Accountants: Worth Their Cost

Please share your experiences (good or bad) of working with accounts

I know a lot of small-business owners—especially start-ups—that try to do all their taxes and accounting themselves. The cost intimidates them. They don’t consider their business complicated enough to require an accountant. They share lots of reasons. I found the money I spent on a professional once a year saved me 3-4 times what I paid them.

David’s Story

David ran an IT consulting business from his home. He combined project work with consulting for 10-13 mid-sized businesses to provide a comfortable living for his family. He still operated as a sole proprietorship. He used one of the on-line tax systems to prepare his taxes.

One year, one of his clients created a glitch in the payment for a 4 month project. David decided the complication warranted going to a CPA. Not only did the CPA easily resolve what David considered a significant problem. She also asked questions his cousin never asked. The size of the tax savings surprised David. He saved more than 4 times the money he spent on the accountant. The accountant also highlighted liabilities that a sole proprietorship offered that an LLC could prevent.

David followed the advice and went to an attorney to change the legal structure of his business. He also told his cousin that he no longer required his services. David continues to work with his accountant once a year. He remains grateful for the money she saves him.

Why and How to Select an Accountant

Certified Public Accounting (CPA) professionals provide a number of benefits to business owners. I share these courtesy of David Mills Certified Public Accountant:

• Recommending income tax planning strategies
• Preparing tax returns
• Reviewing a company’s accounting system and recommending improvements
• Consulting on business problems and advising ways to improve the use of resources
• Assisting in the design and installation of data processing & IT systems
• Conducting special studies (financing, inventories, cost accounting, credit, & collection) for your business
• Helping you apply for loans and credit by gathering and preparing information required by lenders
• Working with clients, attorneys, and bankers on mergers, acquisitions, and expansions

• Advising individuals on personal finance planning, including retirement & estate planning

Several sources can help you find a CPA. You can find the accountancy board that regulates CPA’s in your state. I like the article the Ohio State Accountancy Board shares with residents. They encourage people to

1. Verify the license status with the accountancy board
2. Verify that the accountant maintains continuing education requirements
3. Interview your prospects. Ask them “What kind of accounting work do you typically perform?”. Compare their answers with your needs.
4. Ask for office hours and how long they are open (many only open during tax season)
5. Explore if they participate in peer review, and the date and results of their last one
6. Use an engagement letter to detail the work to be performed for, who will perform the services, the cost of service, and the duties and responsibilities of the CPA. The Ohio board states “The Board receives many complaints from consumers against CPAs that allege the CPA performed services either of poor quality or incorrectly, and in the majority of these cases there was no engagement letter that clearly described the agreement between the consumer and the CPA. As a result, both the consumer and the CPA can offer only verbal recollections of the engagement's scope to the Board, and the Board is limited in its statutory ability to discipline CPAs for substandard work.”

Avoid Accountants that Can Get You In Trouble

I especially like the this advice: “It is now possible to purchase public accounting services on the Internet. While this appears to be a convenient way to access a broad range of services, it is important to "do your homework" before selecting a practitioner. Keep in mind that because Internet practice involves no face-to-face client contact, it may be easier for unqualified persons to masquerade as licensees. Also, remember a practitioner offering services on the Internet may be physically located anywhere in the world. To provide CPA services to consumers in Ohio, a practitioner should be licensed as a Certified Public Accountant or Public Accountant by the Accountancy Board of Ohio, or must be practicing in Ohio incident to the licensee's home-state practice under Section 4701.15 of the accountancy law. A licensee practicing in Ohio under a home-state license must be a currently licensed CPA in the other state. Check our list of Accountancy Boards in the USA for further information about other accountancy boards.”

You can find additional information at the American Institute of CPA’s. Do not let the perceived expense of a CPA discourage you from taking advantage of their expertise and protection. They will usually save you more money than you pay them. Accountants are worth your money.

Join us next week when we discuss finding funding and financing for your business

Please share your experiences (good or bad) of working with accounts

Virtual Assistants Save Time & Money

Enrich the discussion. Share your stories about working for, or as, a virtual assistant

Frequently, business owners need to focus on delivering the product or service their 1-person company offers. The billing, correspondence, updating a web site interfere. Many plan on doing those tasks during their “free time”, or having a family member do them on the side. As the business grows, however, neither the family member, nor the free time prove adequate. The business usually cannot support hiring even a part-time assistant to help at this time.

Virtual assistants provide a wonderful and less expensive bridge allowing you to focus on the business, not the paperwork.

Robin’s Story

Robin started an interior design business 9 years ago. In the beginning, she could easily balance meeting with potential clients, designing the spaces, buying the materials, and all the paperwork to keep it running. As the business grew, she found herself spending more and more hours “after work” doing the paperwork. It wasn’t enough to hire someone, but enough to irritate.

Robin met Donna at a community business organization they both attended. Donna, a single mother, with 2 young children ran her own virtual assistant business. She wanted more clients to serve. Her BA qualified her to do accounting work and all other administrative tasks. It took a couple of months to commit, but Robin eventually contracted with Donna.

For three years Donna would stop by Robins place once a week. She would deliver hard copies of the items that Robin wanted: contracts, proposals, etc.. She emailed most items during the week to a special email only Robin saw, because Donna screened and answered 90% of Robins emails. She would file everything for Robin. She highlighted the items Robin needed to act on. She did all the other things that had to be done in the office. After, an hour or two Donna would pick up all the things she needed and took them home to work on them. The only administrative task Donna did not perform for Robin’s company; she did not answer Robin’s phone.

Robin’s business thrived now that she could focus on the service delivery. Donna kept her appraised, but did not interfere. Robin’s business grew. After 3 years she tried to hire Donna full-time, but Donna loved her life as a virtual assistant. So, Robin hired a full-time administrative assistant. Donna accepted a new client that another client referred to her.

Both benefited quite well from the new arrangement.

Benefits of a Virtual Assistant

• Virtual assistants reduce the amount of time you need to spend on clerical, bookkeeping, and administrative tasks
• They allow you to hire someone—as needed—without making a commitment for a specified number of hours
• They work as you need them to work. You only pay for what you ask
• You share the costs of a workstation, computer, or other office equipment and supplies with the other clients

Virtual assistants provide a variety of services. I copied the following from Donna’s web site Busy Bee Virtual Assistance:

“A partial list of what we offer:

• Database maintenance
• Invoicing and collections
• Translation services
• Creating Power Point presentations
• Bookkeeping and bank statement reconciliation
• Transcription (charge is by audio hour)
• Proofreading services. Never send out another mailing with embarrassing misspellings again!
• Website maintenance. We can keep your website up to date and your content fresh.
• Newsletters and e-zine campaigns.
• Grow your business
• Keep in touch with your clients on a regular basis!
• Correspondence handling. We can manage both your snail mail and email correspondence, respond to routine requests, and forward items to you that need your personal attention. You save time and money!
• Creating and sending out bulk mailings.
• Assisting with special projects and seasonal/periodic work overflows.”

How to Find Virtual Assistance

You can find virtual assistants many ways:

• Google the words Virtual Assistants or Virtual Assistance: your response will show mostly virtual assistants working outside the United States for as low as $6.00 an hour. While this provides the lowest costs, you must balance the pros and cons with an off-shore assistant.
• VANetworking.com impressed me. They bill themselves as “Social Networking for Virtual Assistants and their clients”.
• They provide good informational information about what Virtual Assistants can do for your company.
• They also offer an easy to use search engine to find a virtual assistant near you.
• They provide training and tools if you want to start a Virtual Assistant Business
• Entrepreneur magazine published an article in 2004 about the phenomenon. While some of the links at the bottom are dated, they still provide access to virtual assistants throughout the world. (The article is also informative for those interested in become a virtual assistant.

Join me next week when we explore the importance and value of an accounting firm

Enrich the discussion. Share your stories about working for, or as, a virtual assistant

Business Accounting Software

Please share your experiences with Quickbooks in the comments section

Most people begin a business because they have a technical skill: drafting, graphic design, software development, or other. Typically they lack experience in the “support” functions of business: accounting, marketing, human resources, or information technology. As a result, many fail to process accounts receivables or payables, taxes, payroll, costs, profits or losses. They might monitor cash flow (watch the cash flow in and flow out again, taking what they need to support their family—barely), but cannot tell anyone where it flows.

Mabel’s Story

Mabel, a young single mother of two, ran a craft’s business out of her home. She handcrafted wood lawn ornaments, toll painted nick-knacks, and signs. She bought what she needed from her regular checking account, She deposited her sales into the same account. She paid both personal and business bills from that general account.

She created a set of file folders for her receipts, but rarely filed them. She intended to do so; but the children, meals, making the crafts, and other things distracted her. So, so she put a lot of the receipts into a bowl on the chest of drawers in her bedroom for later filing. Many of the receipts fell out of the bowl and down the back of the chest of drawers. She threw away most of the receipts. She also recorded most, but not all, of her sales in a little NCR receipt book she bought at an office supply store.

She filed her taxes as a sole proprietor with a schedule C with her 1099. She took all the receipts from the bowl, fished them out from behind the drawers, and added them together with the calculator on her computer (no paper). She also added all the receipts in her NCR book. Knowing that she had lost some receipts and did not record many, Mable estimated their value and subtracted some money for costs and added some money for sales. She estimated a lot more costs than sales. The tax process frustrated her immensely.

Then she got audited by the IRS. They did not accept her estimates and rejected most of her expenses, but accepted the sales recorded in receipt book. As a result, they estimated that she owed them at least $1,500 in additional taxes. The interest and penalty brought the number to more than $2,000.

Mabel could have avoided these charges and frustration by purchasing Quickbooks for less than $125 plus another $40 to learn how to use it.

Simple Accounting Tools Reduce Your Stress

Today’s small-business owner benefits from technology’s creation of Quickbooks and other simple accounting software packages. Quickbooks costs from $170-325 depending on the version you purchase. Many Small Business Development Centers (SBDC's) offer courses on how to use it from $0-50. Most people learn it easily. If you struggle, you can find a child, grandchild, or neighborhood teenager to run it for you. Home-based and small-businesses will require 2-10 hours a week to maintain all accounting functions using Quickbooks.

These small-business accounting programs typically perform the following functions and more to help you manage your business more effectively and efficiently:

• Create and maintain a chart of accounts for revenues and expenses
• Create and send invoices to your clients, and monitor them for payment or collection
• Monitor bills you need to pay for prompt payment and to avoid interest or penalties
• Calculate costs for products or services including fixed or variable profit margins
• Prepare general ledger, and asset, account, and profit/loss statements
• Interface with IRS & state forms to simplify sales, income, use, payroll, & other taxes
• Remind of fees you need to pay to government, licensing, or other entities

You do not have to understand all the tax or generally accepted accounting principles (GAAP) to maintain accounting documents. Most of the work involves simple data entry into preset forms and printing statements and reports.

Once again the SBDC or mid-size accounting firms frequently offer training at very reasonable rates. Google Quickbooks training and the name of your community to see what they offer in your area.

Business owners feel better when their financial affairs process smoothly, when they understand their financial status, and submit appropriate tax forms accurately and punctually. Quickbooks or other accounting software reduces your stress. While business owners should still consult a good CPA, maintaining good accounting practices improves your profits by controlling expenses and allocating revenues more effectively.

Join us next we outline the advantages of delegating to a virtual assistant/bookkeeper.

Please share your comments or questions about accounting software

No Money Without Sales

Your comments and experiences will enhance our conversation. Please share your sales stories (successes or failures).

I believe that a good marketing plan includes a sales section. I do not accept that marketing replaces sales. Too many business owners mistakenly count sales and marketing as a cost center. Business success requires that marketing (including sales) remain THE profit center. Your company generates no revenue without sales.

Brent’s Story

Brent owned his own photography business. His photography skills equaled or surpassed every professional photographer in the greater metropolitan community. Revenues and profits from his business failed to meet potential or expectations. He wanted more photo shoots each week.

Brent joined a marketing mastermind group. He subscribed to a marketing newsletter from a nationally recognized photographer whose expertise at marketing created a following. Brent hired a firm to improve his web site. He subscribed to a cross-promotion coupon program with a local car dealership. Every month Brent created a new mailing flier to send to current and potential clients. He increased revenues minimally.

In addition, Brent did not capture information about clients that could be used to generate future sales. He did not send emails or make phone calls in time to photograph clients before birthdays, anniversaries, graduations, births or other events conducive to family portraits.

Active versus Passive Sales Approaches

Brent represents thousands of business owners who confuse marketing with sales efforts. They believe the current philosophy that passive sales approaches succeed:

• Sales will naturally follow if they get their message in front of people through the Internet, mailings, advertising, publicity, and whatever method they contemplate
• Millions of clients will flow, with credit cards in hand, to a great web site
• Search engine optimization (seo) automatically translates into sales and revenues
• Automatic telephone messages will simulate people to press the button to buy

I do not contend that passive sales fail in every case. I propose that they succeed in a very low percentage of cases. They generate large sales because they contact 1,000s to 1,000,000s. A low percentage of millions of contacts can overshadow a high percentage of scores of contacts.

Too many business owners think that minimal marketing efforts on their part will entice clients to act. The term “passive sales” refers to situations in which the business waits for the client to act. The term “active sales” refers to situations in which the business acts to help the client agree. Active sales requires that a person become involved with the client.

You must improve either the product/service of your company or your sales strategy if you want to increase revenues. Examine your sales and marketing time. What percent of the time do you spend preparing marketing materials? What percent do you spend talking to past or potential clients? What percent of your time involves overcoming resistance and closing the sale.

Establish Your Point of Profit

I like Enoch Chapman’s term “point of profit”. Your point of profit indicates the action that creates the sale. You must create your point of profit in theory as part of your marketing plan. Your point of profit may be the checkout of a shopping cart on a web site or bricks and mortar in a store. You may designate a form or contract signed by a representative of your company and the client as your point of profit. Your point of profit may be a screen completed by a call center employee.

The purpose of all marketing must lead the client to taking action at your point of profit. Your call to action needs to clearly ask them to act how you want them to act. Many business owners lose sales because of vague calls to action. This applies to Internet sales, phone center sales, retail sales, and sales representatives. Confusing directions may lead your client to someone else. Chip and Dan Heath, the authors of Switch: How to Change Things When Change is Hard encourage companies to remove every barrier to make the path easy to see.

Sales Experts Will Help

The world abounds with experts that teach sales techniques. You may wish to consider the following programs: little Red Book of Selling, The Sales Bible: The Ultimate Sales Resource,  and Customer Satisfaction is Worthless, Customer Loyalty is Priceless by Jeffery Gitomer, The Ultimate Sales Machine by Chet Holmes. The the web site All Things Guerrilla by Jay Conrad Levinson, Spin Selling by Neil Rackham, Advanced Selling Techniques by Brian Tracy.

I suggest that you continue your exploration of increasing your sales by studying these programs. Reexamine what percentage of your marketing time prepares materials and makes sales. Remember that you make no money without sales.

Join us next week when we begin our discussion of the financial section with Quickbooks

 Your comments and experiences will enhance our conversation. Please share your sales stories (successes or failures).

The 7 Pillars of Successful Marketing

Your thoughts and experiences will improve our conversation. Please share your comments.

I like Bryan Walden Pope’s The 7 Pillars of Successful Marketing best of all the marketing programs I’ve read. I qualify that remark by saying that the 7 Pillars

• Work well with mid-size companies, but best with small- or home-based businesses
• Structure the marketing efforts of novices &owners lacking marketing backgrounds
• Simplify the complex concepts of marketing into easy to follow steps
• Provide million dollar marketing on a shoestring
• Apply well to all kinds of businesses: storefronts, internet based, home & more

You should understand, before we begin, that each pillar provides a foundation for the following pillar and sets the stage for the next. So, you want to follow them in order. Also, Bryan never refers to our clients as customers. He appreciates the principles of care, nurture, and protection implied in the term “client”.

So, let’s explore an overview of The 7 Pillars of Successful Marketing

Pillar 1: Market Research

Bryan recommends you establish a marketing team of people, vendors, suppliers, and others whose vested interest motivates them to help you succeed. You will conduct your SWOT analysis as part of this pillar. In addition, you will conduct primary and secondary market research to identify both primary clients and competitors as well as secondary clients and competitors.

Pillar 2: The Right Message

The right message includes your Unique Market Position Statement (UMPS) which drives you to really clarify and define your business, your client, your product, your motivation, what makes you distinct, and what draws your client to you. This pillar analyzes your logo, trademark and image to ensure consistent messaging. Frequent assessment of your message allows you to provide even better experiences to your clients.

Pillar 3: Strategy

Strategy includes establishing the specific and measureable goals for marketing each profit center, including the timeframes and milestones to accomplish goals. Strategy outlines your marketing budget (which you will add to the financial section of your business plan). It builds the high/level product/service, pricing, and placement/distribution strategy for your business.

Pillar 4: Campaigns

You outline each of the campaigns you will use throughout the year to emphasize and highlight your sales. Campaigns cater your marketing plan to seasonal, holiday, or special reasons unique to your product. You allocate timelines, dates, budget, and resources for each campaign. Campaigns have very specific start and end dates. You measure the success of each campaign.

Pillar 5: Vehicles & Tools

Each campaign will use specific methods for making the purchase desirable and vehicles to deliver the message to the client. Marketing methods include publicity/public relations, promotions, and advertising. Marketing vehicles consist of how your will get the message to your client. Vehicles include mailings, radio, Internet, telephone, television, magazines, newspapers, and personal visits.

Pillar 6: Sales

Sales defines how you will convert the client’s interest into a purchase. Each method and vehicle for each campaign within the strategy must lead to a sales point. This pillar includes strategies, systems, and expenses unique to the pillar. Whether a person purchase on the Internet, walking a product to a checkout stand, or signing a sales contract with a sales representative; your marketing plan must define who finalizes the sale, and how they do it.

Pillar 7: Client Retention

Client retention describes how you will capture data about your clients for further marketing. This pillar forces you to determine what information you will capture and how you will use it. In addition, client retention describes how you will use the information, and how you will reveal client satisfaction and suggestions for improvement. Client retention returns you to the first pillar of market research.

Remember, that this is only an overview. There is much more to The 7 Pillars of Successful Marketing than has been packed into this overview. I strongly recommend that you contact Bryan directly and purchase his Introduction to the 7 Pillars of Successful Marketing package. He offers an introductory set of CDs plus more than 53 additional CD’s covering various of the 7 pillars in more detail.

The 7 pillars provide a framework that you can use to structure all the marketing information you gather. I highly recommend Bryan’s approach. I hope you find it as useful as I have. The 7 Pillars of Successful Marketing helped me increase participation in our events 500% over 6 years. I know it can help you to increase your profits and revenues.

Register now for my weekly tip for more money, better living.

Join me next week when we discuss Finding Fun in Sales Calls.

Until then, I’m Larry Stevenson wishing you more money, better living.

Your thoughts and experiences will improve our conversation. Please share them below.

Market Your Business

The marketing section of your business plan remains second in importance to the operations section. As we discussed last week, without sales and marketing you make no money, but without operations you have no business. Today, and for the next 3 weeks, we will discuss how to generate revenues and sales through good marketing plans.

Sharon’s Story

Sharon and her partner opened the perfect toy store. They envisioned selling delightfully unique toys with an old world feel of quality and fun. They shopped wholesalers from around the world to find just the right toys. They leased the perfect location on one of the busiest roads in town. Their store shared a strip mall with a very popular grocery store, several restaurants, and a health spa that attracted people who would buy high-end, quality toys. They decorated their store beautifully to highlight and exhibit their fine toys.

Unfortunately, they had not paid as much attention to their marketing plan. As Sharon shares today “We proved that if you build it, they will not automatically come". Sharon and her partner could not attract the people to come see the beautiful toys in the delightful store they built. Many of the people who came to look loved what they saw, but did not buy enough toys to break even. The few clients that bought toys did not come back to the store or tell others about it sufficiently to maintain sales. While the community Sharon chose possessed enough potential clients, with sufficient wealth for fine toys, they population did not spend money well. As one marketing expert commented “You don’t do a ‘free pie’ coupon in that community. All they only order the free pie”.

Sharon and her partner tried lots of promotions and sales. Nothing generated the traffic to the store they needed. All too soon, this perfect toy store closed its doors. The community lost a wonderful business that could have delighted thousands.

Marketing Defined

Multitudes of definitions exist for the concept of marketing. Some simple. Some complex. I prefer this one. “Marketing is the process of identifying, attracting, converting, and retaining people to your product or service”.

• Identifying=Market Research. We discussed this in my “Can Your Business Succeed” and “Who is My Current or Potential Client” blogs. The better you research your market including clients, the better you can deliver what they want.
• Attracting=Bringing Clients to Your Product or Service. You must devise the right marketing message first. Then, you use a variety of methods to attract clients: advertising, cross-promotions, public relations, client referral, coupons, mailings, and more. Too many business implement methods before they create the right message for their marketing. As a result, they spend a lot of time, money, and effort broadcasting a message that does not attract the people they want,
• Converting=Sales.  While many marketing experts and companies separate sales from marketing. Others, including me, prefer to keep them together. We view sales as part of the marketing process, not a separate function. Marketing success can only be measured by sales.
• Retaining=Clients Returning to Purchase More. Studies prove it costs less to retain a client than to create one. Yet, too many business owners neglect their existing clients to attract new ones. You will not make this mistake after following our concepts.

Sources of Marketing Help

As always, the SBA, SCORE, and SBDC’s offer training, coaching, and materials to help you market your company. Excellent books also offer sound ideas and share best practices. I share but a few: Seth Godin’s many books include the classic Purple Cow. Free Prize Inside, Permission Marketing and others. In addition, I enjoyed Al Ries and Jack Trout’s books The 22 Immutable Laws of Marketing, and The 22 Immutable Laws of Branding. In addition, Paco Underhill’s works including Why We Buy gives great insight into why your clients make retail and other purchases. Finally, I really resonate with Bryan Walden Pope’s plan The 7Pillars of Successful Marketing. I find they provide a comprehensive framework for million dollar marketing for much less.

The marketing section of your business plan remains crucial to your success. Marketing (which includes sales) remains the only profit center of your business. Until you attract, convert, and retain clients to your product or service, you make no money. For that reason, we will spend several weeks on this section.

We will examine The 7 Pillars of Successful Marketing next week.

Here’s wishing you more money and better living

Planning Your Operation

I apologize for the length of  today’s blog, but your operations plan takes time and space. (The word “product” refers whatever product or service you plan to sell.)

The operations plan remains the essential, yet often neglected, section of a business plan. Traditionally, businesses consisted of five major functions: accounting/finance, marketing/sales, information technology, human resource/legal, and operations. The first four were called the support functions. Operations drove the company.

Operations produced, processed, and distributed the product or service. The operations function included locations for factories, distribution outlets, warehouses, and support. Indeed, it could be said that without sales & marketing there could be no profit, but without operations there would be no company. Yet, in too many business plans the operations portion remains the shortest section, because the owner writes the business plan for funding sources and not to guide their business.

Grant’s Story

Grant started his business more than 50 years ago. His operations plan accounted for the longevity and amazing profits of his business. Grant loved genealogy. He received a doctorate in it. Printing his dissertation helped him realize that his community offered few resources for printing and distributing small orders (copiers were not common).

He planned to provide several products around the concept of genealogy. He focused on several diverse and closely related key products and services: publishing people’s family histories, printing dissertations and thesis for college students (to very exacting specifications in those days), duplicating and restoring family photos, preparing and printing forms and tools for a growing society of genealogists. Grant planned to start in his basement and move to a retail location as soon as possible. He decided to always purchase used equipment rather than lease. He would save money by learning how to maintain and service the equipment himself and teach his employees.

He planned that his employees would always be college students that required lower wages and would move on before demanding higher wages. He always bought supplies in bulk (from carefully researched suppliers), maintaining some paper inventories for years, to maximize savings. Grant bought and modified an old car wash as the production and retail location. He built a small apartment into the building and rented apartment space to college student/employees to cover the mortgage. He paid off the mortgage on his facility decades early from the rental income. He offered self-serve copying before copy centers developed. He maintained extensive client records that developed loyalty and repeat business for 20-30 years.

Grant’s meticulous planning for his operation made his business quite profitable. His plan guided the growth of the business for 45 years with only one modification to include a growing wholesale market. Currently, the operation uses off-set printing, small-to-very large black and white and color copiers. Some of his printed genealogical tools still remain bestsellers in the digital age. Almost all employees are college students. To this day, the business maintains no debt. Grant’s operations plan allows his firm to still sell printing/copying at 30-50% less than any competitor.

Outline for Planning Your Operation

A well conceived—and executed—operations plan prevents the business from overwhelms the entrepreneur. The Small Business Administration (which offers wonderful resources and templates to draft your business plan) estimates that a comprehensive operations plan could answer up to 198 questions. We will not explore that many topics, but offer an overview with links to other sources of information.

The operations plan outlines the what, how, where, when, and who of your business.

WHAT

• What exactly is your product? You described your product in the first section of your business in brief and general terms. You add the details, designs, blueprints, specifications, pictures, prototypes in the operations section. Describe whether you will create it from raw materials, purchase it and add-on improvements, or purchase it and pass it through to others as is.
• What materials or elements do you need to prepare your product? Explore all the materials or elements you will produce, which ones you will purchase, and which ones you will outsource. Include a list of materials with quantities in your plan. Outline the copyrights, patents, permissions, or licenses you will need to obtain. Don’t include secret recipes or intellectual property secrets (Think Coca Cola and KFC’s 11 secret herbs and spices).
• What will you need to warehouse or distribute your product? Define whether you will produce your product just-in-time or produce large batches that you will store for future sales. Outline whether you will purchase large quantities of supplies and materials or just what you need. Also, include what equipment you will need to warehouse and ship your product.
• What will it cost to prepare, sell, and distribute your product? Outline the material, equipment, employee, distribution, depreciation, financing, facility, and associated costs in a spreadsheet. Update the spreadsheet at least monthly in your plan. Ask a cost accountant to review it. Incorporate what you find into your finance and costing plan.
• What growth do you forecast in one year, two years, five years? You should set goals for growth and how that growth will impact your business. Increased sales may require greater production than your original plan can provide. On the other hand, you do not want to completely change your production line just as orders explore. Estimating and accounting for growth prevents huge headaches later. Today’s entrepreneur's also have to ask how scalable is my operations plan. They need to research how much explosive growth will impact operations.

HOW

• How will you prepare your product or service? Determine whether you will produce the product internally, outsource it to domestic or international production facilities (sometimes the travel, red tape, and other problems prevent China from being the best solution), or other methods.
• How will you process orders, shipments, and other paperwork? Outline how customer orders get to production, shipping, accounting, and sales. Decide if you will automate the whole process or rely on human interaction. In addition, determine who will purchase product or supplies from vendors. Identify bulk or other discounts and how you will take advantage of them. Establish processes for monitoring employee time, payroll, productivity, efficiency, effectiveness and quality. Design your production floor for optimal manufacturing if that is the case. Create process flowcharts, blueprints, and critical path charts for all major processes.
• How long will it take to produce? Each product takes a certain time to produce: software must be written, tested, and refined; wine requires a certain time to ferment, concrete requires specific time to season. Include how much time a vendor will need to deliver materials or other elements. Failure to plan ahead triggers higher costs for quick delivery. Include tables or GANTT charts in your plan to visually communicate critical paths.
• How will you distribute your product? Explore whether you will use ships, trains, trucks, FedEx, UPS, the US Postal Service, or the Internet to get your product to the purchaser. Define the costs each incur and add your decision to the cost spreadsheet above.

WHEN

• When will your client buy your product? Define what in the life of your client will trigger a purchase. Does the client have certain seasons or reasons to purchase. Outline the seasonal aspects of your product and how you will establish prompts to contact them at that time. Consider days during the week or times during the day they will probably purchase. Identify what you will have to do to be ready for that time. For example, I know of a certain bank manager that sent most tellers to lunch at the same time their clients ate lunch—and did their banking. He didn’t stay manager for long.
• When will you produce the product? Determine whether the inventory cost savings of just-in-time production compensate for making the client wait to receive their order. Some products remain so seasonal that the entire company closes for six months out of each year.
• When do you upgrade or improve your product? Highlight when you should be delivering updates or upgrades to your product. Software can upgrade virtually at any time. Installing an upgrade to your client’s automobile becomes more complicated. Your operations plan should include a table for estimated improvements and refinements to your product. You need to include a version control and roll out plan.
• When do you need to upgrade or replace equipment? Identify the life span of your equipment. Establish plans to both fund the replacements, but also to avoid costly shutdowns at the worst possible times.

WHERE

• Where will you produce the product? Determining where to produce the product requires a lot of research in today’s economy. You will already have explored if you will produce it, buy it, or outsource in the “what” section of your operations plan. Now you need to get to the details of exactly where in the world, your plant, or your home that will be. Economic Development Agencies can help you explore importing and exporting rules, regulations, and options
• Where will the client buy the product? Your operations plan describes the buying experience you will offer your client. You describe whether they will call a phone number, walk into a facility, complete an order on line, or have a representative of your business help them place the order in their office. Contemplate how many times they will have to hear about your product before they buy it. The environment or ambience of the purchase location significantly impacts the buyers experience. Consider the difference between the traveling carnival that stops in your town for a weekend, and going to Disneyland. The experience certainly affects how much the client will pay in those situations.
• Where will you store the product until shipment? So many options for warehousing exist today. You may store your product in cyberspace or on the cloud. You may purchase a warehouse or store it in the garage of your house. You may request your outsourced manufacturer to store it and drop ship it as orders arrive. All of these options require planning, processing, and cash.
• Where will your client receive your product or service? Imagining the location of delivery requires thought. Delivering a 500 pound piece of equipment or furniture to someone’s home requires you to contemplate how they will move it, install it, and dispose of the piece being replaced. Studies prove that placing purchases in nice pastel colored paper bags (with bows) rather than generic plastic bags increase sales at women’s boutiques. Once again, your operation plan describes the clients experience as well as the logistics of buying.

WHO

• Who will prepare your product? Once again, the global economy provides many options. You may use local labor and have to provide the facilities as well as labor costs, but maintain excellent control on production and quality (no lead based toys). You may choose to possibly save money by outsourcing to another country. Many companies use local labor, but avoid recruiting, selecting, and maintaining payroll by contracting with a staffing service to provide their labor. Preparation also includes who will purchase materials, who will process orders, who will load and unload trucks.
• Who will sell your product? Some companies hire their own sales force to either call, email, or visit their clients. Other companies contract with merchandise representatives or call centers to conduct their sales. Retail companies learned the hard way that you can’t just hire anyone for retail. Circuit City ruined their company when they let go all their older, more experienced (and yes more expensive) sales people just before Christmas. The younger workers couldn’t answer the older clients questions effectively and sales evaporated. On the other hand, Home Depot learned that hiring experienced tradesman who understood paint, lumber, and plumbing increased confidence and sales.
• Who will do everything else in your operation? Finally, you must explore the costs and advantages of who will deliver your product. More companies both business-to-business and business-to-client rely on FedEx, UPS, and the US Postal Service. Large manufacturing companies still rely on trucking companies or the railroads. Many turn the whole process over to large logistics companies. No matter how great your product or service problems will occur. Your plan should designate who will respond to problems. You can find virtual assistants and virtual accounting clerks who will do all your clerical and accounting functions.

In conclusion

Managing the operations of a business requires time, talent, and attention. The operations section will be the most detailed section if you use your business plan to run the business. As I’ve stated before, make your mistakes where they don’t count. You will save time and money if make those mistakes on paper rather than in bricks, mortar, and people. Be willing to reexamine and modify your operations plan on a regular basis.

Several organizations can help you with the operations section of your business plan. As always, the Small Business Administration (SBA), Small Business Development Centers (SBDC), and Service Corps of Retired Executives (SCORE) offer inexpensive training, coaching, and templates. Prentice Hall offers a very good (though a little outdated) course on E-Business planning. I especially liked the Top Ten Resources for Writing an E-Business Plan. Ready Business sponsored by FEMA offers good advice not just for business continuity in emergencies but in general. Business Plans Guide provides good articles that help you explore your operation. Amazon offers several books on operations planning. I also recommend Michael Gerber’s book The E-Myth Revisited,  and Jim Collin's’ books Good to Great, and Built to Last.

Once again, I apologize for the length of this week’s blog. I probably should have divided it into five separate blogs, but did not want to delay those of you who are drafting your plan.

Join me next week for a shorter examination of Your Marketing Plan