistence. But if you apply these rules of good record management now and follow through, you’ll see a huge difference next tax time and your accounting will be easier all year long.

Connections Made by Business Networking Are the Key to Finding a Job

Network Your Way to a New Job or Career

When Cookie Burkhalter relocated from Colorado to Wilmington, Delaware three years ago, she thought finding a new job would be easy. With first-rate qualifications and more than twenty years of professional experience at Fortune 500 companies, she figured she would land a new position quickly by surfing a few Internet job boards and sending out her résumé.

But Burkhalter, an IT project manager, quickly discovered that it wasn’t going to be so easy. After months of applying for open positions, “I never got a single interview from a posting on the Net,” she declared. “Applying for all those jobs was a complete waste of my time.”

Her job search began to turn around for Burkhalter when she realized that the missing element in her job search was the human factor. “Even though I grew up in Delaware, I had been living out of state for a long time,” she recalled. “I had almost no local contacts, so I was relying on postings and ads to find out about available jobs. But by the time I saw the ad, so had thousands of other people, and one of them was always just a little more qualified than me.”

Network Your Way to A New Job
So Burkhalter set about rebuilding her business and social network. She joined two women’s groups made up of others who shared some of her personal interests and hobbies, and began to meet new people. When she let her new friends know about her job search, all of a sudden, she began to hear about jobs before they were advertised, and interviews started to materialize. When she finally did land a new job, it was the direct result of a referral from a friend.

You may not recognize what Burkhalter did as business networking, but that’s exactly what it was. Many people think of business networking as circulating around a room and exchanging business cards. But a broader view of business and social networking is that it creates a pool of contacts from which you can draw leads, referrals, ideas, and information for your job search. You can network without ever attending an official business or social networking event, although attending events is useful in networking.

Texas resident Maria Elena Duron found an executive job as a result of working as a community volunteer. “I was volunteering at the Midlands MexTex Fiesta, and I found myself flipping burgers side-by-side with a board member of the Austin Juvenile Diabetes Research Foundation," Duron remembers. "He asked me if I had ever been involved in fundraising, and when I said I had, he asked for my résumé. He forwarded it to the Foundation with his personal recommendation, and three weeks later I was hired as Executive Director for the West Texas Region."

Find Your Job and Career by Business Networking
Your career network can and should contain current and former co-workers, alumni from your school, a wide range of people in your industry, and personal friends. Making time for lunch or coffee with these people can be much more productive for your job search than reading the want ads or surfing the web. In fact, surveys consistently show that 80-85% of job-seekers find work as the result of a referral from a friend or colleague, and only 2-4% land jobs from Internet job boards.

If you have been out of touch for a while with people you already know, don’t let that stop you from re-establishing contact when you start your job search. Everyone you speak to will have had to look for work at some point in their career, and most of them will be sympathetic and helpful.

To spread your business and social networking net even wider, you may need to start making the acquaintance of new people also. Every time you talk to a friend or colleague about your job search, ask for suggestions of other you might speak to, and follow up on their referrals.

Use Organized Events for Business Networking
Attending organized events may also play a role in your business networking and job search, since this can be an easy way to expand your business network quickly. Here are some popular choices for business and social networking events:

Chamber of Commerce mixers,
Service clubs such as Rotary and Kiwanis,
Trade and professional association meetings in your industry,
Lectures, workshops, conferences, and fundraisers hosted by educational institutions, community organizations, and affinity groups,
Social, cultural, and sporting events that include receptions or other mix-and-mingle time,
Private gatherings organized for the purpose of meeting new people and schmoozing, and
Job clubs.
You will have more success at this kind of business and social networking if you go back to the same groups over and over than if you keep going to new groups all the time. Find two or three that seem to have the right mix of people, and keep going back.

Follow-up Is the Key to Business Networking
If you don't follow up with the people you meet, though, you are wasting your time in meeting them. You may think that once you have told someone what type of job you are looking for, if they hear of something, they will call you. The truth is that if they have met you only once, they probably don't even remember you, and it's even less likely that they will remember where they put your number.

After meeting someone new, send them a “nice-to-meet-you” note and invite them to attend another event with you or make a date for lunch or coffee. Find out what the two of you have in common, and see if there is an activity you could share.

Building relationships likes this takes time and effort, but relationships are the core of networking. The people in your network should be people you truly enjoy interacting with, because if you’re doing it right, you’ll be spending a lot of time with them.

Says Duron, "Don't limit yourself to just networking in your industry; everyone is interconnected. Getting to know a day care director makes sense even if you don't want a job in day care, because she knows so many people. Waiters and hairdressers are often the first to hear about coming changes that lead to open positions. As long as you have your antennae out and listen, you can connect with anyone."

Don’t expect business and social networking to be a quick fix for your job search. It can take time for your relationship-building efforts to pay off. You need to put in the effort to get to know people, and trust that you will see results from it. But the best time to begin building your business and social network is while you are still employed.

7 Ways to Control Chaos in Your Small Business

Part 1: Clear the Confusion With Good Office Management

“I know it’s here somewhere.” “I’ll have to get back to you about that.” “Where’s that _____?”

Sound familiar? If so, chaos has crept into your small business – and is probably busy spreading throughout your organization like a virus. Disorganization and confusion are irritating, but they’re also just plain bad for business. Think of it as a formula, if you like: chaos increasing equals profits decreasing. What to do? Control chaos by applying these basic office management principles:

1. Establish office management routines and stick to them.

Routine tasks need routine procedures if you want to stay organized and keep things running smoothly. Set up routines for handling paperwork and office systems. For instance, every piece of paper that comes into your office should be handled once, acted upon, and filed – not haphazardly piled on a desk. Office systems, such as computers, will need both administration and what I call panic mode procedures. When the system crashes or a computer-related piece of equipment fails, everyone in your office needs to know who to call and what not to do (such as try to fix the problem themselves). These data management articles provide helpful tips for everything from office filing systems through computer backup procedures.

2. Set up clearly delineated responsibilities.

Good office management depends on people knowing who is responsible for what – it’s people who are accountable who get things done. What would happen, for example, if the purchasing for your small business was done by whoever whenever? Would you be able to find a paper clip when you wanted one? Or print off a report when you needed to? Putting one person in charge of ordering all equipment and supplies solves the problem and keeps things running smoothly. It’s the same with (computer) systems administration. You need to have one person responsible for the security of your computer system and keeping track of things such as accounts, passwords and software. Otherwise, chaos will proliferate.

3. Keep records – and keep your business records updated.

Keeping records sounds like the easiest part of good office management – until you consider the need to keep those records both accessible and updated. But my first rule for controlling chaos will help you get a grip on this; make updating records an office routine. When you get a new customer or client, for instance, it only takes a moment to enter him into your contacts database. Then it will only take another moment or two to update the record after you’ve spoken to him on the phone. (Note, too, that thanks to the new Privacy Act, records of customer permissions will have to be kept and customers need to have access to their records. See What You Need To Know About PIPEDA for more about complying with the Privacy Act.)

4. Take a walk through your office and have a sit.

Is your office an example of space management or space mis-management? When you walk through the office, do you have to detour around obstacles or run the risk of tripping over something? When you sit down at a desk, could you actually work comfortably there? Are things logically arranged so that the things that you would use most at the desk are closest to hand? There are a lot of things crammed into offices nowadays, from printer stands through filing cabinets. For good office management, you need to be sure that all the things in the office are arranged for maximum efficiency – and maximum safety. The Basics of Small or Home Office Design provides tips for safely meeting the power, lighting and ventilation needs of your office space.

Part 2: More Tips for Good Office Management

5. Schedule the scut work.

It’s too easy to put off things that you don’t like doing, and I don’t know very many people that enjoy scut work. Unfortunately, an office, like a kitchen, won’t function well without a certain amount of scut work being done. If you are a small business owner who’s in the position of not being able to assign whatever you view as scut work to someone else, force yourself to get to it regularly by scheduling time each week for it. Take a morning or afternoon, for instance, and spend it making the cold calls or catching up on the accounting (or updating the records).

6. Delegate and outsource.

In a perfect world, everyone would only be doing what he or she had time to do and did well. As the world is not perfect, instead a lot of people are doing things that they don’t have the time or talent to do well. Delegating and outsourcing can not only improve your small business’s office management, but free you to focus on your talents as well, thereby improving your bottom line. Virtual assistants can handle many of your office or administrative tasks. For more on delegating, see Decide to Delegate.

7. Make business planning a priority.

Many small business owners spend their days acting and reacting – and then wonder why they seem to be spinning their wheels. Business planning is an important component of good office management and needs to be part of your regular office management routine. Successful small business owners spend time every week on business planning, and many use daily business planning sessions as a tool for goal setting and growth. If you have staff, involve them in business planning, either formally or informally.

Don’t let chaos interfere with doing business. Once you start applying these seven principles of good office management, you’ll be amazed at the difference good office management makes – and how much more business you do.

Getting The Most Out of Business Networking

The 10 Commandments of Networking

Networking is a lot of fun! Business networking is when a group of like minded business people gather and help each other. If you check, you will surely find a networking group in your area. The networking group can meet as often as they wish, as is convenient for the participants.

Regretably, most people start with a networking group by looking for immediate gains.... that is, for favorable results for themselves. If this is what you are trying to achieve, you are networking for the wrong reasons and will be sticking out like a sore thumb.

Many people think that the size of a networking group makes the difference in networking. When groups start falling in size, members will say, "we have to build up our numbers." Now, what numbers are they referring to? Is it the number of participants? I would rather belong to a networking group of two people who can help each other on a regular basis then have a large group of business people not following the Ten Commandments of Networking. It is not the quantity, it is the quality.

"I haven't got any leads yet!" Well excuse me, have you given one, ever? Or, have you made a suggestion that might help a fellow member? Did you call anyone with a compliment and say, "Just wanted you to know, Jim, that your comments on the XYZ expansion was right on the money." One must be willing to put in time waiting also. It might take a while before people feel comfortable with offering you a referral.

Networking groups will come and go. To get the most out of your networking experience, you need to build a relationship with people who you want to have contact with. Not all members will be able to help you, nor will you be able to help them. That doesn't mean you should snub them! I still have strong relationships with my networking friends from groups that are long gone.

When networking, spend most of your time and effort on people who can help each other out, for the long term. That is right. This is a long term project. Countless times I have been to business networking events and have seen people actually run from person to person, with the expectations of first giving away their card and hoping to gather the other person's. How can you possibly build a relationship with a person when your objective is to get out there, and collect cards? Some networking groups make a game out of it to see who can collect the most in a certain time. What a waste of business cards!

You will find that a highly effective networker will "work the net". What I mean is that they will go into a function with a goal in mind. My usual goal when business networking is to have the expectation that I will "meet" and "understand" only three people per event. I know what kind of person that I can help and expect that this person will be able to do the same for me. A win/win situation is what I am talking about. The highly effective networker will take the time to cultivate a rapport.

After the business networking event is when the real work begins. After all, you are only at the networking event to meet and build rapport. Follow up ASAP. Now is the time to send a nice customized card, and call a few days after to arrange a time to meet for a coffee or to have lunch. That is when you can listen to the details of what your new "friend" requires. You might even have the chance to offer your goods and services, only after listening.

If you want to gain the most out of business networking, follow the Ten Commandments of Networking!

1) Thou shalt drop the "what is in it for me?" attitude.
2) Thou shalt listen.
3) Thou shalt build a relationship.
4) Thou shalt give the first referral.
5) Thou shalt not tell others of the referral you require; thou shalt "show them" with a story.
6) Thou shalt be specific of the type of referral.
7) Thou shalt reciprocate when appropriate.
8) Thou shalt participate in the network executive, functions, and network time.
9) Thou shalt thank the person who gave a referral.
10) Thou shalt follow up on the referral within 24 hours.
Business networking is productive and fun, and that is why it will always be part of the Bigger Picture.

Mark McGregor is a keynote speaker and professional presenter with Speaking of Hearts. He is a motivational and inspirational speaker on business and stress matters. Mark is available to speak for your next Canadian and American conference, trade show or event.


Three Ways to Grow Your Business

Forget the fads and get back to basics

Erica Olsen, principal of business development firm M3 Planning

With all of the latest and greatest concepts, seminars, webcasts, and "How-To" books vying for your attention, you would think that growing your business was as complicated as building the space shuttle. The fact is, there are only three ways to expand business...
Option #1 – Increase the number of customers

You increase the number of customers you have by reaching new customers 1) with your existing offering or 2) developing a new offering. Ideally you will leverage the offering you have to enter a new market or expand the reach in your exisiting market. Three key questions to answer to increase the number of customers are:

Who has a real need for the product/service I’m selling? Does my product meet that need in a manner that either saves money or provides additional value?
How much, if anything, are they spending to address that need today?
How many of those potential customers are there? How do I reach them?
Answering these questions meaningfully necessitates market research. Market research is a prelude to selling. It teaches you a great deal about what you will need to know to effectively reach these new customers such as what to say, how to say it and to whom.
For example, our company just completed a national market research study that provided our client with the issues and challenges facing its target market. Using the research, which provided a keen understanding of the needs and wants of its customers, our client developed messaging and marketing materials that resonated not only with existing customers, but with new customers as well. Response rate to their lead-generating events have doubled.

Option #2 – Increase the frequency of purchase

The quickest path to increasing the frequency of purchases is by making it as easy as possible for your existing customers to do business with you repeatedly. Another way to look at this is providing additional customer value – and ultimately building customer loyalty. If you make it easier for customers to buy from you, relative to your competition, then you will continue to win their business. This, of course, assumes your products or services are comparable or superior to your competitors.

Outside of customer loyalty programs, here are a few areas to consider improving:

Responsiveness to requests, calls, emails
Accessibility to the customer’s primary contact
Consistency in offering
Follow-up and follow-through on meetings
Accurate and timely billing.
While these may seem like common sense, consider how many vendors you no longer use because they were too difficult to do business with. Don’t become one of them to your customers.
Option #3 – Increase the number of units sold

By default you will increase the number of units sold when you increase the number of clients and frequency of purchase. But you can also increase the number of units sold by understanding how to add value. If you want to sell more products or bill more hours, providing a value-add benefit or solution will begin to strengthen your customer relationship. If you are to consistently add-value to the customer relationship, you need to fully understand how your customers interpret, define, and quantify the value they receive from your products and services.

Here is a consumer example: A restaurateur offered existing customers 20 percent off for parties of 4 during lunch and early dinner. The idea was to add value to his existing clients by providing them with a benefit they could share. Result: His lunch business went up by 88% in one month and by 53% over the campaign. On the frequency side, he experienced 71% retention of his customers when he dropped the campaign after 3 months.

Finally, don’t forget, to see real results, you must start with what you already know about your customers. It is the market research, customer knowledge you already have, that is literally a hidden goldmine of profit that can grow your business and increase your company's top line. It is this customer-focused information that will provide the foundation for generating more sales, retaining and cross-selling customers, and acquiring new customer business. Armed with customer-focused information, you will know which is the best way to grow your business.


Erica Olsen ( is a principal of M3 Planning, a business development firm that helps companies understand who they are, where they are going, and how they will get there. She is also an instructor and a writer.

6 Common Market Research Mistakes of Small Business

Whether expanding a new line or starting a business, market research for your small business is a necessary component for success. As any business owner learns soon enough, risks are part of business. With limited resources, entrepreneurs know risk needs to be calculated. Employing market research helps you sort out the risks involved.

The benefits of market research for small business range from finding hidden niches and preserving capital to building customer loyalty and identifying more business opportunities with existing customers.

Before you take the path to greater customer understanding by market research, it's important to know the common pitfalls encountered by small business. Avoid these 6 common mistakes in market research for small business.

Think It's Costly: Bob Kaden, market research expert and author of "Guerrilla Marketing Research" knows too well the challenge small business owners face to afford the costs of conducting market research. Small businesses believe focus groups and surveys are unaffordable. Marketing research costs can range from a few thousand dollars to $25,000 annually.

Should you hire a professional or go it alone? "If you have the time and interest to learn what it takes to do effective research, there is no reason you can't execute the studies yourself at a fraction of the cost it would take you to use a professional," states Kaden in "Guerrilla Marketing Research." On the contrary, Kaden feels a solid market research professional is invaluable. Spend the time to learn what you don't know and need to know.

Try Secondary Research Only: Research comes in 2 forms: primary and secondary. Primary research is first hand knowledge you gain directly from the marketplace and often uses techniques as focus groups and surveys. Secondary research is usually published studies available online or from your library providing broad knowledge about your markets. Learning about your business and industry from secondary research is a good start but primary research allows you to target your efforts and understand customers' attitudes in real time.

Use Web Searching: The Internet has opened up a flood of business information that was once available to big companies or those with money. No doubt conducting secondary market research on Yahoo or Google saves time and money for small business. Search engines mine only a portion of the web and often the good info you need will be part of the deep web or on a paid search like Lexis Nexis. To save money, visit your local library, business center, or college to gain access to the quality information you need at zero cost.

Hit the Wall: Any sizable research project runs into the U-shaped curve. Your enthusiasm and motivation are high at the beginning but as the project progresses you reach a wall. As you start to take in more information, the level of complexity rises. At this point it's easy to lose motivation and cut the research efforts short. Those who persist soon realize it all comes together in the end. To best manage your cycle of motivation for the project, start your secondary market research by getting an understanding of your industry. Don't wait too long to get in the field and talk to potential customers.

Rely on Family Focus Group: A common mistake of new startups is asking those close to you for feedback on your product and service. Those who know you will want to guard your feelings. Friends and family make the worst possible selection of a focus group. You need to talk to real customers about the pros and cons of your offer and use your friends and family as support not market research.

Big Company Attitude: You spent years in your industry and understand customers... who needs market research? You carry plenty of baggage and preconceived notions of customers needs and wants. Test your assumptions on the market for real insight on customer attitudes and behavior.

All too often business owners will downplay the importance of gaining customer insight by market research. It's absurd how many businesses are launched without ever talking to a single potential customer. Avoid the common errors and use market research wisely to position your business for success.

Part 4: Tips For Doing Your Own Market Research

Do-It-Yourself Market Research

When you're doing your own market research, there are some things you should keep in mind.

1. Your information will only be as good as your market research sample.

Be careful when selecting your market research sample group to question. To get useful market research data, your sample group needs to be relevant to and representative of your target population. Notice that in my blind and drapes business market research example on the previous page, I moved from asking customers in the store to questioning randomly selected members of my targeted population. That's because just asking people in the store isn't good enough. Some of them will say "Yes" just because they like me or don't want to offend me. Informal market research is always tainted to a degree by the relationships of the people involved.

2. Design your survey or market research questionnaire carefully.

Make sure that it's focused specifically on the information you need to know, and that you haven't included any questions that may offend anyone. Many people are put off by questions that ask them how much money they earn, for instance. If you offend or confuse them, they won't bother to fill out your market research survey.

3. Keep your survey or market research questionnaire fairly short.

If possible, your market research survey or questionnaire should all fit on one page. Some people are intimidated by long forms; others see multiple page forms as just too much of an imposition on their time.

4. Always provide some opportunity for detailed answers.

Not everyone will take advantage of it, but some will, and sometimes these written-in comments are the most valuable of all.

5. Work out your market research recording techniques first.

Telephone market research surveys are popular, but how are you going to record what the respondents say? If you're orally interviewing someone, will you record them or take notes? The purpose of market research is to gather and analyze the data, so you've got to have a system of recording the data worked out in advance.

6. Set the criteria for the information beforehand.

In other words, market research is a process, which may shut down or be redirected at any time. If, for instance, when I was talking to the customers who came into the store in my blinds and drapes market research example on the previous page, no one expressed any interest in a blind and drape cleaning service, the exercise would be over at that point. But what if 10 customers expressed an interest? Or 32?

Before I ask my customers anything, I need to have the market research process clear in my mind. How many customers would have to express an interest in the service to make it worth my while to continue researching the possibility? Set the market research criteria beforehand, as in, "at least 50 percent of customers need to show an interest in a blind and drape cleaning service or there's no point in moving to the next stage of my market research".

The amount of market research you do is limited only by your time (if you're doing it yourself) or your budget (if you hire someone else to do it). But market research is necessary at all stages of a business's life, if you want continued success. Only market research can truly keep us in touch with what's most important - our customers, and their needs and desires.

Part 3: Using Market Research Surveys

Guide To Do-It-Yourself Market Research

Keeping the grid on the previous page in mind will help you stay organized when you're doing your own market research.

The first step in market research is to frame the question or questions you want answers to. Suppose, for instance, that I already run a successful retail business selling window coverings (blinds, awnings, and drapes). I'm wondering about adding a blind and drape cleaning service to my business. So my market research question is, is a blind and drape cleaning service viable?

Through monitoring business trends (reading as many magazine, newspaper, online, and trade journal articles as possible related to business), I know that consumers are increasingly concerned about recycling and reusing. And I've been watching local businesses find success selling used goods, from computers through vintage clothing. My monitoring of the environment tells me that people may be more interested in doing something with their old blinds and drapes instead of buying new ones.

For a market research question of this nature, the first area I would research is the competition. Let's suppose that there are three other window covering businesses in town. I can call them and ask them if they supply this service. If they do, I'll find out as many details as possible. Just because someone else offers the service, doesn't necessarily mean that I shouldn't; it just means I'll have to carefully consider issues such as market share and positioning.

The bulk of my market research will be consumer based. I'd start with a market research survey of my current customers, focused on whether or not they would be interested in such a service. This could be as simple as asking everyone who came into the store, or as formal as a questionnaire. If the response was positive according to the criteria I had set, I would move on to telephone interviews with randomly selected members of my targeted population. If these were positive, I might proceed to more in-depth market research survey interviews with selected respondents.

As I proceed, my research needs to become more specific. My first market research survey might be as simple as, "Would you be interested in a drape and/or blind cleaning service?" But if indications are positive, I need to know a lot more than just whether or not customers are interested.

For example, I might ask how many times a year the survey respondent would use such a service, or how much he or she would be willing to pay to have his or her drapes cleaned. Generally, the more detailed and specific the information I gather in my market research, the more useful it will be for making a decision.

On the following page are some tips for getting the most out of market research when you're doing it yourself.

Part 2: Market Research Basics

Do-It-Yourself Market Research

Doing your own market research isn't difficult, although it does tend to be time consuming. If you own a small business, you're probably researching your markets continually informally. Every time you talk to a customer about what he or she wants, or chat with a supplier or sales rep, you're conducting market research.

But more formal market research is also necessary to keep your business vital and growing. I think of market research as a grid (see the bottom of this page).

The Market Research Grid shows the two types of data sources and the three areas of research that are important to any business. You need to gather information from and about your customers to focus your marketing efforts, maintain and improve your customer service, and to guide your efforts in developing new products and/or services.

Looking at the Market Research Grid, information gathered about the competition can help you determine what works and what hasn't worked, give you ideas for improving your products and/or services, and provide insight into how to increase or shift your share of the market.

The environment section of the Market Research Grid refers to those economic, social, and political forces that shape business. Gathering information about the environment allows you to stay abreast of and respond to particular trends or events that impact your small business. Whether it's a predicted drop in interest rates, or the closure of a local mill, you need to be aware of it and judge the ripple effect on your business, for good or ill.

Think of secondary data sources as market research data that's already been collected by someone else. Telephone books, government publications, and sources such as Statistics Canada, trade journals, and surveys conducted by other companies are all examples of information that's already been gathered that you can use to get a fix on what your customers want, what the competition has done, and what the environment is like. You can find links to many valuable secondary data sources, including Canadian statistics, in my Business Reference Information library.

Primary sources provide firsthand information. When you survey your customers or question the competition, you're gathering information directly from the source. While this kind of market research data can be the most costly and time-consuming to gather, it can also be the most valuable, because it's the most current and the most specific.

Do-It-Yourself Market Research

Part 1: You Need Market Research

Why bother with market research? Anyone who's ever worked through a business plan knows the answer to this one. Trying to start a small business without researching your potential market is as sensible as setting out for the North pole with a surfboard.

But market research isn't just something you do when you're working on your business plan and then shelve. Market research needs to be an integral, ongoing part of your business' development.

It's crucial to analyze your market and target your clientele before you waste money on advertising that won't get you the results you want. Market research is also critical before you spend time and money developing a new product or service.

I'm always amazed at the number of business people who just seem to do whatever they feel like doing - without bothering to do any market research at all. For instance, several months ago, one local business that has specialized in underground sprinkling systems and hot tubs for years decided to start selling go carts. Now they have a fleet of go carts lined up outside their business with a huge "Must go; prices slashed" banner over them.

This is no surprise to anyone else. For one thing, go carts have nothing to do with their usual products, so why would their regular customers be interested in them? For another, even cursory research into the population demographics here would reveal that the majority of consumers in this retirement town are elderly, and therefore are probably not going to buy very many go carts.

My guess is that the business owner became personally enamored with go carts and decided to sell them because he liked them. I like lots of things, but that doesn't mean that investing my time and money to sell them to other people is a good idea. Investing time and money in market research instead can save you a lot of grief.

Conducting market research essentially means gathering the information you need to make decisions about your business. Market research is the systematic gathering, recording, and analyzing data relevant to selling the goods and/or services you produce.

There are a great many companies out there that will be glad to conduct paid market research for you. If, like many small business owners, hiring a company to do market research isn't in your budget, the rest of this article outlines how you can do your own market research, including tips for designing your own market research surveys and questionnaires. Continue on to the next page to learn about the basics of market research.

Starting Your Own Business Calls for Open Eyes

Don't Do What You Love When Starting Your Own Business

One of the most common pieces of advice to those who are thinking of starting a small business is to do what they love.

I've even given this advice myself. (Have a look at Top 10 Tips for Starting a Small Business That Will Succeed, for instance.)

But years of advising people who want to start their own businesses and watching them go through the start up process has taught me that I was wrong.

Or, at least, (being kind to myself), for many people, this advice is misleading. Particularly when you are at the stage of starting your own business where you're casting about for ideas and deciding what kind of business you want to start, choosing to start a business based on what you love can lead you on a path headed entirely in the wrong direction - or even over a cliff.

You should not do what you love because:

1. Love is blind.
I know it's a cliché, but it's also true. Think about the last time you were "in love" with a person. Magical, wasn't it? But time passes, as it always does, and suddenly you start noticing things about your beloved that you never noticed before - things that are not only not enchanting but irritating and maybe even off-putting.

The same emotional journey occurs when you fall in love with a particular business idea or type of business. For example, you might love the idea of starting your own Bed and Breakfast. You envision yourself sitting in the sunny dining room of your B&B chatting with your fascinating guests. If you actually did open a Bed and Breakfast, you would find that you probably didn't have time to chat with anyone because you were too busy making, serving and cleaning up breakfast. You might even discover that you dislike preparing breakfast for other people.

Love sugarcoats your vision and blinds you to defects. You need to know what operating the type of business you choose is really like, not what you think or hope it's like.

2. Love tempts you to take shortcuts.
Another reason love and starting your own business don't mix is that we tend to assume that other people will love who or what we love. Who hasn't experienced the bewilderment of realizing that a person who’s important to us dislikes a loved one? It's an uncomfortable situation that can lead to hurt feelings and even the loss of a friendship.

When you start your own business based on what you love, the assumption that other people love it too can be downright dangerous. When you forge ahead, starting your own business without doing the research that would discover whether or not other people love what you love, you're literally gambling with your livelihood. What if they don’t and you've invested all your savings, for instance, or remortgaged your family home?

Every business idea needs to be diligently researched and examined to see if it actually presents a profitable business opportunity. Think you'd love to do whatever it is you're thinking of doing as a business? Write a business plan and see if the idea actually has any merit.

3. Love makes you irrational.
When we're in love, we tend to see everything from an emotional point of view, rather than a rational one. That's why we describe it as being "head over heels". It's certainly not a good state to be in when you're starting your own business and trying to choose the business idea or existing business that will be best for you.

For example, the other week I heard that a small local coffee shop was for sale. I had to go see it as I've always loved the idea of running such a place. And physically, the coffee shop was no disappointment; it had all the atmosphere and accoutrements I had hoped for, right down to the funky carvings decorating the walls. My heart was pumping! I could see myself dishing up delicious lattés and cappuccinos to an appreciative crowd.

Now if I had let my heart lead me, I would have bought that coffee shop. Fortunately, I didn't. Instead, I sat down and did some research so I could do a business valuation. (See 3 Methods of Business Valuation.) I soon discovered that the business was considerably overpriced. Rationally, buying it would make no sense.

4. Love makes you overly optimistic.
Starting your own business is no small commitment. Doing what needs to be done to get your new business started and develop it into a thriving small business takes years in many cases. Very few small businesses are a financial success in their first year. Some, as you know, never are.

The danger of being in love with a particular idea or type of business is that it makes us overly optimistic as to a business's potential. We tend to romanticize our prospects. You can start any kind of business anywhere. But will it succeed? And (a question that is just as important) how long will it take for the business to actually turn a profit?

You can't know for sure before your new small business starts, but you can develop a pretty good guesstimate by working through your start up and operating expenses and doing cash flow projections. (See The Financial Plan Section of the Business Plan and 3 Methods of Sales Forecasting for details on how to do this.)

I'm always surprised by how many people are reluctant to "run the numbers". You have to do it, though, if you're going to get any realistic idea of a business’s potential success.

You Will Need Passion When You're Starting Your Own Business
Don't get me wrong - there's nothing wrong with passion. Passionately believing in your product or vision makes it a whole lot easier to put in all the hours you need to put in to start your own business and grow it into an enterprise to be proud of. But you need to rein in your passion when you're trying to decide what to do where and how. When it comes to starting your own business, passion is for the building stage, not the choosing a business stage.

So don't choose to start a small business based on what you love. Instead, choose something related to your interests that other people are going to love - or at least like enough to pay for.

Remember, Cupid is cute but he knows nothing about business!

How much money do you really need to start your business?

Calculating Startup Costs

You’re confident you’re sitting on the next million-dollar idea. Whether you’ve already secured funding or just trying to figure out what it will take to get started, an accurate estimate of start-up costs is necessary to reasonably predict financial performance in the first few quarters. Of course every business and every industry have different cost requirements, but these steps can help you start the number-crunching.
Determine Your Start-Up Cost Structure: Running your own software company is going to have different start-up requirements than opening a pet store, for example. says there are six cost categories for new companies:

Cost of sales
Professional fees
Technology costs
Administrative costs
Sales and marketing costs
Wages and benefits
Give thought to how these costs categories will be weighted across your business. Going back to the earlier example, the software firm presumably would want to allocate more money to technology while the pet store presumably would need several shifts of employees, which means wages will carry a higher cost.
Develop comparables: Look at industry leaders to help predict your own business’s costs. If you’re opening a boutique coffee shop, scan the financial statement of a similar company that's publicly traded, such as Caribou Coffee. Obviously your revenue numbers will look a little different, but break down how much a coffee chain spends on cost of sales and administrative expenses as a percentage of revenue. Keep in mind that large companies and chains will be more efficient since they have greater buying power and economies of scale than a start-up, but you can still use these percentages as goals to shoot for.

Contact trade associations, small-business message boards or entrepreneurs in related fields: Trade associations are an invaluable source of information for both new and established companies. Chances are whatever industry your start-up is in – from organic farming to independent bookstores -- there is already an entrepreneur support group out there with industry information, statistics and maybe even a magazine you can subscribe to, as well as several different where you can share ideas online. Also, don’t be afraid to seek out other entrepreneurs who have set up shop in your industry, or perhaps a related one, and talk to them about their experience with start-up costs, especially unexpected costs.

Project Start-Up Costs Conservatively: Business success stories like Google, McDonald’s or The Body Shop were not overnight sensations. When calculating start-up costs, keep in mind that you will likely need a few months of funding to cover expenses before you even open for business. And once you do begin operating, it likely will take a significant amount of time until the business is self-sustaining. When approaching banks and other lenders for money, try to include a substantial cushion for beginning operations to ensure you’ll have enough money to set up an office, take orders, hire employees if necessary, and cover other related costs. Be reasonable with your revenue assumptions in the early stages and be conservative with cost projections. It’s also possible to structure a small-business loan to defer payments during the initial operating period.

Separate One-Time Start-Up Costs from Recurring Costs: Distinguish between which costs you’ll have to account for year-after-year, such as salaries and rent, and which upfront costs will be one-time charges, such as office furniture. This should allow you to establish a budget for after the start-up period. Look for opportunities to delay non-vital expenses such as office decorations until after you’ve begun getting some business.

Look for Tax Advantages: According to’s list of the , “you can deduct up to $5,000 in start-up and $5,000 in organizational costs for the first year of business. These deductions apply to expenses paid or incurred after Oct. 22, 2004. The rules differ for expenses before that date or if your costs exceed $50,000. Expenses that are not deducted can be amortized over a 180-month period, which begins when you open your business. You can write off or amortize market research, advertising, employee training, business-related travel, legal advising and other costs.” Of course as the tax implications get more complicated, you may have to bring in a tax professional, which could eat into some of those savings.

Sole proprietor, partnership or corporation - What form will you do business in?

Business Legal Organizational Structures

Business legal structures vary significantly from country to country. The following article refers only to the legal structures within the United States. Our Small Business Canada Guide also has an overview of Forms of Business Ownership in Canada.
Choosing the proper legal organizational structure for your business is one of the most important decisions you will make. While it may not have much impact on the day-to-day operations of a small business, it can have a huge impact come tax time, when you want to borrow money or attract investors, or in the unfortunate event you get taken to court. While it is possible to change your structure at a later date, it can be a difficult and expensive process. Better to make the right decision in the first place.

In the United States, you are not required to have an attorney prepare and file the paperwork to create any of the structures listed below. In fact, there are numerous books and other products available to help you do the filings yourself, as well as many Internet services that will do them for you. However, depending on the size and complexity of your business, you may want to consult with an attorney, and you almost certainly should consult with your tax advisor regarding which structure is best for your situation. This article can't possibly answer all your questions, but it will help you determine the right ones to ask a qualified professional.

The following are the basic forms of business ownership in the United States. There are variants from state to state, so be sure to check with your state's Secretary of State Office for the exact details in your state.

Sole Proprietorship. The individual owner of an unincorporated business operates the business as an extension of himself. The profits and losses of the business are reported on the tax return of the owner - there is no separate business filing. The owner is personally responsible for any liabilities of the business. If someone sues the business for breach of contract, personal injury, or to collect a debt, the court can directly levy the personal bank account and other property of the owner. The major advantage of sole proprietorship is that it is the simplest and least expensive structure, as there is really nothing to set up and maintain, except perhaps a fictitious business name (aka DBA, or Doing Business As).

General Partnership. Two or more people own the business jointly and share profits and losses of the business as spelled out in the partnership agreement. Each partner is potentially responsible for the full amount of all liabilities of the business, i.e., a creditor can collect the full amount of a debt of the partnership from the partner that is the easiest to collect from. Distribution of profits and losses is determined by the partnership agreement and passes through to the individual partners. It does not have to match the ownership percentages. The partnership itself is not subject to any income or franchise tax. Control of the business is determined by the partnership agreement, but unless stated otherwise, the partners control the business jointly, with each partner having an equal vote. An advantage of partnerships is that, like a sole proprietorship, no state filings are required to create the business entity, nor are there any ongoing reporting requirements.

Limited Partnership. The basic structure and tax implications are the same as for a general partnership, but the limited partnership allows for one or more limited partners, or "silent partners", to own a portion of the business, but not participate in the management of the business. The partnership must also have a general partner who has personal liability for all liabilities of the partnership. This structure allows a partnership to have outside investors without subjecting them to the liabilities of the business.

Limited Liability Partnership (LLP). The LLP is a fairly new structure that appeared as a result from demand from attorney and accounting firms to be able to limit the liability between partners (attorney and accounting firms were at one time not allowed to incorporate, though they are now). An LLP is taxed like a partnership, but limits the liabilities of all partners much like an LLC. However, at this point in time, LLP laws vary significantly from state to state. For example, California and New York only allow this form for attorney and accounting firms. In many other states, partners in an LLP only have a "limited shield", and are not afforded the same protection they would enjoy in an LLC or corporation. These restrictions make the LLP generally only a good choice for attorney and accounting firms, at least in the states with the limited shield law. Check with your Secretary of State for the specifics in your state.