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Home Computer Business – The Dirty Dozen – Mistakes To Avoid (Mistake #9)

This article is one of a series, collectively titled “The Dirty Dozen: Mistakes That Could Ruin Your Business.” Making these mistakes can be very costly in both time and money, but all of these possible mistakes can be easily avoided by some advance knowledge and planning ahead. Although I think the information in this series of articles can be very valuable to home business operators, it is very important for you to know that I am writing this series of articles solely from a “lessons learned” perspective. I am not a legal, tax, or accounting professional. You should consult an appropriate professional for detailed advice that is specifically relevant for you and your business.

In this article, I am going to discuss the potential problem area of not keeping adequate records.

I cannot overstate the importance of keeping clear, accurate records. If you have never filed a tax return for a business before, you will probably be pretty surprised by how much detailed information you will need. If the IRS ever audits your business tax returns, you could be required to explain and show proof of every single one of your business expenses.

Don’t throw away anything away until you are positive it no longer matters. In general, many tax specialists suggest keeping all business financial records for at least seven years after the date of your tax return. So if you are filing a tax return that includes business income and expenses for the tax year 2007, you need to keep all of your expense receipts, income statements, etc. until at least 2014.

Don’t freak out. Although maintaining detailed business financial documentation is crucially important, it is also pretty simple. Here’s one easy and inexpensive, but perfectly effective, way of keeping track of your business records. Go to a housewares or office supply store and get one or two little plastic trays that are a good size for holding regular, white letter-size envelopes. Start labeling envelopes with categories of business expenses: office supplies, professional education, computer hardware and software, etc. Put all of your receipts in your tray of envelopes at the end of every day. Once a week, put all of your receipts in the appropriate envelopes. When you come across a receipt that doesn’t already have an envelope, make one right then. Do the same things for all business income that you receive.

If you are comfortable with scanning, you could also scan your business receipts and organize them electronically. I still have sort of a paper-and-pencil brain, so I just do the envelope thing, and it works just fine.

Remember that you may be able to claim business mileage for your car. This can really add up to a nice deduction for you – but it’s also easy to lose track of it. Here’s one easy way to stay on top if it. Get a lined index card (decide what size is best for your handwriting). Make columns labeled, “date, destination, purpose, begin mileage, end mileage, and trip miles.” Leave the index card and a pencil in your car (you could attach it to a small clipboard). Every time you go somewhere that might count as business mileage, just quickly fill in one row of your index card. When the card is full, take it inside, and file it in an envelope labeled “mileage.” Even if you don’t calculate the “trip miles” every single day, as long as you record your beginning and ending mileage for each trip, you will have the information you will need at tax preparation time to help your tax professional verify that your mileage is allowable.

Note: You can’t mix business and personal mileage. Let’s say you head off to Kinko’s to do some business copying, and then, since you’re running errands anyway, you decide to get your grocery shopping done too. If going to the grocery store adds mileage beyond what your Kinko’s trip would have taken by itself, you must subtract that “personal” mileage from your business mileage claim. Again, talking to a tax professional early in the tax year can help you a lot!

Mileage on your car is not the only type of travel expense that you might be able to claim as a business expense. Let’s say you fly somewhere to attend a professional conference or to take a class that is relevant to your business. All your travel costs (transportation, hotel room, meals, etc.) might be deductible expenses for you. You might also be able to claim the costs of conference registration or class fees, educational books, etc. as legitimate business expenses.

The key here is to keep complete and detailed records, including receipts for all expenses. You can always discard records that you don’t need. Finding supporting details for a “claimable” expense can be time-consuming, frustrating, and could eventually disqualify you from claiming legitimate expenses just because you can’t document them.

Aside from documenting your business finances if you are ever audited, this careful record-keeping also helps ensure that you get to take every business deduction to which you are entitled. Again, please consult with a tax specialist about all of this.

Be Sure Your Business Expenses Are Allowable: Consult with a professional tax advisor to confirm that all your business expense claims are within IRS guidelines. (Write down all expenses that you think might count – just verify them with a knowledgeable professional.)

Another possibility is keeping all of your business records electronically. Intuit offers the Quicken and QuickBook series of products for both PC users and Mac users. It will take some time to learn if it is all new to you, but once you are familiar with them, electronic checkbooks and business record keepers can save you a lot of time – especially when it’s time to do your taxes.

One more time, please remember that what I am giving you here is only my personal understanding of these topics. I advise you to get professional assistance.

Basic Guidelines For Owning And Operating A Small Retail Business

Since the issues covered on this topic tend to be detailed in nature, I have chosen to write two articles to cover them. The first article, “Basic Guidelines for Owning and Operating a Small Retail Business”, will discuss naming the business, stocking and pricing merchandise, and the hours you are open for business. The second article, entitled “Owning and Operating a Small Retail Business – Advanced Basic Training”, will discuss the issues of staffing the business, wages and benefits, and advertising.

Ever thought about starting your own retail business? The thought of being your own boss and not having to answer to someone else has probably intrigued all of us at some point in time. It did for me, and I actually managed to enjoy several different endeavors while I was at it. I’ve been a partner in a baseball card shop, owned an online retail store, and even had a used furniture store. And I found enough enjoyment in each business to offset the negatives that pop up along the way.

Before I get too deeply into this article, I want you to be aware of the negatives that you are bound to encounter before you ever get started. I’m not talking about the financial and legal aspects of starting a business. I always let the accountants and attorneys handle that for me, and I highly recommend you do the same. I’m referring to the mental and physical aspects of this business venture.

If I could throw only one caution flag though, it would be to make each and every one of you hopeful entrepreneurs realize that this business venture will become your wife, for a lack of a better description. I don’t mean that it will replace your wife, although she might think so. I simply mean that it will take away a lot of your focus from your wife, children, and household in general. I’ve always felt that this one is the deal breaker for aspiring business owners.

Not only do you need to understand this, but so does your wife and children, if you happen to be so encumbered in your personal life. Please don’t get me wrong, because I’m not here to discourage anyone from trying to accomplish their dreams. I highly urge you to pursue them so you have no regrets about not doing so. I just want you to realize some of the things that you’re going to be up against, and that first one above is the most critical of all.

Secondly, without any assistance, it can be a very mentally and physically demanding effort. And when you get mentally worn out, the physical aspects follow suit. You will be forced into doing some physical activities you may not be used to, like helping unload merchandise from a truck, stocking shelves, or merchandising your sales floor, depending on the type of business it is.

Finally, try to avoid getting mentally frustrated. By this I mean don’t let the mental aspects of business ownership beat you to death. Bookkeeping is the biggie here. This is the one mental part of the job that will just devour your piece of mind if given half a chance. I often compare the aspect of bookkeeping to a ravenous shark. It never stops moving and its hunger is never satiated.

The best advice I can offer you on that note is to get familiar with some type of money management or accounting software. My recommendation is Quicken / QuickBooks, only because it’s one of the more affordable and user friendly ones out there. If this is not for you, then I would highly advise you to seek out the services of a good business accountant, especially one that will handle all your tax liabilities as well. Obviously, this is an affordability issue. But bear in mind, no matter how you choose to handle this aspect of your business, there is no margin for error here. The mishandling of this entity will cause you countless hours of grief and sleepless nights.

Are you still with me, or have I completely discouraged and frightened you about opening your own retail business? Remember, it is not my intention to trash your dreams, only to help you avoid some of the mistakes and pitfalls encountered by business owners, including myself.

With that being said, I’m going to discuss what I feel are the six biggest issues you need to address at the outset of your journey. I refer to these as Store Operations Issues and they are as follows:

o Choosing the right name for your business

o Selecting and pricing your product assortment

o Establishing your hours of operation

o Guidelines for staffing

o Wages and benefits issues

o Developing an effective marketing plan

I am not saying that this is the hard and fast rule for the order in which you prioritize your agenda, but this is the order that I placed these tasks in to help me avoid putting the cart before the horse. So with that being said, let’s get your business up and running. (NOTE: As I mentioned at the beginning of the article, I’m going to deal with the first three issues, and cover the other three is in the follow up article, “Owning and Operating a Small Retail Business – Advanced Basic Training”.)

Choosing the right name for your business

I’m not trying to be critical or mean, but you would be absolutely amazed at some of the names I’ve seen rookie business owners come up with. And as a consultant, I just get this blank look on my face and ask them, “Why did you pick this name?” If they can justify the name so that I stop scratching my head in amazed wonderment, then we usually proceed to the next step. But there have been times where I have said (under my breath of course), “Okay, it’s your funeral.”

As comical as that may sound, trust me, the name that you choose can be of great help or it can be your biggest hindrance when you are just getting your feet wet. First and foremost, try to select a name that indicates what you have to offer to the consuming public. This may not be as exciting as you had expected, but just remember one thing. Those cute, catchy names for businesses don’t always work. In fact they can actually be a deterrent when it comes to enticing foot traffic into your establishment. Rely on your marketing plan to be cute and catchy. Let your advertising do the talking for you.

My advice to you is to choose a name for that business like you would choose a name for your newborn child. This may sound corny, but do it with love. You sure don’t want your choice of a name to come back and bite you on the butt. Look at it from this standpoint. As that child is growing up, peer groups he or she is exposed to along the way can be vicious when it comes to making fun of that name that you chose. The result is that the child grows up hating its name, and in some cases, you as well.

Selecting and pricing your product assortment

Obviously, this is a critical issue requiring a lot of due diligence on your behalf. The first step is to select a good mix of products. Remember that in order to be remotely profitable, that merchandise has got to turn (or sell) within 30-45 days, or you won’t be in business very long. Obviously, you can’t stock each and every product out there on the market, but you can fine tune your product assortment into a very successful mix. This step is a good guideline to so that you purchase products that will afford you with a profitable sales floor.

For me, I have always found that when I’m buying products for a business, that the best combination involves buying only 10 to 15 percent of those products that I like, and 85 to 90 percent of what I absolutely despise. Remember that for every product you like, there are probably 100 or more people who hate it. Does this mean that using my formula guarantees that you will sell every item you stock? Absolutely not, because there are no guarantees in life. However, you will encounter less dead product (or “dogs” as I refer to them) on your sales floor. And your turns on this merchandise will fall within that 30-45 day parameter that I discussed above.

Here’s the second part of this equation. Now that you’ve purchased your initial product assortment, how do you determine a pricing structure for this merchandise once you are in the process of setting up your sales floor? Unfortunately, depending on the nature of the retail operation, there is anywhere from a 100% to a 500% mark up on most merchandise, so exercise caution when pricing your product.

From a psychological standpoint, customers purchase merchandise based on a myriad of criteria; value being the big dog in the pack. However, they also buy for the following reasons:

o Necessity — a product that is used in the home on a regular basis

o Status — a product that makes a statement as to their rank in society

o Impulse — a product that may not have been on their shopping list but they either feel that they just can’t live without it, or it is too good of a value to pass up

o Substitution — a product that is bought in place of one on the list, oftentimes at a higher price than what they had planned on paying

o Perceived Value — a product that may only be worth half of what you pay for it, but it has the appearance of a much more expensive item, so you pay that higher price and feel like it’s an exceptional value

But one truism I have always found as being constant when it comes to buying any product is what I like to call the “optimum buying window”. Based on all of the above criteria, there is a narrow price range for every item you see on every shelf, on every sales floor, and in every type of retail business you will ever walk into. It is that fine line that either entices or deters the consumer from purchasing that product. Just as any item can be over priced, so to can it be priced too cheaply.

I have often caught myself questioning the quality of an item because it seems like the price is too good to be true. In fact, I have asked numerous sales people on numerous occasions, “This item seems awfully inexpensive, are you sure about the pricing?” or “What’s wrong with this merchandise?” As funny as this sounds, just remember, you can price the item too cheaply as well as gouging the price.

Follow these recommendations for pricing product in your store:

o Most importantly, shop your competition, regardless of the size of the operation. I can’t stress the importance of this enough. Study their product assortment and see what their primary focus is. What categories are they stocking the most of? What categories do they stock the least of? What don’t they carry at all? Try to find out why they don’t carry a certain category or style or brand. (If was allowed to make only one recommendation, this would be the one.)

o Try to find, and subscribe to, a couple of industry publications. There are dozens to choose from for every retail business. You just need to do a little research. Focus first on those articles that pertain to trends in the industry and market. Secondly, pay close attention to all the display ads in that publication that could be applicable to your business.

o Attend trade shows, not necessarily to buy new products, but to check the pulse of the market, establish future supplier contacts, and collect product information. When it comes to collecting that information on the different products out there, you’re going to get bombarded with bags full of it. Just don’t be so quick to throw away those business cards and product pamphlets; you may be throwing away some diamonds in the rough.

o Pay attention to advertisements in the three major media (i.e., print, radio, and television) that involve businesses similar to yours. Focus on items that seem to be getting advertised more than others and how they are priced. Look for the gimmicks or the hooks that make you want to visit that store and buy from them. Is it a generic ad about the business and what they offer, or is there just a single item that they constantly throw at you?

Establishing your hours of operation

I guess I should start this section by asking the question, “How many hours are you willing to put in so that you succeed in your venture?” Just remember, the larger the population of the area your business is located in, the longer your hours of operation tends to be. Twelve hour weekdays are not an uncommon sight in the more heavily populated areas. And some of the larger retailers like Wal-Mart open around the clock.

I’ve proven on numerous occasions that 12 hour days are not as profitable as one would think. The attitude about being open so the competition doesn’t get all the business doesn’t hold any water with me. If you offer better values on merchandise similar to that of your competition, people will buy from you, regardless of the competition’s hours of operations.

On a recent consultation with a furniture store manager, I showed him how shortening his hours of operation by two hours per day would not just save him on his monthly overhead, but would add $90,000 to $100,000 in annual gross profit. This was the schedule I suggested:

Mondays through Fridays 10am – 7pm (was open 9am – 8pm)

Saturdays 10am – 6pm (was open 9am – 7pm)

Sundays 11am – 5pm (was open 10am – 6pm)

His commissioned salespeople were pretty happy about it, too. He made more money and had a happier crew on his sales floor to boot — it was a win – win situation. This is not rocket science folks. A simple customer flow chart will show you the less profitable hours of your day. But you have to do the math and figure out what it costs you, per hour, to keep your doors open.