Category Archives: Business Forum

Low Cost Ways to Test your Business Idea

So you’ve got a great idea for a new product or solution and you think it’ll be a sure-fire hit.

Not so fast. To find out if your idea has traction, you need to test it.

It’s an often-overlooked step that can help you refine your offering and ensure a successful go-to-market strategy. So before you put pen to paper and write your business plan, get out there and assess the validity of your product.

Here are six low cost tips on how to best test your business idea.

Find your Idea’s Fatal Flaw

SCORE offers some great tips on how to validate your idea. In this article, guest contributor, Daniel Kehrer, stresses the importance of banishing the idea that your product or solution is perfect. It isn’t. It may have one, two, or multiple flaws. Ask yourself:

What am I missing? What possible pitfalls am I not seeing? How might my competitors respond? What…makes me think that my business or product idea will work when…others don’t?” Once its flaws have been identified, find a way to fix them.

Related: Corporation or LLC? What’s Best for Your Company?

Test Outside your Network

There’s a lot of advice out there about testing your idea on friends and family. Not always. Also writing for SCORE, Jeanne Rossomme, recommends that entrepreneurs refrain from soliciting input from their immediate network, including their team. Instead focus on those whose opinion matters – your target market.

One way to do this is to crowdsource your market research. Form a focus group. This can be done virtually or in-person. Simply advertise for volunteers (Craigslist is a good place to start). Then provide these people with free samples of your product to test. Alternatively, assemble your focus group in one place and have them try out your product, alongside the competition’s, and see what results you get.

If your idea is less tangible or you don’t have a prototype in place, walk the streets and find out what people want. What’s missing in their market? What is the competition not providing? If your solution was available to them, would they take advantage of it?

3. Tweak It, But Not Too Much

As you test your idea you’ll encounter lots of feedback. In many cases, it can be overwhelming. This is especially true if your trying to get investment or are pitching a concept or prototype to a new client (particularly one who promises to buy it in bulk). It can be tempting to edit your idea to the point where it becomes so customized to the needs of a single customer, that you rule yourself out of the rest of the market, or waste precious resources trying to check all boxes.

Instead focus on the must-haves that translate well across several markets or customer profiles. There’s plenty of time for customized flavors of your idea down the line once you make a profit and can start diversifying.

Related: Marketing Tools Entrepreneurs Should Keep Handy

4. Perfect your Elevator Pitch

You see this all the time on TV show’s like Shark Tank. You need to pitch your idea in 30 seconds or less. What challenge does your product address, how? How is it different to the competition (what’s your differentiator?). And what is the outcome for the buying customer. People buy outcomes, not products. Your elevator pitch is something you will take with you for the lifetime of the idea – whether you’re pitching to investors, customers, manning a tradeshow booth, or briefing a marketing agency.

5. Create a Mini Version of your Idea

Creating a full-blown version of your idea can be expensive. Smart Passive Income’s Pat Flynn, has some great ideas for creating a mini-version of your idea to test the market. He uses the example of the food truck industry, which is often used as a platform to test an idea, concept, and menu before the owner commits to building a bricks and mortar restaurant. But the theory can be applied to other industries too. If you run a hair salon and want to start a massage therapy business at a new location, you could test demand by starting small by dedicating a small area of your current location to provide the new service on a part-time basis.

Likewise, if your product can be experienced without launching a full-fledged version, such as a piece of software, music, literature, and so on, test it as such.

Related: Tax Obligations for New Businesses

6. Run Dummy Marketing Campaigns

This is an increasingly popular and effective way to gauge market demand. Promote your idea for a product or service as if it’s already available on the market.

One way to do this, suggests entrepreneur advisor Evelio Pereira of Epicster.com, is to create a landing page to promote your idea. This could be hosted on your website or on a new domain. Include sales information, product/solution features, etc. Be sure to include a “Buy Now” or “Learn More” button.

Obviously you have nothing to sell yet, so when the site visitor clicks through take them to a page featuring the message that the product isn’t available yet, but if they fill in the form they’ll be notified when it’s launched.

You can use various outlets to promote the page – run an email marketing campaign to your existing customers. Or, if you have the budget, invest in Facebook ads (targeted to your geo-location and demographic) or Google Adwords or Bing Ads.  Your click through data will also provide valuable insight into whether your idea is in demand!

Related: Productivity Tools You Need In Your Toolbox

Credit: Caron Beasley via Small Business Association

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CMG Business Group…. Propelling Industry to New Heights!

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How to Name Your Business

 

What’s in a name? A lot, when it comes to small-business success. The right name can make your company the talk of the town. The wrong one can doom it to obscurity and failure. Ideally, your name should convey the expertise, value and uniqueness of the product or service you have developed.

Some experts believe that the best names are abstract, a blank slate upon which to create an image. Others think that names should be informative so customers know immediately what your business is. Some believe that coined names (that come from made-up words) are more memorable than names that use real words. Others think they’re forgettable.

In reality, any name can be effective if it’s backed by the appropriate marketing strategy. Here’s what you’ll need to consider in order to give your small business the most appropriate and effective name.

Enlist Expert Help to Start

Coming up with a good business name can be a complicated process. You might consider consulting an expert, especially if you’re in a field in which your company name may influence the success of your business. Naming firms have elaborate systems for creating new names and they know their way around the trademark laws. They can advise you against bad name choices and explain why others are good.

The downside is cost. A professional naming firm may charge as much as $80,000 to develop a name. That generally includes other identity work and graphic design as part of the package, according to Laurel Sutton, a principal with Catchword Brand Name Development. Naming services that charge as little as $50 do exist, but spending a reasonable amount of money early for quality expert advice can save you money in the long term.

Related: Your Startup is up and running. What now?

What’s in a Name?

Start by deciding what you want your name to communicate. It should reinforce the key elements of your business. Your work in developing a niche and a mission statement will help you pinpoint the elements you want to emphasize in your name.

The more your name communicates to consumers about your business, the less effort you must exert to explain it. According to naming experts, entrepreneurs should give priority to real words or combinations of words over fabricated words. People prefer words they can relate to and understand. That’s why professional namers universally condemn strings of numbers or initials as a bad choice.

On the other hand, it is possible for a name to be too meaningful. Common pitfalls are geographic or generic names. A hypothetical example is “San Pablo Disk Drives.” What if the company wants to expand beyond the city of San Pablo, California? What meaning will that name have for consumers in Chicago or Pittsburgh? And what if the company diversifies beyond disk drives into software or computer instruction manuals?

How can a name be both meaningful and broad? Descriptive names tell something concrete about a business — what it does, where it’s located and so on. Suggestive names are more abstract. They focus on what the business is about.

Consider “Italiatour,” a name that was developed by one naming company to help promote package tours to Italy. Though it’s not a real word, the name is meaningful and customers can recognize immediately what’s being offered. Even better, “Italiatour” evokes the excitement of foreign travel.

When choosing a business name, keep the following tips in mind:

  • Choose a name that appeals not only to you but also to the kind of customers you are trying to attract.
  • Choose a comforting or familiar name that conjures up pleasant memories so customers respond to your business on an emotional level.
  • Don’t pick a name that is long or confusing.
  • Stay away from cute puns that only you understand.
  • Don’t use the word “Inc.” after your name unless your company is actually incorporated.

Related: Hobby or Startup? Important When Filing Your Taxes

Get Creative

At a time when almost every existing word in the language has been trademarked, the option of coining a name is becoming more popular. Some examples are Acura and Compaq, which were developed by naming firm NameLab.

Coined names can be more meaningful than existing words, says NameLab president Michael Barr. For example, “Acura” has no dictionary definition but the word suggests precision engineering, just as the company intended. NameLab’s team created the name Acura from “Acu,” a word segment that means “precise” in many languages. By working with meaningful word segments (what linguists call morphemes) like “Acu,” Barr says the company produces new words that are both meaningful and unique.

Barr admits, however, that made-up words aren’t the right solution for every situation. New words are complex and may create a perception that the product, service or company is complex, which may not be true. Plus, naming beginners might find this sort of coining beyond their capabilities.

An easier solution is to use new forms or spellings of existing words. For instance, NameLab created the name Compaq when a new computer company came to them touting its new portable computer. The team thought about the word “compact” and came up with Compaq, which they believed would be less generic and more noticeable.

Related: 10 Small Businesses to Start With Little To No Money

Test Your Name

After you’ve narrowed the field to four or five names that are memorable and expressive, you are ready to do a trademark search. Not every business name needs to be trademarked, as long as your state government gives you the go-ahead and you aren’t infringing on anyone else’s trade name. But you should consider hiring a trademark attorney or at least a trademark search firm before to make sure your new name doesn’t infringe on another business’s trademark.

To illustrate the risk you run if you step on an existing trademark, consider this: You own a new manufacturing business that is about to ship its first orders when an obscure company in Ogunquit, Maine, considers the name of your business an infringement on their trademark. It engages you in a legal battle that bankrupts your business. This could have been avoided if sought out expert help. The extra money you spend now could save you countless hassles and expenses further down the road.

Final Analysis

If you’re lucky, you’ll end up with three to five names that pass all your tests. Now, how do you make your final decision?

Recall all your initial criteria. Which name best fits your objectives? Which name most accurately describes the company you have in mind?

Some entrepreneurs arrive at a final decision by going with their gut or by doing consumer research or testing with focus groups to see how the names are perceived. You can doodle an idea of what each name will look like on a sign or on business stationery. Read each name aloud, paying attention to the way it sounds if you foresee radio advertising or telemarketing in your future. Use any or all of these criteria.

Keep in mind that professional naming firms devote anywhere from six weeks to six months to the naming process. You probably won’t have that much time, but plan to spend at least a few weeks on selecting a name.

Once your decision is made, start building your enthusiasm for the new name immediately. Your name is your first step toward building a strong company identity, one that should last as long as you’re in business.

Credit: Start Your Own Business, Fifth Edition – Entrepreneur Press

Related: Marketing Tools Entrepreneurs Should Keep Handy

CMG Business Group…. Propelling Industry to New Heights!

 

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How this Woman Blogged her Way to Six Figures

Tell us a little bit about yourself and your blogging journey.

When I started my blogging career, I was in the middle of a divorce. My husband abandoned our family and I was making a full time living on eBay. I felt there was more to life. eBay didn’t really help people and I love to serve others. All of my friends kept asking me the same questions over and over. How can it be possible I have more than them and they were married and both working, yet I “lived like a queen on so much less than them.”

I started my blog simply answering their questions in the form of posts, so that I didn’t have to keep repeating myself all the time and soon it turned into this huge thing that I had no clue would happen. I stood before the judge telling him, I believed with all my heart I could make $1,000/month in blogging in one year’s time and everyone laughed at me. He told me if I continued, I would lose tens of thousands of dollars in the divorce and that I should get a job outside the home. I obeyed God rather than man and 12 months later, I was earning $10,000/month!

Related: Marketing Tools Entrepreneurs Should Keep Handy

You managed to live on $18K a year, how were you able to do that?

I got absolutely everything I possibly could for free, so that I could afford the things I wanted (a nice home with a garage and big back yard, etc.) I have no debt, so that helps a lot, and I’m obsessed with paying as little as I can for only quality items. I go into detail of my journey from starting out in a homeless shelter to making a fantastic living and becoming debt free in my upcoming book, How to Become Financially Free. Here’s a sneak peek of the introduction.

Give us an example of how you first monetized your blog.

The most important thing a blogger can do is to focus on ONE thing at a time. Yes, it’s slower, but the results are much better.

I first focused on ads because it was easy money and got really good at it. So much so, that I was earning quite a bit and was rocking it. Next, “Focus on traffic,” I thought, “With more traffic, my ads will make me more,” so I turned to Pinterest. I spent 6 months learning every detail I could about Pinterest, testing out my different theory’s, until I hit the answers and my Pinterest started blowing up. Now, companies who are creating Pinterest scheduling programs beg me to use their software. But I won’t budge. I know what works and what doesn’t.

Related: 10 Small Businesses You Can Start Today With Little To No Money

Between making money through ads and getting tons of traffic, my income started doing very well and now I’m studying affiliates inside and out. 🙂 That is what I’m currently working on.

What types of marketing strategies have worked best for you?

The absolute best strategy is to just be yourself. A reader may come to your blog because of a post, and they may stay on the post for 30 seconds because the content is good, the layout of your site is great, and your pictures rock, but they come BACK for YOU. Whether or not they think you can be their friend. It’s all about personal connection. Many bloggers fail because they are too focused on other areas, rather than on serving and being a friend to the reader, serving them and THEIR needs.

A friend is kind, loving, and always tells the truth, even when it’s hard. In blogging, you have to stand up sometimes. Sometimes bloggers lack courage, but that’s what makes a top blogger. Although it’s hard, we have to stand up for what we believe in. There’s an old saying that goes something like this, “If you don’t stand for something, you’ll fall for anything.” Readers don’t want to follow a follower. They want to follow someone holding the torch and leading the way. As bloggers, it’s our responsibility to be that for them. To be a voice for those who don’t have a voice.

Related: Your Startup is Up and Running. What Now?

How do you minimize income peaks and valleys?

Funny you should ask that. No one ever asks and I think it’s a huge missed opportunity. I do have peaks and valleys like everyone else, however, I am able to minimize them by working HARDER than most when everyone else is asleep at the wheel. Very few blogs post every day. I do. In summers, most bloggers take time off, post content very lightly, just take it easy. That’s when I’m working the hardest! The readers are there, and I snatch them all up! When things are crazy busy, that’s when I take time off. During Christmas-time is when most blogs are slammed, but I’m taking a break, because I know the traffic is there and my content is good. I make it a priority to never do anything like anyone else, and that’s how I win at blogging. 🙂

How much are you making annually and what was your big turning point? 

I’m still in my first year of blogging, I haven’t hit 2 years old yet, so I can’t really know an annual number for a little while longer, but I can say that within 12 months of my blogging, I was making $10,000/month. Projected total should be 6 figures a year no problem.

I don’t think I’ve had one major turning point. I believe gaining momentum is about layers. I do something, I gain a ton of traffic and those that don’t connect with me fall off and I keep some to become friends … I’ll be featured somewhere, or guest post somewhere, or have a post that goes viral, and again, get a ton of traffic and keep friends. It’s kind of like a funnel. Everyone goes in, the ones that I can help, stay. Those that stay, I bend over backwards to help. One reader asks me to post on something and I will. I still answer all my own emails. I’m incredibly personable in that way.

Related: Your Startup is Up and Running. What Now?Top 10 Crowdfunding Sites

What advice do you have for other women who want to start their own online business on a shoestring budget?

Get personalized one-on-one coaching right away. You won’t see the value in it, but you’ll lose more money by NOT doing it. I wasted months of blogging and thousands of dollars being scammed. Putting money where it wasn’t smart. I just followed everyone’s advice. I didn’t know who was good and who was bad. Who was reputable and who was a scam. Check the Alexa score. The lower the number, the more you can trust the advice.

Get coaching to get a road map of exactly where you want to go your first year. It’ll shave off months, even years of your own trial and error and get you earning income super fast. One-on-one coaching is something I offer on my site. You can find more information about it here. Just remember to always check the Alexa score before you buy time with a coach and it HAS TO BE personalized coaching. What works for one blog most likely won’t work for another.

As a busy single mom and entrepreneur, how do you manage all of your personal and business activities?

I probably don’t sleep as much as I should. Sometimes it takes being super creative. The whole reason I work from home as a single mom is to be with my kids. I can’t let working from home eat up my time FROM my kids. At the same time, I’m the sole provider of our family. To have a roof over our heads, I have to make money. It’s definitely a balance. Thankfully, I have a wonderful team now that helps. My assistant Katie, my assistant who helps with editing Becky, my design technician Laura, and my contributors. All truly amazing women that I’m honored to be a part of their lives.

Related: Hobby or Startup? Important When Filing Your Taxes

Credit: Sarah Titus via The WorkAtHomeWoman.com

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CMG Business Group…. Propelling Industry to New Heights!

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Actions to Make You a Better Leader!

Startups provide business leadership with new products, services, and new revenue models, but leadership startups can only be built by entrepreneurs who are leaders themselves, and incent leadership in the team around them. Leadership which incents other people to be leaders is called “contagious leadership.”

John Hersey, in his classic book “Creating Contagious Leadership,” describes nine required skills or habits for inspiring a contagious leadership culture within a startup, as well as within other types of businesses, or even life in general. He and I believe that leaders have to make the overt decision to acquire these skills, and don’t have to be born or trained into them:

  1. Spotlight leadership acts of others. This is the habit of focusing attention, directly or indirectly, on leadership efforts and accomplishments of another team member or group. For managers and non-contagious leaders (contained leaders), the spotlight seems to always be on themselves.
    Related: 100 Great Questions Every Entrepreneur Should Ask
  2. Cultivate positive character qualities. Contagious leaders have a habit of highlighting effective choices about “how” things were accomplished, and not just “what” was accomplished. It’s not just about the numbers, but how character played a role, and who made the right decisions along the way.
  3. Provide in-depth recognition. Don’t just articulate specific actions that deserve praise. Contagious leaders tell Harry why and how he did a good job, whereas managers and contained leaders just say “Good job, Harry.”
  4. Emphasize strengths, leading to greatness. Conventional managers focus on people’s shortcomings and point them out as often as possible. Contagious leaders nurture the habit of recognizing others strengths, and help them extrapolate these to greatness.
  5. Communicate often and effectively. The habit of constantly exchanging information, thoughts and feelings openly and honestly builds morale, enhances productivity, and fosters contagious leadership. Too many managers “tell ‘em only what they need to know and not a moment before they need to know it.”
  6. Provide an unobstructed vision. Contagious leaders foster the habit of focusing actions on a clear and sensory-rich picture of the desired result. Managers tend to have only a vague picture of where the company is going, so they are unable to share a coherent vision with others.
  7. Really touch people’s lives. Nurture the habit of truly knowing your most valuable asset – people. Managers avoid any real, deep involvement. Most don’t know if the people reporting to them are married or single, or anything about them. Contagious leaders know their people personally and do things for them, not because it’s good for business, but because they truly care.
  8. Passionately support your people. Managers are always controlled, rather than being fully committed and willing to take a risk. Contagious leaders are quick to support their team, and always stick up for them, even in the face of adversity.
  9. Mentor a permission mentality. Contagious leaders mentor their team to always assume they have permission to do things their way. They try to extend the concept of contagious leadership, rather than constrain it. Managers want a staff of imitators and followers. They want people to do what they want, and to do it their way.

Related: 10 Common Career Killers

In summary, leaders are not the same as managers. Managers focus on the process, while leaders focus on the people. Leaders influence people to make things happen, rather than tell people to make things happen. Contagious leaders create a culture that inspires everyone to be fully engaged in the startup. The result is that your whole startup will be a leader.

Credit: Marty Zwilling via StartupProfessionals.com

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CMG Business Group…. Propelling Industry to New Heights!

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Compensation Tactics To Help Retain Employees

 

Guest columnist Ron Volper discusses how a well-thought out compensation plan can help retain your best employeees.

Small and mid-sized businesses that lose top performers incur the costs of hiring and training new employees, but they face an even greater risk: damaging relationships with existing customers and eroding the morale of other employees. Proof of this is that the companies that are the most profitable usually have the highest employee retention.

A study the Ron Volper Group conducted, in 2011, across a range of industries, confirmed that the number one reason for “unforced turnover” is employee dissatisfaction with their compensation. Moreover, 80 percent of employees who voluntarily left their company took a higher paying position with another company.

Here’s how you can use your compensation plan to retain and motivate employees and up your sales in a down market.

1. Pay employees salary and incentives. The companies with the highest employee morale and productivity pay a mix of salary and incentives. The salary compensates employees for performing all the tasks required of them and provides them with a consistent income. The incentive (which can be commission for salespeople and a bonus for others) motivates them to meet and exceed their goals and gives them the opportunity to increase their earnings.

Related: Get The Most Out of Your Startup Team

Pay employees the salary portion of their compensation monthly or bi-monthly. Pay employees the incentive portion of their compensation as soon after they meet their goals as feasible. Thus, quarterly incentive payments are usually more motivating than annual payments and monthly incentive payments are often best.

2. Keep the incentive part of your plan simple. The test of a good compensation plan is that the incentive part measures no more than two to four performance factors, and all employees can accurately explain the plan in the time it takes to walk from the front door of your office building to your receptionist’s desk.

3. Establish SMART goals. SMART goals are: Specific, Measurable, Ambitious, Realistic and Time-bound.

For salespeople, that means establishing monthly and annual revenue goals and/or goals for opening new accounts. For other customer contact people, establish goals for the ratio of customer compliments versus complaints, and/or the number of customer complaints they resolve on the first phone call. For employees in accounts receivable, consider basing goals on how much outstanding revenue they collect against specific targets. For those in manufacturing, consider basing goals on the number of products they manufacture free of defects.

While it’s okay to pay a small part of the incentives based on the team’s overall results, most of the incentive should be based on individual results.

Related: Make The Entrepreneurial Difference

4. Determine what your competitors are paying. One way to attract and retain top employees-and keep them motivated is to pay them as much or more than your competitors. Every few years, you should determine what your competitors are paying and adjust your compensation plan accordingly. You can do this informally by asking employees with other companies that you interview about their compensation plan, or more objectively by hiring an outside consulting firm to benchmark your plan against others and advise you on how to adjust it.

5. Modify salaries based on employees’ geographic location. While the incentive plan for employees working in different cities should not change, you should adjust the salary portion to reflect the local cost of living, so as not to penalize employees who live in more expensive cities.

6. Use merit increases to reward top performers. In a misguided attempt to keep all employees happy, many companies misallocate the funds they budget for annual merit increases by giving all employees essentially the same merit increases. Your first priority should be to retain and motivate star employees, your second priority to retain and motivate satisfactory employees. Therefore, award the largest salary increases to your stars, much more modest increases to satisfactory performers, and no increases to employees whose performance falls below expectations.

7. Provide employees with non-financial rewards. Besides cash, employees are motivated by other forms of recognition and rewards. For example, consider establishing an annual trip to reward employees who have achieved certain annual goals. Besides increasing motivation, company-sponsored trips build camaraderie and teamwork. How you train, develop and manage your employees also drives retention and performance. However, paying them as well as you realistically can — based on their performance — is one of the best ways to heighten their motivation.

Related: Get The Most Out of Your Startup Team

Credit: Ron Volper via CNBC.com

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CMG Business Group…. Propelling Industry to New Heights!

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Dream Big! And Make it Happen!

Did you know that January 13 is National Make Your Dreams Come True Day? While there seem to be days in honor of nearly every occasion (no matter how obscure or seemingly insignificant), I think this particular one has a lot of merit. Entrepreneurs are both doers and dreamers. When they start a business, they aspire to make their dreams of controlling their own professional destiny come true.

With almost the entire year ahead of you in 2016, what better time to take action and fulfill your own small business dreams?

In striving to become a more success entrepreneur, little changes can mean a lot. The following simple habits, for example, can help expand your network, boost your credibility, and improve your performance when made a part of your daily routine:

  • Make at least one new connection every day on LinkedIn – Don’t just send a generic invitation; send a personalized invitation to open the door to dialogue. But be careful about coming across as pushy and salesy. That can be a turnoff and drive potential customers away.
  • Read (and learn from) at least one reputable, highly regarded blog – Choose blogs that will keep you in the know about trends and developments in your industry. The more you know, the more credibility you’ll have and the more trust you’ll earn.
  • Be helpful to another professional – Share an article you believe they’ll find interesting; introduce them to someone they might have an opportunity to do business with; give their business a shout out on social media…the possibilities are endless! By helping others, you’ll make them more inclined to consider you when they’re looking for the types of products and services you provide. And they’ll be more likely to refer business to you.

Related: Make The Entrepreneurial Difference

  • Proofread (and double check tone) of your emails before you hit “send” – I can’t stress this enough! Fair or not, people will judge your professionalism by how well you communicate. While an occasional error will be forgiven, blatant sloppiness in spelling, grammar, and punctuation will make you appear careless and uneducated. Review everything you write carefully to make sure it’s clear and error free. Also read your emails out loud to pick up on any unintentional harsh vibes they might convey. If you find they come across abrupt or insensitive, give them an attitude adjustment before sending them to recipients.
  • Commit to giving your clients no less than your best – This goes without saying, but I’ll say it anyway! When you put your best effort into doing work for your customers, you stand a much better chance of delighting them than you will by simply going through the motions. Bring your “A game” to every client interaction.
  • Start the day with a “can do” frame of mind – A confident state of mind empowers you to work more productively and tackle challenges with greater ease. If you don’t naturally feel that way when you begin your day, consider engaging in some positive self-talk or write down your strengths to reinforce your status as a capable and competent professional.

None of these suggestions requires a great deal of time or energy, so what are you waiting for? In the spirit of National Make Your Dreams Come True Day, put them into practice and get closer to making all of your small business dreams a reality. Stop only dreaming and start doing.

Related: Behaviors of Successful People

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CMG Business Group…. Propelling Industry to New Heights!

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How to Get a Business Loan

Money is the lifeline of any business, so whether you’re starting a business or running an existing one, securing financing is a major factor, especially for small businesses.  Many budding entrepreneurs find the task daunting and don’t even know where to begin.

Here’s a simple yet practical guide on how to go about preparing to apply for a small business loan.

1.    What criteria do banks look for in making small business loans?

Different banks or lending institutions may have different standards, but in general, in order to consider your application for a small business loan, banks will require:

  • The loan must be for a sound business purpose. For SBA-guaranteed loans, the business must be eligible based on size, use of loan proceeds and the nature of the business (no lending, speculating, passive investment, pyramid sales, gambling, etc.)
  • You and your partner(s) are of good character, have experience and good personal and/or business credit history
  • Ability to pay back the loan- reasonable to strong collateral (personal and business assets) is very important. SBA expects the loan to be fully secured, but we will not decline a request to guaranty a loan if the only unfavorable factor is insufficient collateral. And of course, owners must have personal equity investment in the business/skin in the game.

Related: Seven Secrets of Self-Made Millionaires

2.    What information will you need?

Different lenders may require more or fewer documents, but in general, you will need:

  • Personal and business credit history
  • Personal and business financial statements for existing and startup businesses and as well as a projected financial statements
  • Strong, detailed business plan (including personal information such as bios, education, etc.)
  • Cash flow projections for at least a year, and
  • Personal guaranties from all principal owners of the business

3.    How can you set yourself up from the beginning to make the process easier? (i.e. accounting systems, etc.)

Be prepared; be thorough; be truthful.

  • Choose your lending institution carefully. Larger banks tend to shy away from small loans as they are less profitable and take the same amount of underwriting and servicing. That doesn’t mean large banks do not make small loans; it is just more difficult.
  • Approach banks or lending institutions you have worked with or are a customer of
  • Explore community banks and Credit Unions
  • Talk to a lending officer and find out exactly what documentation they require
  • Be thorough, bring everything they ask. Many loan applications are denied or face unnecessary hurdles because of incomplete applications.

Related: Hobby or Startup? Important When Filing Your Taxes

Even before you start gathering and organizing the information required by lenders to consider your application, you should educate yourself regarding business loans so you can understand and discuss intelligently with the lending officers when the time comes.

4.    What is the typical size of a small business loan?

Small businesses come in many sizes, from a start-up of a one-person company to hundreds of employees, and their financial needs vary accordingly, so “typical” also varies. That said, in the banking industry the median small business loan is about $130,000 – $140,000 with highest around $250,000. SBA small business loans range from about $5,000 (microloans) to $5 million (largest guaranteed) with the average loan around $371,000.

5.    How can you get financing to start a business since many banks want to fund growth?

Start-ups are probably the most difficult ventures when it comes to securing financing. Many start-up businesses seek financing from family, friends and credit cards.  If the credit is sound, the business plan strong and you have enough personal resources to invest and collateral to guarantee, smaller, community banks and  other community financial institutions and Credit Unions may consider lending you money.

Related: How to Name Your Business

Your best bet by far is SBA assistance. Begin by visiting SBA’s website , where you will find a wealth of information not only on how to secure a small business loan but equally importantly, other services and training opportunities to help you succeed.

6.    Are there associations that can help?

SBA works closely with a large network of partners that leverage SBA resources and are just one phone call away and ready to provide extensive help.

  • SBA District/Branch Offices– at least one in every state
  • SCORE– (approximately 300 chapters nationwide)
  • SBDCs – Small Business Development Centers; (approximately 900 locations nationwide; associated with higher education institutions (colleges and universities)
  • WBCs– Women’s Business Centers (approximately 100 educational centers nationwide)

Related: Make the Entrepreneurial Difference

Credit: Natale Goriel via SBA

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Study Now, Startup Later

In an environment of billion-dollar valuations for private companies and cloud-based software that makes start-up launches easier than ever, staying focused on academics can be challenging. Should you hit the books, or try to launch the next, great start-up when the idea and capital strike?

Over the last few years, as the economy has recovered, Garth Saloner,outgoing dean of Stanford University’s Graduate School of Business, has watched the number of MBA graduates who launch ventures (in founding roles) rise to 16 percent for the class of 2015, slightly lower than the all-time high of 18 percent of graduates reached two years ago. “We’ve never seen that before. It’s a big number,” Saloner said. A decade ago that figure was in the single digits.

Of course, graduates launching start-ups is something to laud and a testament to Stanford’s competitive two-year MBA program that can open a lot of doors in Silicon Valley. U.S. News & World Report ranked Stanford University’s business school No. 1 for 2015, and edged out Harvard University and the University of Pennsylvania’s Wharton.

On the other hand, more ventures founded out of business school also suggests students are spending a huge bulk of time creating ventures. Aspiring entrepreneurs may not be taking full advantage of lessons from professors and visiting professionals during the business school program.

“What gives me pause is when students get so engaged in the start-up itself in the second year that they devote their energy to it at the expense of their second year,” said Saloner in an interview earlier this month. “That’s a lost opportunity.”

Related: Building Emotional Fitness Needed to Succeed

By the way, it’s not like Stanford business school students are dropping out in droves for start-up dreams. Drop-out rates in the MBA program are nominal. The larger worry is MBA graduates who aren’t preparing for the long game that is a modern career. Navigating workplaces, from multinationals to small businesses, require a variety of skills and knowledge, from accounting and finance to managing growing teams and enterprises.

“What I often see is a student who has devoted a big chunk of time to an idea that doesn’t pan out,” Saloner said. “Realistically most fresh start-up ideas just don’t survive the rigorous tests of the marketplace,” said the departing dean. He announced his resignation in September amid a lawsuit related to a contentious divorce.

Billions in VC-backed companies

Silicon Valley

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Of course, you can’t blame an MBA student for dreaming and building a start-up. There’s lots of capital available.

We’re in an age of tech “unicorns,” a term given to start-ups valued at $1 billion or more, though 2016 could be a year of reckoning. Tech experts forecast valuations edging lower and funding rounds becoming trickier to secure.

Related: 100 Great Questions Every Entrepreneur Should Ask

The first nine months of 2015 saw $98.4 billion invested into venture capital-backed companies, an 11 percent jump compared to all of 2014, which was a record year for VC-backed investment. That’s according to a quarterly global report on VC trends published jointly by KPMG International and CB Insights.

Beyond capital, there are plenty of start-up summer camps, incubators and accelerators. The Princeton Review now ranks both graduate and undergraduate entrepreneurship programs.

For four-year colleges and universities in the U.S., about 77 percent of public and private not-for-profit institutions offer at least entrepreneurship courses. That’s according to research from the University of Illinois at Urbana-Champaign, on behalf of the Kauffman Foundation, which tracks entrepreneurship.

Programs for students who are not business majors are also growing in numbers, according to University of Illinois research. Roughly 21 percent of schools offer minors or certificates open to undergraduates students from multiple majors. These undergraduate programs often emphasize the entrepreneurial mindset as much as launching a start-up immediately.

Bottom line? This frothy environment can create an impression that instant riches might be just a few clicks away on a laptop, with a dorm buddy and some late-night code.

But academics and researchers argue the broader point of entrepreneurship and MBA programs is to learn to think like an innovator and business leader. The goal is to acquire the relevant skills to launch an idea or project — whether as a stand alone start-up, or inside a massive Fortune 100 organization.

“Everybody should be equipped to start an opportunity at some point in their career,” said Donna Kelley, entrepreneurship professor at Babson College. “If they lose a job or they see an opportunity, it should be in everyone’s tool set so they can enact a plan when the timing is right.”

Not surprisingly, workers launching businesses based on perceived opportunities and a broad optimistic outlook — a group sometimes called opportunity entrepreneurs — has grown as the U.S. economy has improved. On the flip side during the recession, launching ventures out of need — a category called necessity entrepreneurs — rose during the downturn.

Related: Quick, Easy Ways to Improve Your Focus

In fact in the U.S., entrepreneurs in some cases exercise their start-up ambition while still working within large companies, according to research by Babson College in Wellesley, Massachusetts. This group is sometimes referred to as employee entrepreneurs, according to the latest Babson’s Global Entrepreneurship Monitor, a large annual survey of start-up activity.

“The point is entrepreneurship is not just about start-ups,” Kelley said. “It’s about being entrepreneurial wherever you are.”

Stay the course

Stanford Graduate School of Business student Kudzi Chikumbu is working on a career transition into the entertainment industry from management consulting. He has a show on YouTube called, “The Snatched.”

By just being in Silicon Valley, there are plenty of temptations to dive into start-up waters. So what keeps him in class? “Once you leave, you can’t come back to school. You don’t get a second chance at a Stanford MBA,” said Chikumbu, originally from South Africa.

Not to mention the expense. The full-time, two-year MBA program costs roughly $190,000 to $200,000 based on two years’ tuition.

“If you take too much time to get distracted, you won’t have time to brush up on your other skills,” he said. “You’ll have the network.”

As Saloner said of Stanford, careers travel a long trajectory. “This is the time for you to be investing in that.”

Credit: Heesun Wee via CNBC.com

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Compensating Your Employees’ Base Pay

Compensation begins with a base pay of some kind. But how best to structure it—by the hour or week?It depends on what type of business you’re in, as well as how established your company is. Salaries are more typical for managers and employees in white-collar positions, while hourly pay is more common for temporary or part-time employees as well as consultants and workers in certain blue-collar jobs. When your company is just starting up, you might be more inclined to hire part-time rather than full-time staff, until you’re confident enough to staff on a full-time, permanent basis.

It’s also important to consider that your core team of employees—the ones critical to your business’s basic operations and delivering on your company’s promise—should typically be full time.

Commissions
Commissions are most suitable for jobs that involve generating income — often selling positions. Commissions give employees an incentive by rewarding them for their success in achieving objectives. Some jobs might have a base pay plus commission. Think about what makes the most sense for each position and for the company.

Related: Negotiate Your Salary Without Playing Hardball

How much do you pay?
Another key question is how much to pay each employee or each position. Begin by establishing a minimum for your pay scale as well as a maximum. You could set the floor based on market rates. Also, be aware of state minimum wage rules, which you can find online via the U.S. Department of Labor website.

As for deciding on a maximum, think about how valuable a person is to your company. Also, consider the competition. If you pay less, the best talent may seek employment with your competition. And, your existing employees may be tempted to jump ship.

Finally, remember that you should hire for the long term, and provide a career path. Successful employees will want raises and promotions—and providing these will help to keep them satisfied and feeling appreciated. Pay fairly in the beginning, but realize you may have to offer more in the years to come.

Also, make sure it is clear whether someone is an employee or a contractor. Employee misclassification has become a major focus of the US Department of Labor.

Related: Improve Business Profits and Make My Business More Profitable

Learn more at the U.S. Department of Labor website.

GAME PLAN

  • To find out whether it’s appropriate or legal to compensate a particular position through hourly wage or salary, and to learn more about the rules covering wages and hourly pay, you could consult with an employment lawyer.
  • To learn more about labor laws, visit the Department of Labor website.
  • To get more information about salaries and market rates based on position and geography, visit www.salary.com.
  • To learn more about how other small business owners feel about raising the minimum wage, check out the findings from the 2014 Small Business Success Study.

Related: Get The Most Out of Your Startup Team

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Corporation or LLC? What’s Best for Your Company?

When it’s time to incorporate, many small business owners find themselves wondering which business type to choose. Gaining a clear understanding of your options can feel overwhelming, especially if you’re just getting started. Let’s take a look at some consideration points when comparing LLC vs. corporation options. But first, let’s start with a quick definition of what it means to incorporate.

What is incorporation?

When you incorporate a business, you evolve from a sole proprietorship (or general partnership) into a company that’s formally recognized by its state of incorporation. In other words, it becomes a legal business entity of its own — separate from the individuals who founded it. The new company structure often falls into two categories: a limited liability company (LLC), or a corporation (corp). In this article, we’ll be focusing on LLCs, as well as two popular types of corporations — an S corporation (S corp) and a C corporation (C corp).

No matter how you choose to incorporate, there are certain benefits you can expect — like being shielded from personal liability, as well as increased credibility with customers. There are also additional advantages and disadvantages associated with each incorporation type.

Related: How to Name Your Business

LLC vs. corporation: What’s the real story?

All incorporation options are not created equal. When deciding between a corp vs. LLC, the best choice for your business not only helps you start off on the right foot, but also acts as a foundation for your company’s ongoing success and growth. As you consider which business type is right for you, thinking both about your short and long-term goals for your company is advisable.

Limited liability company benefits

LLCs protect business owners, also referred to as members, from being held personally liable for the actions of the LLC. This limited liability typically protects you from the personal risks involved if a lawsuit were to arise concerning your business — safeguarding your personal assets. A couple additional benefits of an LLC include:

  • Flexibility in management. Corporations have a set management structure where directors oversee the major business decisions and officers are responsible for the day-to-day running of the business. LLCs do not have the same formal management structure.
  • Pass-through taxation. With pass-through taxation, taxes are not paid at the business level. If you choose to become an LLC, income/loss would be reported on your personal tax return. If any taxes were due, they would be paid on the individual level.

Related: Your Startup is Up and Running. What Now?

Corporation characteristics

When evaluating types of corporations, many business owners consider taxation to be the most noteworthy difference between S corporations and C corporations. In a nutshell, an S corp is a “pass-through” tax entity, like the LLC. In contrast, C corps are taxed as separate entities. They are also subject to “double taxation” if corporate profits are distributed to owners (shareholders) in the form of dividends. C corporations pay tax on their profits first at the entity level and then owners pay taxes at the individual level on profits received as dividends, resulting in the double tax.

LLC vs. corporation: Other key differences

We’ve already noted taxation and management as two distinctions between limited liability companies (LLCs) and corporations, but there are other key differences worth highlighting, including:

  • Business losses. The “S corporation advantage,” allows business owners to use business losses — like those incurred during the startup phase — on their personal tax returns as deductions.
  • Self-employment taxes. An S corp can provide savings on self-employment or Social Security/Medicare taxes, and it allows owners to offset non-business income with losses from the business — unlike a C corp which is a completely separate tax entity.
  • Ownership restrictions. Neither the LLC nor the C corporation have restrictions on the number of owners the business can have or who can be an owner. S corporations, however, have a number of restrictions. S corporations can have no more than 100 owners, and owners cannot be “non-resident aliens.” Additionally, S corporations can not be owned by C corporations, LLCs, other S corporations or non-qualified trusts.
  • Dividends and venture capitalists. C corps are often the preferred incorporation choice of developing businesses. Owners can hold different types of stock interests (including preferred and common stock), which allow for different levels of dividends. This is one reason why venture capitalists choose C corporations when they offer funding to a business. Investors are attracted to the prospect of dividends (often higher dividends) if the corporation makes a profit.
  • Earnings. C corps can retain and accumulate earnings (within reasonable limits) from year to year.

Related: Improve Business Profits and Make My Business More Profitable

Making your choice

Need more tools to decide between an LLC vs. corporation? Our Incorporation Wizardcompares multiple business types based on the specific contingencies you enter, and our Business Type Comparison gives you an at-a-glance snapshot of how different business types compare on different characteristics. Of course, for questions specific to your particular situation, it is best to seek the advice of an attorney or accountant.

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