qprev_HBB Manual 2.qxd - Small Business BC

This document has been developed for the Internet by the Ministry ofCompetition, Science and Enterprise, Province of British Columbia andWestern Economic Diversification Canada, Federal Government of Canada.Ministry of Competition, Science and Enterprisewww.gov.bc.ca/cse/Western Economic Diversification Canadawww.wd.gc.caRevised June 2002

Estimate Your Market Share 76Forecast Your Sales 77Scrutinize Your Prices 77Calculate the Costs of Productionor Services 79List Your Capital Equipment 81Determine Your Start-up Expenses 81Prepare an IncomeStatement 82Project Your Cash Flow 82Prepare a Balance Sheet 84List Your Sources and Uses of Financing 85Chapter 6 – Can You Managethe Business? 86Personal Style 87Time Management 87Build Relationships 88Family 88Lender 88Suppliers 88Customers 88Manage Your Finances 89Seek Additional Capital 89Reduce Your Taxable Income 89Business Number 90Handle the Goods andServices Tax (GST) 90Monitor Customer Credit 91Respond to Growth 92Say “No” 92Work Harder 92Delegate 92Recruit Volunteers 93Hire Staff 93Sub-Contract 93Seek Strategic Alliances 94Respond to Change 96Projections and Forecasts 96Environmental Impact 97Business Cycles and Economic Trends 97Explore Global Markets 98Expand E-Commerce Capability 99Success Factors for E-Commerce 102Consider Leaving Home 103Use Your Business Plan to Evaluate 103Chapter 7 - Conclusion 105First Steps 105Operational Essentials 107OneStop Business Registration 108Equity Capital Program 108Western Economic Diversification:Small Business Loan Program 109ivsolutions for small business home-based business

List of AppendicesAppendix AList of Business Terms 110Appendix BList of Resources 112Appendix COrganizations 114Appendix DDifferent Kinds of Home-BasedBusiness Opportunities 115Appendix EEntrepreneurial Evaluation 118Appendix FSelf Analysis Questions 120Appendix GHome-Based BusinessReference Manual 121Appendix HFiling System Categories 123Appendix IPrimary Market ResearchTechniques 125Appendix JSample Income Statement 128Appendix KSample Cash Flow Statement 129Appendix LSample Forecasted Balance Sheet 130Appendix MRegistering a Company Name forUse in British Columbia 131Appendix NAssistance Directory 132solutions for small business home-based businessv

career transition. Others – retirees, people withdisabilities and hobbyists – also discoveredemployment opportunities in their homes. But therise of e-commerce has created many newoccupations – such as Web page designers,software developers, service technicians, and onlineexperts. The ease and availability of mobiletelecommunications is also liberating many whowere once desk-bound to function anywhere andanytime. Indeed, home-based enterprises areoften better positioned than large corporations torespond quickly to changing markets in theinformation age.Yet, success is hardly guaranteed. Small businessfailure continues to occur at alarming rates.Around 50 per cent of start-ups don’t last beyondtwo years of business, and by the ten year markalmost 80 per cent have disappeared. Smallbusinesses suffer a failure rate 14 times as highas larger corporations. Since many home-basedbusinesses don’t incorporate or purchase licenses,their failure rate is harder to track, but homebasedbusiness associations estimate failure ratesof their members at least this high, perhaps evenhigher.The home has many drawbacks as a location forbusiness. Despite your best intentions, you’llinevitably have problems separating home lifefrom work life. The temptation to respond to e-mail or phone calls can extend your hours wellbeyond a sensible day’s work. Maintainingadequate space in your home for an expandingoperation can be a constant headache. Somehome entrepreneurs soon become workaholics,others suffer acute loneliness and isolation.Overcoming these hurdles isn’t as easy as youmight think.The purpose of this manual is to guide the effortsof ordinary British Columbians like you who areeager to start a home-based business that willprosper and grow.Running a successful home-based businessdoesn’t require magical formulas – just a viableidea, common sense, appropriate planningand the dedication to carry out the plan.This manual is organized into six sections. Eachfocuses upon helping you answer centralquestions about the viability of your futurebusiness. The contents explain how to find solidanswers and make good decisions.The manual is designed to be a comprehensiveresource to assist the launching of any typeof home-based enterprise. You may not need toapply all of the information supplied here,but you will need to consider its implications.For example, you probably don’t need toincorporate your business at the beginning, butshould be aware of the steps needed if you decideon this route later.Other self-help publications are available in theseries called Solutions for Small Business:• Business Planning and FinancialForecasting• BC Business Resource Guide: Guidelines andRequirements for Business• Exploring Business Opportunities:A Guide for EntrepreneursThese guides can be downloaded from theInternet at www.smallbusinessbc.ca by clickingon Small Business Guides, Solutions for SmallBusiness series.2solutions for small business home-based business

There’s truly no place like home for launching abusiness today. If you systematically apply theinformation and advice contained in this manualand other sources, you’ll greatly increase thechances of turning your home-based dream into asolid reality.Why home-based is growingSome key factors driving the growth of homebasedbusinesses in Western Canada are:• Technology – increasingly more available,accessible, affordable and usable.• Restructuring – large corporations andgovernment shedding skilled professionals.• Lifestyle – greater focus on home life andbeing near family or friends.• Commute time – desire to reduce stress andtime of travelling to workplace.• Service sector – growth in opportunities thathome entrepreneurs can readily exploit.• Aging population – early retirement andlonger life span allowing more scope for homeentrepreneurship.Source: The New Frontier: Enterprise andE-Business in Western Canada (2000)solutions for small business home-based business 3

1Is Home theBest Choice for You?Kootenay Valley Soap Companyby Kathy McCauley“We had soap everywhere!” says JenniferAdams, remembering how her home-basedbusiness started in her kitchen. “On old ovenracks hanging from the ceiling, on top of thefridge, the freezer, everywhere! My office was inthe middle of the living room. We ate, drank andbreathed soap for the whole first year.”The victim of a layoff after six years in the retailhealth food business, Jennifer discovered thesame week she was pregnant. She and herpartner decided to move back home to EastKootenay, determined to start a business thatwould allow her to be home with her baby.After enrolling in a basic entrepreneurshiptraining program sponsored by CranbrookCommunity Futures, Jennifer had clarified hergoals. “I’d intended to write a series of bookletson lost pioneer skills but I changed my mind. Idiscovered there was great interest in naturalsoap products, so I experimented withmanufacturing procedures and recipes. Within ayear, I finished my business plan and borrowedseed money.”Sales exceeded $100,000 in the first year andthen doubled in the second. Producing 1,600bars of soap a week, the company was soonshipping to more than 150 retail outlets acrossCanada. Helped by hired assistants, the familyfirm employs her mother as full-time officemanager and her life partner as sales managerand staff trainer.While growing a home-based business hasn’tbeen easy, it’s brought rewards. “I’ve never hadto work so hard in my life,” comments Jennifer.“Time management and stress management arechallenges for me, and it takes courage to dealwith the financial risk and responsibility ofhaving employees. Finding time for my family isstill hard but I have achieved my goal of beinghome with my daughter.”And the future looks bright. Jennifer foreseesbreaking into the international market andpotential sales of over $1 million annually.Before you go any Further...So you want to start a home-based business, eh?Before you go any further, ask yourself why?And then ask what personal qualities and familysupport you can draw upon to make your dream areality. Since these questions are so crucial toyour chance of success, let’s examine them oneat a time.Consider Your Reasons forBeing Home-BasedWhy Start a Home-based Business?The home is an excellent place to start abusiness. Unfortunately, many home businessesstruggle to survive. Being clear about yourreasons for wanting to be home-basedcan lessen that struggle greatly and helpyou make much better business decisions.Success is directly linked to being clear aboutyour motivation.4solutions for small business home-based business

People have all sorts of good reasons for wantingto work from home. For instance,you may want to:• Be your own boss• Make money• Spend more time in the same place asyour family• Incubate a new business idea• Expand an existing interest or hobbyPeople usually have more than one reason forstarting a home-based business. What thingsabout becoming a home-based business personappeal to you most? Write them down as astatement of what your goals are.Assess Your Entrepreneurial SpiritWhat Personal Qualities andTraits will Help You?Are you suited to being an entrepreneur?Do you have the personal skills and qualities thatare needed? Did you try to run a business beforeand fail? Do you even have any previous businessexperience at all? Do you have the guts to go thatextra mile when others would have thrown in thetowel?These are important questions to consider.Success at operating a business depends muchupon your faith in yourself – your selfconfidenceand your determination. A lack ofself-esteem will soon affect your motivation,especially if times get tough. This is especiallytrue in the start-up phase when so much sweatequity is invested. It is also true for most homeentrepreneurs who lack operating capital andmust rely heavily on their own efforts.But take heart. Experts agree there is no singleprofile of the successful entrepreneur. Theentrepreneurial spirit lives in a variety ofdifferent people. Individuals share somepersonality traits but not others. Strengthsin one area can compensate for weaknessesin another. Also, the very traits that make someentrepreneurs successful – such as determinationand willingness to work long hours – can alsoturn into traps. There are extremes for each trait.Having too much of a particular trait can be asmuch of a problem in a home-based business asnot having enough.Interestingly, the new economy favours a style ofentrepreneurship that’s well-suited to homeentrepreneurs. Technological advancements andglobal markets have opened up the world ofbusiness – giving direct access to customers andsuppliers. Customer loyalty is fickle, orderprocessing must be fast, and reputations areeasier to lose. In this brave new world, homebasedentrepreneurs need to be nimble andinnovative. Lacking huge inventory orbureaucracy, they can fill market niches quicklyand profitably. Small has become beautiful andstyle is giving way to substance.The key is getting to know yourself. You need toacknowledge your personal assets and liabilitiesfor running a home business. Areas to considerare:• Your initiative and creativity• Your willingness to take action• Your ability to handle stress• Your previous business experience• Your problem-solving skills• Your ability to handle people• Your willingness to learn from mistakessolutions for small business home-based business 5

Then you can play to those strengths and overcomeweaknesses by seeking help from others –family and friends, business partnerships andalliances, as well as trade associations or localbusiness groups. (A Directory of CanadianAssociations is available at Canada Info:www.canadainfo.com/directories/associations.html)Everyone an entrepreneurEllie Rubin in Bulldog: Spirit of the NewEntrepreneur (1999) says:Rather than ask, “How can I become an entrepreneur?”ask yourself, “What have I learned?What am I determined to learn? And how can Iapply this knowledge to a new situation?”Active entrepreneuring starts by letting go of ourculture’s overglamorized version of entrepreneurship...and recognizing that everyone haswithin them the ability to “entrepreneur” onsome level.Those who learn how to leverage their talentand accumulated knowledge will be poised forgreater success.There are numerous tests you can take which try to measure your entrepreneurial spirit.Some free ones available on-line are:Name of testNational EntrepreneurshipTestA Self-Evaluation Guideto Starting a Business ofYour OwnAm I am Entrepreneur?Entrepreneur TestSupplierProfit MagazineManitoba Industry, Tradeand TourismWestern EconomicDiversificationABCs of Small Business Success(Liraz Information Inc.)Website addresswww.cybf.ca/strategis.ic.gc.ca/www.wd.gc.ca/eng/www.liraz.com/webquiz.htmIf you don’t yet have access to the Internet, or prefer using paper and pencil, an Entrepreneur Assessmentis reproduced in Appendix E.Before you go any further, take an entrepreneurial test and assess your entrepreneurial spirit. When youare finished, make a list of your strengths – and the areas where you will need help from others.6solutions for small business home-based business

Make an Inventory of ResourcesAvailable to YouWhat Personal Resources Do you Have?As well as your personal qualities, you shouldconsider the resources you have at hand.Successful business owners depend on otherpeople and draw upon them as resources.Learning to see people and things as resourcesmay require a shift in your perspective.The resources you already have includeeverything from your own skills to friends whocould help with financing. Home entrepreneursoften overlook many of the personal orprofessional resources they possess. They ignorethe wealth of contacts already in their Rolodex orthe value of their current computer skills.Before you go any further, create an inventory ofall the resources currently available to you –resources you believe will give you an advantageto succeed in a home-based business – such as:• Spare time• Relevant training• Previous sales experience• Many personal contacts• Support from family and friends• Start-up cash available• Partner with secure income• Income from existing job you may decideto keep during start-upA previous job resume is a good place to look forsome skills, experiences, and assets which couldhelp your business be successful.Parts of your inventory can be transferred laterinto your business plan. Business plans will beexplained in the next chapter. This will helpwhen seeking start-up financing, as lenders willwant to know what resources you already bringto the venture.Obtain Support fromOther Family MembersWill Your Family Help or Hinder You?When you start a home-based business, everyoneliving with you is affected. In reality, you don’tstart a home business, your whole householddoes. How they react to the idea will be veryinfluential. It can make or break the wholeenterprise.Many home-based businesses fail because familymembers have different ideas about what isimportant and about what effect the business willhave on the family. Discussthese issues openly with the people involved:• Describe your plans to other family members.• Find out how your partner and other familymembers think your plans will affect them.• Explain what expectations you have of othersto help out – such as answering the door,picking up the phone, lending a hand at busytimes, or just leaving you alone.• Discuss other people’s expectations of you –such as being available for family occasions,giving warning of absences, and cleaningup messes.Management of the gray area between homebusiness and home life is particularly importantfor women – they often shoulder the mainresponsibility for domestic tasks ina family. Women may have to struggle to preventbusiness time and energy from being drawn offinto household work.solutions for small business home-based business 7

Expectations in this area are seldom discussedand often perceived differently by otherhousehold members. When you operate fromhome, other family members may thinkit reasonable to ask you to do a little extrahere or there. These expectations can soonundermine your business success.Check out family expectations and reactionsbefore going any further.Make Separate Space AvailableIs Separate Space Available?The need for a designated space for yourbusiness, even if space is severely restricted,cannot be emphasized enough. Sometimesthis separate space is more symbolic thanreal – such as a desk in the living room or aworkbench in the basement – but having adefinite place does make a statement aboutthe seriousness of your undertaking. The largerand more separate the space you can makeavailable, the more functional it will be atdividing your business life from your home life.Over the long haul, this separation will benefiteveryone living in the household.Assess the physical lay-out of your home:• Where might you be able to conduct business?• What re-modeling might have to be done?• What changes would these ideas have onpresent use of space?No place like home?Is your home really the best location for thebusiness you have in mind? Here are somepotential advantages and disadvantages of ahome base:Potential advantages• Low risk of expensive mistakes.• Opportunity to use household resources. forbusiness use.• Low overhead, running costs.• Gradual start-up and growth .• No commuting time or expense.• Tax advantages (with deductions allowed forpart of the house).• Relatively inexpensive way to test a market.Potential disadvantages• Isolation and lack of contact with colleagues.• Increased family stress, with the difficulty ofoperating a business and home together.• Need for self discipline and the ability to planand manage one’s own time.• By-laws and regulations affecting what youcan and can’t do at home.• Poor image (you may look more home-likethan business-like).• Conflict with neighbours over noise, traffic,and changed use of space.• Parking problems.• Estimates you make at this time will be usefulfor completing parts of your business planlater.8solutions for small business home-based business

Find Out if You are Permittedto OperateAre you Permitted to Operate?In the past decade, most municipalities in BritishColumbia have become much more tolerant ofhome-based businesses. However, many wouldbeentrepreneurs don’t realize how restrictive thezoning regulations in some municipalities stillare. Many severely limitthe size of home-based operations, including thenumber of employees allowed and the amount ofsignage displayed.Contact your local municipality to find out aboutregulations and restrictions.Expect to Be BusyAre you Ready for the Changes?A home-based business can absorb all your timeand energy – especially in the start-up phase.There is a major risk that as you devote so muchto your business, other parts ofyour life will be ignored. You may become aworkaholic. If managed properly, that sameenergy can help make a business succeed.Ignored, workaholism, like other addictions,isolates people from family and friends andcauses stress. In serious cases, this can leadto family breakdown and business failure.Try to be realistic. Things invariably take longerthan expected. Unforeseen difficulties canbecome very time-consuming to fix. During startup,there never seems to be enough time in theday to accomplish everything.• Expect to be very busy launching yourbusiness, so build plenty of reserves into yourplanning.• Leave extra space in your schedule to catch upand so avoid becoming overwhelmed.Make the Right DecisionHow honestly have you considered the influencea home-based business will haveon different parts of your life – family, social,professional, personal?Try discussing your situation with a personwhose judgement you can trust. For best results,this should be an acquaintance who can becompletely objective rather than a familymember or close friend.Ask this person to tell you frankly their opinionabout the following:• Have I carefully assessed my reasons forwanting to be home-based?• Have I clearly considered what will be neededpersonally to succeed?• Have I checked-out the reactions of familymembers and enlisted support?Use the feedback you get from this conversationto make possible changes toyour business goals. You may conclude thatrunning a business from home isn’t realistic atthe moment. Perhaps you should delay yourstart-up until you have fewer responsibilities.Perhaps you should start part-time, living offother regular income.Remember, starting a home-based business isa lifestyle choice, not simply another careeroption. Where you live is primarily a home, not aplace of business. This means the business willconstantly have to make adjustments to survivein its home location. Make sure you have alsorealistically considered, and rejected, thepossibility of locating the business elsewhere.solutions for small business home-based business 9

Are You Ready to Be Home-Based?Use these questions to assess whether startinga home-based business is realistic for you at thistime:LegalitiesIs your business legal according to the zoningbylaws in your municipality? What legalrestrictions may limit you from operatingfrom your home?BalanceCan you be disciplined about maintaining abalance between home life and work, betweenyour business and your personal life, betweenyour own growth and that of your business?Asking yourself these questions – and answeringthem truthfully – isn’t easy, but it helps ensurefrom the beginning that your situation willsupport your success.Physical spaceDo you have enough space? Will you haveto remodel your home? What effects will achanged use of space have on your family?Family supportWill other family members actively help andsupport you, or leave you alone? Do you knowwhat your family truly thinks about your idea?NeighboursHow will your neighbours react? Will yourhome-based business affect them? Could theircomplaints to city hall close you down?Work styleAre you a self-starter, motivated and disciplinedabout working on your own? What social orprofessional development activities could takethe place of the interaction you’ll miss from anoutside place of work?10solutions for small business home-based business

2What Will You Sell?Davey Mountainview Guest Ranchby Olga HymersSpring mornings are full of activity at the guestranch that owners Jennifer and Ron Daveyoperate near Quesnel. There are horses andcattle to tend to, breakfast to prepare and roomsto make up. The Daveys tackle the work, taking amoment here and there to chat with a guest orexplain what they are doing. Guests are welcometo pitch in or just relax and enjoy their vacation.“For us it’s an opportunity,” says Jennifer. “Wesee it as a chance to retire into a lifestyle we bothenjoy. And we have the prospect of passing it onto our sons.”The choice of running a quest ranch was a wellthought-out one. Background research andinvestigation took several years. The couplelooked into providing a bed and breakfastservice, but discarded the idea when theyrealized provincial laws allow only a maximumof four rooms. They wanted more potential forgrowth. With 320 acres of cattle country theycertainly aren’t cramped.There was also the potential to offer trail ridingthrough the 1,400 acres of crown land thatsurround their ranch. Their home was largeenough, and the idea of providing guests witha full-service adventure holiday started tocrystallize. With a capacity of 80 people, a guestranch suited their philosophy of starting small,yet still allowed room to add cabins, trail ridesand adventure horseback trips as their resourcesand experience grew.“We’re pacing ourselves,”says Jennifer. “We’reokay with that because all the things we’re doingare brand-new experiences for us – and we’re inthis for enjoyment too. Our business plan is agood guide, and we try to follow it, but I’mamazed at how much the direction of ourbusiness is driven by suggestions from ourguests.”The days are full and the Daveys spend themdoing what they enjoy – sharing their love ofrural British Columbia with their guests.Assessing Your SituationThe backbone of your home-based business willbe the products or services that you offer for sale.But where do winning ideas for these comefrom? How can you tell if you have one? And doyou need to prepare a business plan before youstart? This section provides some answers andshows how to turn an idea into a businessopportunity.Explore Possible IdeasDo you Have a Solid Idea for theBusiness?Many people hanker after going into business forthemselves but lack an idea. If this is true foryou, the good news is there are several ways tofind an idea for a home-based business. One maybe closer to home than you realize!solutions for small business home-based business 11

Know What to Look forSources of business ideas are surprisinglyplentiful, but they may not be immediatelyobvious. We’ve all had the experience ofwondering Why didn’t I think of that! afternoticing a new item for sale.Any search is easier if you know what you arelooking for. Not all business ideas are suitable forstart-up at home. They may be too expensive todevelop, require heavy equipment, need specialpermits and so on. Other ideas may have poorprofit potential or face severe competition.Generalizing about good business ideas isdifficult. Some ideas are simply unique andfly in the face of sensible advice. But, in general,look first at business ideas which have thesefeatures:• Simple to start – The business doesn’t requireso much up-front that you spend long hourslearning new procedures, building tradeconnections, or finding speciality buyers.• Low overhead – Unless you have access tohuge wealth, find ideas which don’t requirehefty capital outlay to buy machinery,customer lists, or distribution rights.• Cheap to operate – Don’t ruin the lowoperating costs of being home-based bychoosing an idea that involves hiring lots ofextra staff, frequent injections of cash, or longperiods of inactivity.• Not overdependent – Be cautious of businessideas that rely on orders froma single big customer or supplies from asingle source. If they go out of business,so might you.• Internet linkable – Home-based businesseswhich harness the power of e-commerce – mayride the wave of the future. Look for ideaswhich are web-ready or have potential forelectronic communication with customers andsuppliers.• Project potential – In the new economy, ideasfor virtual companies that come together for asingle project – as do movie companies – areincreasing. These exploit an opportunity andthen dissolve. Look for ideas with suchpotential to be project-based.• Easy to manage – As you become successful,sales will grow. How will you handle increaseddemand? Can you fill large orders quickly?Can you afford to expand? Avoid ideas thatcould quickly grow out of your control.Watch Out for ScamsYou’ll see advertisements for work-at-homeschemes on television, at Web sites, in businesspublications, and even on matchbook covers. Theads claim you can “Earn $1,000 a week” andoffer “Great Start-Up Potential” with “NoExperience Necessary”. The ads often providefake testimonials that you cannot verify and usefly-by-night post office boxes as reply addresses.If you answer the ads, you receive demands formoney before materials are sent and no analysisof the actual operating costs.Each year too many people fall prey to scamartists who offer fantastic opportunities formaking money. Taken in by innocence, greed ordesperation, people can lose their life savings orfall deep into debt. Scams tend to target certaintypes of people: seniors, people forced into earlyretirement, and people wanting to earn extracash.12solutions for small business home-based business

Some work-at-home schemes are legitimatebusinesses but too many are fraudulent orunprofitable. The difficulty is telling them apart.The best advice is if it looks too good to be true itprobably is. After all, if the idea is so dynamicwhy are you hearing about it on the back pagesof a newspaper? If so much money can be made,why are the owners not doing it all themselves?Typical schemes to be cautious with are:• No-money down-real estate• Envelope stuffing• Call centre sales• Vending machines sales• Assembling crafts and products pieceworkProtect yourself by asking for local referencesfrom scheme participants who you can govisit to discuss their experience. Also, check outall operations by contacting the Better BusinessBureau.Sad storiesWhen Alice Brehen was working as the BusinessFrom Home advisor on the Prodigy onlineservices, she received a lot of messages frompeople who had bought into businessopportunities. Some people had had great results,but Alice also heard her share of sad stories frompeople who had invested a lot of money inopportunities that couldn’t possibly pay off.• One woman bought into a mail order business.Not only was there no margin, but themerchandise took so long to get to her that shelost all her sales.• A man wrote to Alice to say he had sucked hissavings account dry trying to makepersonalized children’s books on his computer.He paid a bundle for the business because itwas supposed to include support from experts,but every time he called for help, the expertswere in a meeting.• Time and again, Alice heard from people whohad assembled crafts at home, only to be toldby the company that was supposed to buy thecompleted crafts back from them that thequality was not up to snuff. These people werestuck because they had already paid for thematerials they used to put the crafts together.Alice warns there are many, many scam artistsout there who prey on people’s desire to workfrom home.Source: Alice Bredin: The Virtual Office SurvivalHandbook (1996)Search Yourself for IdeasChoosing a business is similar to choosinga mate – you will be living with theconsequences for a long time. So it’s worthselling something you like to people youwish to serve in an industry you want to beassociated with.This means you must look at yourself to figureout what business you should start:• Interests and hobbies – How do you likespending your spare time? What topics do youlike reading about? How did you pass the timeas a child? What do you wish you’d spentmore time doing?• Talents and skills – What activities are yougood at doing? What do people rely on you tosolutions for small business home-based business 13

do right? What could you be good at if youonly had time for it?• Personality traits – Do you like working withyour hands? Or do you prefer talking topeople? Does collecting and analyzinginformation suit you, or creating new ideas andthings instead?• Knowledge and expertise – What do youalready know much about? What industries areyou familiar with? What training have youpreviously had?The best business for you will be something youcan get passionate about – something that lights afire under you! Your zeal will give you theenergy to overcome obstacles. Your enthusiasmcan also be infectious – attracting customers whotalk about you to others.Look Around You for OpportunitiesBesides being something that suits you, the ideamust also have an opportunity to thrive – just likea seed needs favourable soil in which to grow.Your business idea must fill an unmet need orcreate a desire that people will pay to satisfy. Ifnot, your idea is stillborn, no matter how muchyou like it.Here’s some ways to uncover opportunities forideas to flourish:Trends and changesThe world is changing fast, existing products andservices on the market may not be keeping pace.Look around you at what’s changing:• Shifts in the population and lifespan• Changes in fashion and new fads• Advances in technology, medicine and science• New leisure and recreational pursuits• Trends in housing and lifestyle• New ways of producing or serving food• Changes affecting wellness and theenvironmentUnfilled nichesHome-based businesses are often well-positionedto fill gaps in the market that are too small forlarger companies to bother with. For example, ahome-based business producing hand-paintedChristmas ornaments may turn out such highqualityproducts that large volume manufacturerscannot compete, even if using cheap off-shorelabour.Look for unfilled niches in markets where:• Expertise is in short supply• Customers value uniqueness and creativity• Customers want custom-made orpersonalized items• The target market is locally small butglobally bigQuality improvementsOne strategy is to improve the quality orperformance of something already being sold.This has the advantage of spring-boarding on theproven success of something and so reduces risk. Many items already on the shelves could beimproved, modified, enhanced or simplypackaged better.Train your eye to look at products closely. Lookfor ways in which a product could be improvedby making it:• Safer to operate• Lighter to carry14solutions for small business home-based business

• Cleaner to use• Quieter to run• More long-lasting• Foldable or easier to store• Cheaper to distribute• Easier to transport• More adjustable• Performance enhanced• Less expensive to repair• More convenient to use• Technology enhancedValue-added servicesThe customer is king. Any way you can addvalue to the customer’s experience of dealingwith you will help differentiate your businessfrom another one. Home-base businesses canoften supply extra value at low cost, simplyby being more connected with the needs andpreferences of their customers than largerorganizations can.Look for opportunities to add value to thecustomer’s experience:• Offer satisfaction-guarantees.• Improve the warranty coverage.• Add optional accessories.• Introduce limited time special editions.• Cross-sell the services of other companies.• Add a gift-wrapping service.• Provide child-minding arrangementsfor clients.The Internet revolutionExpanding technology is creating many newopportunities for entrepreneurs who are turningtheir homes into launching pads for hightechnology ventures. You don’t have tobe a techi yourself: you can partner with anotherand complement each other’s skills. The e-commerce opportunities available through theInternet are growing exponentially:• E-tailing – Retail operations have moved onlinewith a digital front-end. Everything frombooks and flowers to groceries and clothes isnow sold from a Web site.• E-commerce – Businesses selling to otherbusinesses (called B2B) was an early use ofthe Web. Suppliers, equipment, parts,transportation – it’s all only a few clicks away.• E-mail – Ever since Hotmail offered free e-mail accounts, the number of people havingtheir own e-mail addresses has multipliedtremendously. As more people establish theirown homepages, identities become virtual.• E-cafe – Web surfing and crawling forinformation, entertainment or person-to-personcontact grows each year. Public access to theweb from Internet style cafes has also grown.• E-trading – The middle men are being cut outas supply lines move closer to the end user.Not only can you bypass your stock broker andtrade on-line yourself, you can also do thiswith airline bookings, concert tickets, andclassified ads.How could you use your talents and experiencesto create an e-commerce opportunity?solutions for small business home-based business 15

Search through SourcesYou’ll find a variety of lists available that nametypes of business opportunities you couldconsider for a home-based business: Here aresome examples:Canada/BC Business Service Centrewww.smallbusinessbc.ca/workshop/workshop.htmlProvides an on-line small business workshopwith details of forty business concepts inSession OneCanada WorkInfoNetwww.workinfonet.caProvides career and labour market informationincluding entrepreneurial adviceKauffman Centre EntreWorldwww.EntreWorld.orgProvides articles, information and links to othersitesAlso check out the business section in your locallibrary or bookstore. Several publishers, such asSelf-Counsel Press in Canada or McGraw-Hill inthe USA, provide series of business start-upguides, tailored to starting a specific business.Usually, these include sample business plans andcomplete instructions on how to set-up thebusiness from scratch.Appendix D also provides a list of some commontypes of home-based businesses.Emphasis on qualityLarry Easto, author of How to Succeed in YourHome Business, says:For the most part, the home businessenvironment is free of the factors that makequality service so difficult for largeorganizations.I became acutely aware of this after I left themajor professional services firm for which I hadbeen working. While with the firm, the decisionwhether I should accept specific consultingassignments was guided by considerations suchas: How important is this client to the firm (ormore likely my supervisor and his career plan)?How much revenue is this client likely tocontribute this month? This year? and Whatother business could this client refer to our firm?Operating my business from my home office, theconsiderations became: What does this clientneed, want and expect from me? Do I have theresources to profitably meet these needs andwants? And What is the client willing to pay forthis service?Because corporate agendas and supervisor’scareer plans no longer exist for home businessowners, they cease to be obstacles to qualityclient services.Explore Several IdeasProspective entrepreneurs often make the mistakeof narrowing their choices too quickly, startingthe first business that comes to mind.If you think you already have a good idea fora business, don’t rush. Slow down a moment toevaluate the strengths of your idea. Compare itagainst other ideas.16solutions for small business home-based business

Exploring the merits of several ideas helpsyou to:• Avoid blinders – Entrepreneurs can be soanxious to get started, they miss obvious flawsin their ideas.• Have a back-up – If your first idea fails early,have another waiting to take its place.• Make improvements – Look for ways toimprove even good ideas by enhancements ormodifications.Expand your choices and come up with ideas forbusinesses that you would actually enjoy running.Discover business opportunities that would beprofitable and personally rewarding. The trick isto match the business to your preferences, ratherthan vice versa.Evaluate Your BusinessOpportunityHaving an idea for a business isn’t enough toensure success. It’s simply the first step. Nomatter how good your business ideas are, theyneed to be feasible and realistic.A business opportunity becomes feasible for youwhen your idea has a chance to succeed as abusiness. This means you’ll need to examineyour idea carefully to see how a profitablebusiness can be created out of it. You’ll needto examine:• how best to organize your business• who the best target market of customerswill be• where to locate supplies• how much capital investment is neededLet’s see how you can assess the chances ofsuccess for your business idea. The processbegins with research. Don’t get frightened by thatword. Doing business research simply involvescollecting information about either your idea oryour type of business. The information is used tohelp you see what your chances of success arelikely to be and what adjustments to your ideasmight be needed.Make the Task InterestingA hunt for information can be fun. It doesn’tneed to be tedious and boring if you involveothers to help you. Ask family members if theycan help out with some of the tasks:• Set aside time to search the Internet with afamily member.• Ask friends to come with you to libraries orgovernment offices when you go to collectinformation.• Join a local home-based business associationand get help from other members who havedone business research before. They can showyou the ropes, offer tips on where to go andwho to contact in your area. They may evenhave some of the information you are lookingfor.If you really hate collecting information andwading through catalogues, you can always hirea researcher to do the work for you. Indeed, localcollege and university students taking businesscourses may even be willing to do some of thework as a school project.Allow for Enough TimeBe warned: lots of time is needed. Researching abusiness idea will take at least several weeks fulltimework, probably close to six months parttime.Depending on the type of business you areinvestigating and how much you already know, itcould take even longer. This delayed return maysolutions for small business home-based business 17

make you question whether the time and moneyyou spend on research is necessary. When you areenthusiastic and ready to go with an idea, it canbe frustrating to hunt for information that seemsirrelevant at first. But it’s worth it. With anunprepared start, you won’t give yourself or yourbusiness idea much chance to succeed. This isnot a lesson you want to learn the hard way.Business OptionsStart from Scratch - Advantages• You begin with your concept of the business.You are not hampered by someone else’sproblems, image, or outmoded equipment.• You have the opportunity to pick your locationand name, as well as to select new equipment,fixtures and inventory.• You have the freedom to recruit, hire and trainyour own staff. You do not inherit problememployees.• You do not have to pay for someone else’sgood will or a franchise fee for the nameand concepts.• You have the sense of accomplishment andreward, seeing a vision fulfilled; it’s a realchallenge to create something from nothing.Start from Scratch - Disadvantages• You must create all of the parts from scratch(marketing, accounting, purchasing,merchandising). This frequently involvescostly trial and error.• You must build the business first, to a breakevenpoint, then to a profit level from a deadstart. This normally takes considerable timeand costs a lot of money.• The process of getting started – finding alocation, designing a layout, selecting fixturesand inventory – is a difficult task, particularlyif you are inexperienced.• Obtaining product lines and establishingsuppliers for a new operation is timeconsumingand often frustrating.18solutions for small business home-based business

Buy a Business - Advantages• You acquire a loyal customer base and avoidthe costly and time consuming effort ofbuilding sales volume.• A highly motivated owner may sell to you at abargain price.• You purchase a proven operation – location,sales volume, merchandising, and advertisingplan.• The owner may provide valuable assistance.You might also acquire trained personnel,along with existing lines of credit andestablished sources of merchandise.• You may benefit from a very favourable lease,signed some time ago by the present seller.Buy a Business - Disadvantages• You may pay too much because of overeagernessor miscalculation. Or, the sellermight even misrepresent certain facts.• The business may come with ill-will (badreputation), rather than with good will. Thishandicap could be difficult and expensive toovercome.• The location could be marginal or in adeclining area.• Major competition might be entering thatmarketplace.• You may inherit obsolete equipment orfixtures, along with outdated merchandise.Essentially, you get stuck with all the existingflaws.Buy a Franchise -Advantages• You may reduce your risk of possible failureby using a “tested” business concept.• You receive training and a blueprint foroperating your business. This blueprint canreduce costly trial and error blunders.• You identify yourself with a recognized namewith an already established reputation.• You have an experienced partner with a vestedinterest in your success since the reputation ofthe franchiser also rests on your success.Buy a Franchise - Disadvantages• Lack of control and personal imprint.You may feel more like an employee than yourown boss. You lose much control, flexibilityand creativity. You have to operate by theirbook.• Franchising usually involves a substantialstart-up fee.• Franchisors usually charge a continuingroyalty fee from two to six per cent ofgross sales.• The franchise contract can be quite restrictiveand the franchisor usually has the financial andlegal resources to enforce it.• If they suffer you suffer. If the franchisor hasfinancial difficulties, or goes out of business, itmay spell disaster for your venture.solutions for small business home-based business 19

Understand What InformationYou’ll NeedThe information you’ll need will depend uponthe kind of business you intend to operate.Starting-up a trucking company requires quitedifferent data than for a dried-flower craftbusiness. But the types of information areroughly the same for all businesses. They fallinto the following four main categories:• Business Concept: What will you be selling?• Marketing: How will you reach buyers?• Operations: How will you run your business?• Finance: How much do you need to makea profit?When collected together into these fourcategories, the information you obtain becomes a“business plan” for your firm. For easyreference,the remaining parts of this manual areorganized into these same categories.Keep a Research FileAs your research progresses, you’ll need ways torecord and store information. A good system touse is called a research file, divided into sections.Use the names of the four categories mentionedabove as divider labels in your research file.Your research file can be one of the following or,more likely, a combination of them:• Hand held – Use palm pilots or mobileinformation storage devices. Use deviceswhich have Internet communication and caneasily transfer data. This method is the mostconvenient and portable.• Desktop – Use database or word-processingsoftware for your personal computer that has aspreadsheet capability. Use voice-activation ifyour keyboarding speed is slow.• Paper-based – The traditional 3-ring binder isstill versatile and functional. A good size to useis a 7” x 11” sized binder with a 1 or 1.5 inchwidth.Don’t carry around all of your information withyou – the risk of losing everything at once is toogreat. Make back-up copies of information storedin mobile communications devices.Some information will come in the form ofbrochures and leaflets which can be holepunchedand placed “as is” into the binder. Thesame is true for information downloaded to aprinter off the Internet or photocopied frombooks, magazines, directories, etc. Small scrapsof paper can be glued onto full-sized pages sothey’ll fit into your binder easily.This research file becomes a reference manualabout your business and the foundation for theinformation you’ll include in your business planlater.Find it on the WebIn their book Small Business Online: A StrategicGuide for Canadian Entrepreneurs (1998),Jim Carroll and Rick Broadhead show howto navigate the Internet to find a wealth ofinformation on topics such as:• Market and industry data• Financial and tax information• Media contacts• Small business support services• Government programs• New technologies• The competition• Products and services20solutions for small business home-based business

Get Off to a Good StartA “research source” is a place where you findinformation. Research sources include people,information offices, Web sites, media programs,publications such as books and magazines, andless obvious ones such as suppliers, customers,and even competitors.Collect the names of people you speak to so youwill have contact information in the same placeas other information you get. Keeping track ofwhom you speak to is an important part oforganizing research – and it will greatly enhancethe task of putting your business plan togetherlater.Search the Internet. There’s a whole world ofinformation available at your fingertips –although finding information that’s relevant andreliable among the chaos can be challenging.• Use search engines – These are sites that helpyou search by keywords or topics. Some willallow you to select Canadian only information.Some have tools for narrowing the type ofsearch you want. Click on the help icons forassistance.Google www.google.comAltaVista www.altavista.comExcite www.excite.comLycos www.lycos.comNBCi www.nbci.msnbc.com/nbci.aspWebCrawler www.webcrawler.comYahoo Canada www.ca.yahoo.com• Search directories – Many sites act aslibraries of information that are stored by thehost or hotlinked to other sites on the Internet.Often the site provides a series of menus tohelp you navigate your way around the site, aswell as local search capability. Some to try are:Strategis www.strategis.ic.gc.caMediaFinder www.mediafinder.comCanoe www.canoe.caFinditwww.findit.comKnowX www.knowx.comVisit the library – especially if you don’t haveInternet access at home yet. The price is right,and the reference librarian may be your mostuseful, low-cost consultant. Local public,community college and university libraries havemany resources including current directories andcollections of standard business references, as dolocal business information centres. If you areuncertain what questions to ask, use the businessplan framework (see page 28) and make a“shopping list” of research questions. Ask alibrarian to help you find the references that havethe information you need.Use your business network. Make the most ofnetworks you belong to. If you know a lender, orknow that your business idea is only possible ifyou can get financing, consider meeting with abanker to discuss your idea. Your lender may beable to suggest other sources of information, suchas similar businesses in another area, or goodlocal suppliers. Your local Chamber ofCommerce is a good lead for making contactsand for business seminars and workshops.Contact business centres – Small business andenterprise development centres may exist in yourarea of the province. Often they are associatedwith community colleges. These centres bringtogether much useful information into onelocation. There may be a fee charged.Community colleges and School Districtssolutions for small business home-based business 21

offer continuing business education throughseminars and workshops as well as formalcourses. You may also be able to hire a businessclass or students to do research for you on amuch larger scale than you could accomplishyourself.Many municipalities and regional districts havewhat is called an economic development office(EDC), sometimes attached to the planningdepartment at City Hall. Economic developmentofficers are able to answer general inquiries andspecific questions about your area of interest.They will also be able to tell you about otherlocal business resources and contacts.Understand the RegulationsHome-based business experts stress earlyresearch into licensing and regulations as part ofassessing your opportunity. To help you with thisresearch, you can often obtain free publicationson licensing and regulations for businesses inBritish Columbia. These can often bedownloaded via the Internet or are availablethrough the Canada/British Columbia BusinessService Centre or Government Agent offices.Regulations and laws that affect home-basedbusinesses exist at three levels of government:federal, provincial, and local or municipal.Federal and provincial governments areconsidered together below because they regulatesimilar kinds of things. Your research will helpyou discover the separate responsibilities of eachlevel of government in relation to your business.and specific consumer protections on advertising,packaging and labeling. Both levels ofgovernment levy personal and business taxes.The federal government charges customs duties,and administers the Unemployment Insuranceand Canada Pension Plans. All these may affectyou, and may influence your decision to base thebusiness in your home.The PST (Social Services Tax) is a seven per centprovincial sales tax administered by theConsumer Taxation branch. You are required toregister for and collect social service tax (retailsales tax) on your taxable sales and leases, if youengage in any of the following activities:• selling goods at retail• leasing goods as a lessor• providing legal services• Vancouver Regional Transit Service Area• providing taxable services (for example,repairs to goods)• providing telecommunications servicesThe GST (Goods and Services Tax) is a sevenper cent federal sales tax administered by theCanada Customs and Revenue Agency.Municipal GovernmentMunicipal by-laws cover zoning, where differenttypes of businesses may operate, plus any localoperating requirements. The zoning for yourneighbourhood or area spells out what is andisn’t allowed as a business activity from yourhome.Federal and Provincial GovernmentsFederal and provincial laws cover general dutiesin business, such as practicing business fairly,22solutions for small business home-based business

Licenses and PermitsOperating any business requires various standardlicenses and permits, while some types ofbusinesses require special permits. Trade andprofessional associations and licensing boards aregood sources of licensing and permit informationspecific to a sector. Municipal planning oreconomic development offices will giveinformation on local licensing requirements andrestrictions.Protect Your Ideas and DesignsPeople who invent or develop something uniquehave special protection available under Canadianlaw for their “intellectual property”, ideas andcreations. The four main kinds of protection arepatent, copyright, trade mark and industrialdesign.The Canadian Intellectual Property Office(CIPO) at Industry Canada can give informationon patents, copyrights, trade marks and industrialdesigns. These offices will also date and send toOttawa applications for the different forms ofprotection.When ideas are forming, inventors are advised tokeep a written record of progress and get acompetent friend or colleague to regularlyread and witness the written record. Ideas orwork at this stage should only be discussed withpeople who need to know, and the fewerthe better.PatentsA patent is a right given for a maximum of20 years by the Government of Canada to aninventor to stop others from using his or herinvention in Canada. An invention must have animprovement that is useful and show “inventiveingenuity over that which existed before” to beawarded patent protection. This means that for abetter mouse-trap to be awarded patentprotection, it must have some original, cleverdifference between it and all previously patentedmousetraps. The information required in a patentapplication is detailed and technical. If patentprotection is important to your business, considerdoing your own research and then consulting alawyer who specializes in patents. Successfulapplicants for a patent have waited up to 3 yearsfrom the date of application before letters patentwere issued – be prepared for the time thisprocess takes. The cost varies depending on thesize and complexity of the invention (plus anylegal costs) and the cost includes a yearlymaintenance fee to retain the patent.CopyrightArtists, authors and writers have exclusive orsole rights to reproduce or copy their written,dramatic, musical, or artistic works. This right,recognized by the Canadian Copyright Act, takeseffect once the work has been created. Copyrightlasts for the life of the artist or author, and 50years after death. For records, disks andphotographs, the term of protection is 50 yearsno matter how long the artist/author lives.Canada’s copyright laws were recently changedto better protect educational materials, computersoftware and videos. Breaking copyright laws iscalled infringing on copyright, or copyrightinfringement. The recent changes to thecopyright laws apply stiffer penalties to copyrightinfringement.Libraries and authorized book agents have copiesof the Copyright Act and rules. Protection oforiginal works for “Life plus 50 years” isavailable for a fee of $65.00.solutions for small business home-based business 23

Trade-MarkA trade-mark can be a symbol, image, businessname, or a slogan associated with the business.Trade mark protection lasts for 15 years and canbe renewed. Registration of a trade-mark throughthe Canadian Trade-marks Office is advised butnot required, except for trade-marks that will beused as quality marks with precious metals orwatch jewels, for which registration is requiredunder the Precious Metals Marking Act. TheTrade-Marks Act covers registration and outlinesthe symbols that can and cannot be used. Trademarkcosts include initial and renewal fees in the$150 – $300 range, not including the fees of anagent.Industrial DesignRegistration of an industrial design in Canada,which can be processed through the CanadianIntellectual Property Office at Industry Canada,gives exclusive/sole right to a unique or originaldesign for five years, with a possible five yearextension. Any industrial design may beregistered within one year of publication inCanada if it is not similar to or the same as othersregistered here. A drawing and description aresubmitted to the Commissioner of Patents. Asearch is then made of earlier designs to ensurethe one being registered is unique. The costs forthe search and registration of an industrial designrange from $160 – $215.Decide Which BusinessStructure to UseOne decision that all business people must makeis what form or structure the business will have.Four possible structures, explained below, areallowed in Canada: sole proprietorship,partnership, limited company (corporation),business co-operative. Each business form orstructure allows and requires different things.People new to business may think it doesn’tmatter how a business is organized or structured.It can make a big difference:• The right structure can help you reduce costsand maximize profits.• Investors or partners may only be interested incertain structures.• Banks and other sources of money may bemore willing to lend to certain businessstructures than others.• A business structure affects how your businesscan grow.• Taxation and tax planning are different indifferent business structures.Integrated Circuit TopographiesIntegrated circuit (IC) electronic chips andproducts have unique configurations calledtopographies. These designs are protected by theIntegrated Circuit Topography Act. Thislegislation regulates the use and commercialreproduction of these circuits. Protection lastsfor 10 years and fees for filing an application are$200.24solutions for small business home-based business

Sole ProprietorshipThis structure is the simplest of the four. Aproprietorship is a common form for new homebasedbusiness. A sole proprietorship is abusiness that is owned and operated by oneperson. Most self-employed people operate as aproprietorship. A proprietorship can operateunder a person’s name without filing a namedeclaration with the Registrar of Companies, butif any change is made in the name, suchas adding “and company”, “and daughter/son”,or “and associates”, you should register with theRegistrar of Companies. The name you selectmust not be in use by a corporation. Instructionsfor checking and filing a business name areprovided in Appendix M.PartnershipA partnership is also easy to set up. By carryingon business with a view to profit, you and yourpartners create a partnership, even if you don’tsign any agreements or contracts. Formal orinformal, a partnership is a legally bindingbusiness relationship in which each partner takesresponsibility and becomes liable for the actionsof the other partners. This includes actions thatmay be taken without a partner’s knowledge.This risk is part of the business structure.A partnership must legally register its name andgive information about the partners, so the publichas a way of finding out who it is dealing with.Selecting, checking and filingthe business name of a partnership requiresthe same steps as for a sole proprietorship.prospective partners are friends or relatives.Some important topics include the goals of thepartnership – both short-term and long-termgoals – and how these goals will be reached.The question of how profits will be used is alsoimportant. Two main options are that profits aretaken out of the business to be divided amongpartners and that profits are turned back into thebusiness. Partners may want the portion orpercentage they receive to change when profitsreach a certain point, or when the businessreaches a certain size.Home-based business advisors recommend thatprospective partners write up a partnershipagreement to help clarify terms and conditions.Written agreements among partners generallyinclude the following kinds of information:• Name of the partnership.• Business to be done by the partnership.• Procedure for adding new partners.• Procedure for a partner to leave.• Procedure for making decisions.• Responsibilities of partners.• Terms for ending the partnership.• Name of who will keep the partnership’sfinancial records.• Methods that will be used to keep financial andother business records.• Any limitations upon the authority of a partnerto act as an agent for the partnership.Business planning for a partnership involvesdiscussing all aspects of the business and how itwill function. This is particularly important ifsolutions for small business home-based business 25

Corporation or Incorporated Company(Limited Company)Few home-based businesses need to incorporateand professionals advise clients againstincorporation if it isn’t necessary. Businessstructure can be changed in future. The owner/operator of a sole proprietorship that booms maydecide to expand and to incorporate at the sametime. By issuing shares and followinggovernment procedures to incorporate, thisbusiness form has a life of its own; it can outlivemembers and shareholders. All shareholders arepart owners, able to vote with their holder’sequity, which is their share of the business.Each corporation sets its own rules, within thelaw, for shares and business operation. Eachcorporation operates as a separate entity andshareholders and directors may be held legallyresponsible in certain circumstances.Incorporation can be done as a provincialcompany, through the Registrar of Companies, oras a federal company under the Canada BusinessCorporations Act administered by IndustryCanada.Business Co-operative (Co-op)The business co-operative is a special form of anincorporated structure. Two kinds of cooperativesare suitable for a home-base business:the marketing co-op and the worker co-op.In a marketing co-op, members are individualproducers (for example of crafts, clothing,furniture) or providers of a service (such asoffice work or cleaning) who choose to markettheir products or services together. The co-opmight employ a marketing person to promoteall the members’ products and services, ormight rent retail space. Members continue towork in their own homes.In a worker co-op, members all work in onebusiness, for example silk-screening T-shirts orraising bedding plants. One location may be usedas the primary business site or several members’homes may be used for different functions.Members may work together on the same task orbe responsible for different aspects of thebusiness.The initial capital for a co-op is raised bymember shares. Liability is limited to the amountof share capital owned by a member. Democraticcontrol is an essential feature of business co-opoperation; business people who choose thisstructure must have a commitment to cooperation.Each member has one vote.Ways to get startedDouglas and Diana Gray in their bookHome Inc.: The Canadian Home-Based BusinessGuide (1994) describe these four differentstart-up routes:• The buffer route – Find some means ofattaining a financial reserve or buffer to sustainyou while you start your business. You shouldhave sufficient resources to finance yourbusiness and personal expenses for a minimumof six to twelve months. The money couldcome from personal resources, family, friends,or a lender.• The spinoff route – You could take a client orclients from your previous job (assuming thereare no legal or ethical impediments).Alternatively, you could turn your employerinto your first client by negotiating a contractas an independent contractor (consultant,broker, etc.)• The moonlighting route – Develop yourbusiness as a sideline to your full-time job.26solutions for small business home-based business

Once your business starts to successfullygenerate sufficient income to meetyour personal financial needs, quit yourfull-time job.• The part-time job route – Find a part-timejob to provide you the base income required tobuild up your home business. Ideally thiswould be in a field related to your business, sothat you have the chance to developideas and contacts or client potential,but you should be on the lookout for apossible conflict of interest. Once the point isreached that your business net incomeis equal to your base part-income, you couldquit the part-time job.Produce A Business PlanThe next step is planning the nature of thebusiness itself. Most people have a lot ofexperience with planning, even if they don’tthink of planning as separate from life or worktasks. This means that most people already haveskills that can be used in planning a business.Reasons for Doing OneA business plan is a system for organizinginformation about the many aspects of abusiness. This is used to organize the informationin the research file. Using this same framework, aformal plan for how the business will operate canbe written.Do you really need a business plan? Yes, you do.One major cause of failure for new home-basedbusinesses is the lack of an adequate businessplan. Planning has many functions in business.A business plan will:• force you to think through your business idea• help you judge and evaluate a business idea sothere is less risk• show where you need help or information• organize and present information about yourbusiness so you can progress logically and notget off track• increase your self-confidence• lessen the risk of oversights and errors• organize ideas so you can communicate themto others• increase chances of business success onceestablished• remind you of good ideas and ways to savetime or money, which will be especiallyimportant as you get busier• help you to obtain necessary financingPreparing a Written Business PlanThe order of preparing sections in a business planis straightforward. Start with the businessconcept (What will you sell?), work throughmarketing (How will you reach customers?) andoperations (How will you run your business?),and concentrate on finances (Will you makemoney?). Write a summary last – even though itis placed at the beginning of the written plan –and call it the Executive Summary.Business plans are prepared for differentpurposes, and sometimes for different readers. Ifyou are hoping to arrange financing with acertain lender, get information before you prepareyour business plan about whether a particularbusiness plan format or outline is preferred bysolutions for small business home-based business 27

that lender. This may save you the work ofreorganizing your business information forpresentation later.Composing the DocumentCreating text is easy for some people, hard forothers. Words are communication tools. Learningto use them effectively is the same as for othertools – it requires practice, and the more you uselanguage as a tool, the better yourcommunication will be.Even if your writing skills are weak, produce arough/draft version of your business planyourself, so you have done the initial thinkingand organizing. If you do hire a professionalwriter or business consultant to produce a finalversion of your written business plan, workclosely with that person throughout the process.This is important as you need to be familiar withyour plan – you will probably have to explain itto business contacts and lenders. The strength ofa business plan as a communications toolbecomes clear at such a time.Presenting the PlanHow a finished business plan looks will influenceits effectiveness. If your product is printed, thepresentation basics include a clean and completeprinted copy in correct order, with covers, a titlepage and table of contents inside the front cover.If your product is electronic, such as an e-mail ordisk, the finished business plan should representyour business standards and convey your chosenbusiness image.would rather see a hand-written plan that he orshe knows is yours than a fancy CD presentationof someone else’s ideas. You need to be familiarwith the plan because you will probably have toexplain it to business contacts and lenders. Thestrength of a business plan as a communicationstool becomes clear at such a time. You candepend on it to help you present the necessaryinformation about your business in a clear,logical way, thus making you more confident.The pressure of making a presentation is reducedbecause you have a plan with back-updocumentation.Updating the ContentsA business plan is so important in establishingand managing a business that preparing afinished version is only a step along the way, notthe end of the process. Once your business planhas been produced, it can be revised regularly –at least once a year. Managing a business with acurrent business plan is much easier than withoutone.What to include in a Business PlanThere are as many approaches to planning asthere are businesses. Basic information may bepresented in various ways in a written businessplan. You may find that it is organized indifferent ways in resources and guides tobusiness planning. While there is no one rightway, a good business plan covers all theinformation necessary to understand the business.Presenting a business plan involves more thanmaking and sending off good copies. A lender28solutions for small business home-based business

The four-part framework for a business plan usedin this guidebook is:Business Concept: What will you be selling?• the product or service• the business• the industry• business goalsMarketing: How will you reach buyers?• the market area• market share• location (directly related to marketing)• customers: the market• competition• methods of selling• price• servicing, guarantees• image• advertising• promotionsOperations: How will you run yourbusiness?• location• premises and facilities• equipment and methods• materials, supplies and sources• key personnel and staff• professional services and resources• management and training• short and long-range plansFinance: How much do you need to makea profit?• sales forecasts• costs of production or services• capital equipment• income statement• cash flow• balance sheet• break-even analysis• sources and uses of financingOnline business planningCheck out the range of business plan assistanceavailable on the Internet. Help ranges fromplanning tips to FAQs to full-service interactiveprograms that walk you step-by-step through thewhole process of preparing a business plan,leading to a printed hard-copy at the end. Trythese for starters:• Interactive Business Plannerwww.cbsc.org/• Business planning softwarewww.paloaltosoftware.com• Glossary of financial termswww.cbc.ca/Describe Your Business ConceptYou are now ready to transfer you research intothe first section of your business plan. Theinformation you gathered when evaluating yourbusiness opportunity will help you explain theoverall concept of your businessA concept is an expanded idea. Taking time toexpress your business idea as a well-roundedconcept is important to your potential forsuccess. It helps you understand fully whatbusiness you are getting yourself into –especially the business practices of yourcompetitors and the typical expectations of yourcustomers.• start-up expensessolutions for small business home-based business 29

In your Business Plan the “business concept”section will provide clear descriptions of thefollowing:• The product or service.• The business (including the business structureor form).• The industry.• The goals of the business.Let’s examine each one in more detail.The Product or ServiceGood ideas for products and services need to bespelled out with details. This section of abusiness plan:• describes the main products and services, andthe purposes they serve• names similar products or services availablefrom competitors, and describes them,particularly any problems that exist• explains why customers will buy this productor service from you instead of somethingsimilar from the competition• describes the status of protection (patent,copyright, trademark, industrial design) orspecial features• shows working drawings and designs• names legislation, regulations and standardsthat apply to the product or service.The explanation of what is special about a certainproduct or service is important because it sets outbusiness advantages, the basis on which yourbusiness will be able to compete. This is the keyto effective marketing.The BusinessBeing able to provide a brief, accurate answer tothe question, “What is your businessall about?” is a must. A complete businessdescription gives:• Name of the business.• Business form or structure.• Key people (owners, partners, investors,employees, professional advisors).• Place where business will operate(municipality/region).• Location at which business will operate(address).• Contact numbers for the business (mailingaddress if different from location, telephoneand fax numbers).• Place business will be registered orincorporated.• Date of business start-up.• Business license number, date andplace issued.• Zoning category of business location.• Social service tax registration number• Federal Goods and Services Tax (GST)if your revenue in any 12 month periodexceeds $30,000• Business logo, design, and business card.• Trade mark or trade name.The IndustryThis section usually covers:• Industry profile, showing the amount of sales(both the quantity sold, and the value) andtypes of businesses (huge, big, small, tiny).• Industry trends.• Main challenges and problems the industryfaces.• Industry features, any special things about it.30solutions for small business home-based business

• Industry future (the view from inside andoutside the industry).• Where this new business with its products orservices fits into the industry.Also usual for this part of a business plan is anexplanation of:• How this new business will compete in theindustry.• Special things that make this new businesscompetitive, and able to succeed in theindustry. This is called a competitive edge oradvantage.The phrase “business and industry” is often usedto describe all private business activity. There aredifferences between the two. Related and similarbusinesses are grouped into industries. Industriescan be organized in different ways. One standarddivision of an economy into industry sectors is:• Agricultural, Forestry and Fishing• Construction• Manufacturing• Mining• Retail• Services• Transportation and Storage• WholesaleA reference section of a library and a librarianwill help you identify likely sources of industryinformation. Industry sources may be suppliers,trade and professional associations, trade journalsand more general business magazines and newscoverage. Almost ALL industries have some kindof trade journal. This is one reason thatidentifying the industry your business belongs inis so important – it can help you locate keysources and resources. These in turn will helpyou watch trends of economic expansion orrecession, and track the impact of relatedindustries on your business and industry.Business GoalsA business description includes an outline ofyour personal and business goals, and explainshow these increase the chances of success. Whatdo you hope to achieve in each of the first yearsof the business, in relation to time worked,money earned, product sold (number and salesfigures) or service provided, and profit made?How do your personal and business goals supporteach other?For more informationA companion guide to handling businessplanning for small business owners is available inthe series called Solutions for Small Business.The Business Planning and Cash FlowForecasting guide can be downloaded from:www.smallbusinessbc.ca. Click on SmallBusiness Guides, then Solutions for SmallBusiness Series.How to turn interests into income1. Write down all your interests, hobbies,leisure activities, and previous work orvolunteer experiences that you haveenjoyed. (For example: travelling, collectingminiature furniture, cooking, shopping,fishing, working with computers, meetingpeople.)2. The next step is to convert your interest intoincome opportunities. (For example, if youlike to ski and travel, you might want toorganize ski charters; or, if you’re interestedin photography and enjoy meeting people,solutions for small business home-based business 31

perhaps a videotaping service would be rightfor you.)3. Now, narrow the list down to the three orfour businesses that appeal to you the most.4. Research these further to determine which isyour best bet. (For example, who wouldyour customers be? How can you reachthem? Who’s your competition? How muchmoney will you need to get started? Use thisguidebook as a guide to help you with theseresearch questions.)You may be surprised by your findings. Abusiness that originally seemed like a good ideamight not show up on your list. Conversely, anactivity you’ve always done purely for fun couldemerge as a potential money-maker.Get opinions from family and friends. Make acore list of the best three to five possible ideas.Choose one to assess as you work through thisguidebook, and if research shows it isn’t a realopportunity, work with another.When you are comfortable that you have a goodidea – one that your research indicates has a goodopportunity for being successful – prepare a gooddescription of this business concept to use inyour business plan.32solutions for small business home-based business

3How Will You ReachBuyers?Fabulous Fabric Actby Devon L. MuhlertSusan McCormick stays in business by playing.Her creations, on the other hand, work hard – asadvertising for her clients.Her company Fabulous Fabric Act, Banner andInflatable Design Company has a name that saysit all – she creates large-scale inflatablecreatures, for clients who want theiradvertisements to stand out from the crowd.“We’re geared to screening out huge visualadvertising,” Susan explains. “But when peoplesee playful figures, they look twice. They perkup.”When Susan breezed into her vocation, it neveroccurred to her to research potential markets,because producing 50-foot creatures inflated bycold-air fans had never figured in her wildestdreams. Friends volunteered Susan to work oninflatables for the university games in Edmonton.More contracts followed and Susan realized sheneeded a marketing portfolio with photos ofsample products. She approached prospectiveclients armed with a unique concept and asketch. Some years ago, she suggested the use ofa semi-cartoon character to advertise a localwinter carnival. Organizers recognized itspotential for promotion, and Susan pursued hervision. It hovered over many parades beforeSusan sold the inflatable to a bank forsponsorship.“It always gets front-page exposure and bothgroups benefit. How else could a bank getcoverage in such a playful way?” she says.With her specialty business, Susan competes ina global marketplace. For greater exposure,she built a Web page but continues to sell herwork outright rather than create a large-scalerental business. She’s sticking to her niche.Making sales is crucial to any business. Thepeople who buy a product or service are calledconsumers, customers, buyers, or simply “themarket.” Marketing is a general name givento the steps you use to get your product orservice into the hands of people who are ready tobuy. It may sound simple but marketingis a weak area for many new small businesseseverywhere, including home-based ones.Entire workshops, courses and books are devotedto explaining the mysteries and skills ofmarketing. This introductory guide can only offersome marketing basics, enough to get youstarted.Target the MarketMarketing involves all the different stages fromdeveloping an idea for a product or service todelivering it to paying customers.These include:• Finding out what the market wants, whatit will buy, when, and how much it will pay.• Designing products or services to meetthose wants.solutions for small business home-based business 33

• Comparing other products and servicesavailable for sale to yours.• Doing market research with potentialcustomers (to test sales potential and profitfeasibility of a business idea).• Presenting products and services in waysattractive to probable buyers.• Developing a marketing strategy (acoordinated plan for different aspectsof marketing).Research Your MarketMarket research is generally of two types:• Primary research – This is what you collectyourself (first-hand information).• Secondary research – This is the statisticaland descriptive information that others havecollected (second-hand information).Secondary research sources of marketinginformation are of two main types: publishedmaterial and human contacts.Primary and secondary research sources bothgive valuable information. Learning howto interpret, evaluate and use information fromvarious sources is a marketing and businesschallenge.Basic guidelines include:• Using standard and reliable sources.• Trusting your instincts.• Analyzing the information you obtain.• Getting professional advice when youneed it.Depending on your business, choose a mix ofinformation sources that best fits your needs andsee Appendix I for the pros and cons of eachtechnique.Survey Your CustomersA market survey asks questions of possiblecustomers. The answers are then used to guidebusiness decisions. Market surveys are used byexisting businesses to get ideas from customersabout needed improvements, as well as by newbusinesses to test market reaction to a product orservice.A new business with an untried product shouldundertake at least one test market survey beforemaking final decisions – especially that keydecision of whether to go ahead with the businessidea. Depending on the market response, aproduct may need to be improved and testmarketeda number of times before productionbegins. The time invested in test-marketing willprove worthwhile.Design Your Marketing StrategyA marketing strategy is a way to give amarketing orientation to your business. Thismeans you decide to position your product orservice in terms of what the buyer needs andwants. Inexperienced business people often makedecisions based on what they like or want,leaving the customer out of the picture. Amarketing orientation brings the customer intothe centre of the picture.A marketing strategy is sometimes summarizedinto “the six P’s”, a framework you can use tomake sense of marketing.• Product• Price• People• Promotion• Place (including transport)• Profit34solutions for small business home-based business

This framework stresses that a successfulbusiness provides the right product at acompetitive price to the intended people usingeffective promotion from the best place togenerate the greatest profit. Having all of theseelements well-chosen is important – weak pointscan be disastrous.A marketing strategy means a customerorientation in every aspect of your business.Exactly what this means in your situation andbusiness is usually composed as a marketing planand included as the marketing section of acomplete business plan.Draft a Marketing PlanA marketing plan is your plan of action – who,what, why, where, when, how, and how much. Aprinted marketing plan is usually not more than10 pages. Often it is presented in point form,giving basic facts about the business’s approachto marketing.The marketing plan includes details on:• Market Area: the trading or business area• Market Share: a business’s share of total salesin a market area• Location: the business’s physical base• Customers: the market profile• Competition: those selling similar goodsor services• Methods of Selling: ways sales are made• Price: the dollar figure that products orservices sell for• Servicing and Guarantees: after-sales support• Image: appearances and impressions• Promotion: ways to increase market share andraise profileMarket AreaMarket area is the area of business operation.Market area can be a building, a neighbourhood,a region, several towns or cities, the province, thecountry, or some international territory. One wayto keep market area clear is to remember it as ageographical area that can be marked on a map.Within the boundaries of a market area, yourtarget markets are those groups of people mostlikely to become buyers.Of course, today’s global economy has blurredmarket boundaries, often making theseboundaries irrelevant. The Internet easily allowsyour business to reach buyers living anywhere inthe world – so long as they have Internet access.But home-based businesses – especially thoselinked to tourism – may be identified with aspecific location or region.Market ShareA market area and your target market withinit will support a certain level of sales of a givenproduct or service. The portion of total sales thatany one competitor has is called market share.Your potential sales volume – howmuch you can reasonably expect to sell – is yourestimated market share. This estimatecan be given as the number of sales, the moneyvalue of sales, or as a portion of the total market– market share. Estimating market share isn’teasy, but it is worth it. To sell your product orservice, you have to know how a market isdivided, and what share of it you hope to obtain.• Advertising: ways to encourage andincrease salessolutions for small business home-based business 35

Estimating market share involves threemain steps:1. Estimate the total market in the trading ormarket area you have chosen.2. Consider your competitors and how much ofthe total market each competitor has now.3. Decide on a figure for your market share.Your goals may be to take part of yourcompetitors’ market share, or to develop adifferent market. Keep those goals in mind whenyou estimate what portion of the total marketyour business expects to secure in the first,second and third years of operation.LocationBusiness location is included in a marketing planbecause it can affect sales. If your home-basedlocation has a direct effect on sales – perhapsbecause you operate a bed and breakfast on aGulf Island – include an explanation of this inyour business plan. Information about locationthat does not directly affect sales, for example onzoning by-laws, should go into the Operationspart of the business plan. (See also page 28.)Customers: Market ProfileThis market profile typically uses primary andsecondary sources to answer key questions abouta potential market. A profile is a picture or anoutline. Some of the data to include in yourmarket profile is called demographic informationabout your target market. This includes:• Age, usually given in a range (20-35 years)• Sex• Marriage/partner status• Location of household• Family size and description• Income, especially disposable income (moneyavailable to spend)• Education level, usually to last level completed• Occupation• Interests, purchasing profile (what areconsumers known to want?)• Cultural, ethnic, racial backgroundDemographic information is available fromStatistics Canada (see www.statcan.ca) and BCStats (see www.bcstats.gov.bc.ca). When you arecollecting this information yourself – forexample in a test survey, use the same ranges forcategories of age, income and education as youfind in Statistics Canada publications. Thus,instead of asking exact age or how muchmoney a person makes in a year, ask for therange that applies, such as 30-40 years, or$20,000 – $30,000.Within a market area, some people are morelikely to buy a business’s products or servicesthan others. People who are the most likely tobuy are target markets – perhaps identified fromannual sales of similar products or services(secondary research) or from surveys (primaryresearch).For instance, a business that makes clothing mayconsider a number of possible target markets –toddlers, athletes, teenagers, and tourists. Ageneral profile of each of these possible marketswill clarify which ones are realistic, less risk, andmore likely to show a profit. A test market surveyof the most likely market groups – or those who36solutions for small business home-based business

uy for them, such as parents for babies andtoddlers – can help you separate real targetmarkets from unlikely possibilities.Once a business is established, research yields asteady supply of names and addresses of currentor potential customers. This information is thekey to the demographic profiles that StatisticsCanada has already prepared on the basis ofcensus data. This information is organizedaccording to postal code. Markets tend to cluster;if several customer addresses are in the samearea, the census data will be able to tell you a lotabout the target market group; size of household,annual earnings, and percentage that own theirown homes. This use of secondary data is a goodway to get a general fix on a target market beforeinvesting time and energy in doing a test marketsurvey.A demographic profile of the most probablebuyers in a market area describes a business’starget market. Use this as a guideline: you can’tknow too much about your customers. Whenpossible target markets have been narrowed tothe most likely, a market profile giving thefollowing information will support the choice.visible and easier to find than a group of possiblefuture buyers. But keeping the customer in focusis crucial to marketing success, even when youare thinking about the competition.By researching your competition, you canproduce a competition profile, using industry andtrade directories, the yellow pages, as well assome amateur detective work by including visitsto competitors’ businesses.A competition profile tells you where your targetcustomers presently buy similar products orservices. It includes:• Names of firms and their locations• Appearance of business sites and layout ofoperation• History, and number of years competitors havebeen in business• Similar products or services to yours – source,features and price• Related products or services that thecompetitor sells• Suppliers• Number of employees• SalesCompetitionYour competition is the businesses who sellsimilar products or services to the samecustomers you have selected as target markets. Afirm that sells exactly the same thing you do –but to a totally different market – is notcompetition that needs your attention. Some newbusiness people concentrate more on thecompetition than they do on customers. This isunderstandable – the competition is often moreBy studying the competition, you will be able toassess whether you can find a special place in themarket that does not necessarily reducecompetitors’ sales but expands the market tobenefit the whole industry. Finding this special orunique place in the market is called a marketniche or positioning your business.Position refers to the image customers have ofyour business. The secret is to create a businessimage that acts as a natural magnet for yoursolutions for small business home-based business 37

intended customers. A number of factors thatcustomers often look for include:• Price (cheapest price, fair price, price forquality, etc.)• Assortment• Parking• Service• Sales personnel• Quality• Fashion• Convenience• Location• AtmosphereYour overall position should emphasize thoseareas that your customers value most, and thosewhich make you different from your competition.Sources of informationThere are several different methods for obtainingboth primary and secondary information. Theseinclude:Primary• questionnaires• talk with customers• interviews• focus groups• contact with suppliers• information on competitors• observe competitors• talk with distributors, retailers, agents, brokers• consultants, advisors, mentors• hire students to complete a survey for youSecondaryPublished Material• census reports (Statistics Canada)• Internet Web sites• electronic databases• trade magazines and journals• newspapers and clipping services• libraries and resource centers• books on the industry• published reports and studiesContacts• industry and trade associations• Chambers of Commerce and Boards of Trade• local business information centers.How to do a test market survey1. Take a sample of your product or adescription of your services to at least20 people, the more the better. Don’t includefamily or friends in your survey. Instead, takethe sample to people who will be objectiveand who won’t say things just to make youhappy.2. What are their first reactions? If most of themrespond positively, you’re probablyon the right track.3. Interview or survey the people in your sampleto get the information you need. Ask the samequestions in the same way to all the peopleyou interview – this makes your surveyresults more reliable. The kinds of questionsto ask are:• Would you definitely, maybe, or not buy thisproduct/service?• Would you be more likely to buy it if somethingabout it was changed?38solutions for small business home-based business

• What might make you more likely to buy it?• Do you buy something similar to it now?• Are you satisfied with it? Do you experienceany problems with it?• How much do you pay for the comparableproduct/service now?• How much would you pay for thisproduct/service?• Would you buy this product/service if it wassold in the way being considered (e.g. on alocal grocery shelf, at a fair, by mail order, orat a Web site)?4. Ask the people you interview fordemographic information – such as age range,education and income level – so that later youcan complete a profile of your most likelycustomers.5. Take all your information and organize it soyou can see the general picture. Across eachof your questions, you will have a range ofinformation. Add up the number of YES/NOanswers. Organize number information (e.g.the price people would pay) from lowest tohighest – this is called the range or spread.You want to know what price you can charge,whether that price will providea profit, and whether or not the idea is worthpursuing. Take the spread of answers abouthow much your possible customers wouldpay. Drop the top 10 per cent and the bottom10 per cent and average the rest of theresponses. (If you are not sure how to workwith percentages and averages, get someoneto help you with your test survey.) This givesa rough idea of what potential customers thinkyour product is worth, as well as a possibleprice range marked by the lowest and highestprices.6. How to estimate the total costs of selling theproduct or service is explained in Pricing(below) and in Chapter 5 (see page 68). Usethe approaches to determine your completecosts and set preferred prices. Compare thosecosts with the information you have gainedabout the market through your test marketsurvey.7. At this point, you can decide whether or not aproduct or service is worth pursuing anyfurther. If it is, the next steps of the testmarket survey are worth finishing.8. A test market survey also tries to estimatehow many people might buy a product orservice – what the sales volume might be. Goback to the “Would you buy this product/service?” responses. Take all of the“definitely” and half of the “maybe’s”, andaverage these two numbers. A good rule ofthumb is: if that number is over half (50 percent) of the total number of people surveyed,you have a small fighting chance. 65 per centis okay. 85 per cent or over is great. If thenumber is under 50%, the recommendation isto forget it – for that product or service, andfor the target market represented in yoursurvey. This may not mean starting againfrom scratch. Consider whether the group ofpeople you surveyed represents the marketthat you plan to target. If you have a certaintarget market in mind, make sure your targetmarket survey is representative of that group.Doing this kind of test market survey outlinedwill not guarantee success. But it will tell you ifyou are on the right track. This survey is anexample of a primary source research method inwhich people are interviewed directly. You willwant to support the test market survey resultswith research from other sources, for exampletrade publications.solutions for small business home-based business 39

Market profile: What to includeThe following is an outline of the marketinformation to include in the Marketing sectionof your business plan.• Who are you going to sell to?• What key characteristics of your marketsupport your expectation of sales? These couldbe known buying patterns, economic trendsaffecting consumer spending, and consistentdemand for a similar product or service.• Where is the market? What is its geographicaldistribution?• (Does this mean anything for transportationcosts, or for distribution?)• What is the market size? How many customersare there in the region you plan to market in?What sales of these products/ services does theregion already support?• Is the market growing? changing fast? stable?at a certain point in a standard cycle?• What is the total value of the market forproducts/services similar to yours?• What share of that market or those sales canyou expect to get?• What are the special features or benefits ofyour product/service?• What products and services is the marketinterested in?• Why is the market interested in these goods orservices? (Is the demand part of a widerdemographic trend, like a “baby boom”, or aluxury that is likely to disappear if there is adownturn in the economy?)• How frequently does it buy?• What does competition in the market look likeat this time?• How will you provide the market withinformation about your products/services?• What in your market information will appeal toyour target market, and make people want tobuy?• What expansion possibilities exist?Select Methods of SellingThe two main categories of selling are calleddirect and indirect.Direct sales – This is when a business sellsdirectly to its own customers. Among other ways,this could be door-to-door sales, selling at tradeor craft fairs, or marketing through the mail.Indirect sales – These methods involve linkswith:• retailers, who in turn sell directly to customers• distributors, who arrange for an item to bedistributed in different sales outlets• telemarketing or mail order firms that handleorders and distribution.The continual increase in the speed and scope ofmodern electronic communication – viatelephone, cable and satellite – is reducingthe distance between buyers and sellers andfavouring direct selling.• Who makes purchasing decisions (in somecases, this is not the same as the purchaser)?• What price is the market willing to pay?40solutions for small business home-based business

Select Methods of Direct SalesPersonal CallsRather than simply making cold calls at randomto potential customers, try this method. It’s slowbut generally effective:• Send a personal letter or e-mail to ten peopleevery day, and explain that you will phonewithin the next two weeks.• Phone the people you have written to after afew days and offer them two dates and timesfor a personal visit.• Make the sales call on the day and time theychose.Door-to-DoorDoor-to-door selling is still a solid way to build alist of customers, if you can overcome yourshyness and fear of rejection. Of course thismethod can be very time-consuming. Persistencedoes pay off. Increase the odds by researchinginformation about your target market and onlyknock on the doors of people who fit yourcustomer profile.Direct MailDirect mailing, even targeted to a certain market,is a difficult way to make sales because so manypeople throw materials away as junk mailwithout reading them. Direct mail campaigns thatgive returns often have five or more mailings.Mail OrderMail order has been a traditional way of sellingfor home-based businesses. The cataloguephenomenon in North America, with steadilymore people buying products from specialty mailorder catalogues, is partly due to the trend ofpeople preferring to buy from home. You mightconsider listing your product in an existing mailorder catalogue service. Be sure to figure mailingand shipping costs carefully.Online salesThe explosive growth of the Internet hasprovided a huge outlet for sales opportunities.Electronic transactions are forecast to surpass$12 billion by 2002. As the number of familiesand businesses with Internet access grows, moreand more people are turning to the Internet as aplace to buy – although the expectation of Websurfers is that much will still be available forfree.Some tips for reaching the on-line customer andcreating a positive customer experience are:• Keep in mind that the people who shop aren’tinterested in how fancy your Web site is somuch as how easy it is to navigate around.Provide clear, easy-to-see and easy-to-usemenus.• Remember the customer is in a self-serveenvironment with no friendly people at thedoor to greet them. Put yourself in their shoes– what questions would they want asked aboutyour business first.• Tailor your site to meet the needs of yourtarget customer – the visual appearance of thefirst page should sell your image.solutions for small business home-based business 41

• Time is of the essence – Respond quickly toorders and e-mail messages. Change thecontent on your site frequently to show it isactive.You must also seek out your customers or visitorsto know who they are. Few people will fill outguest books voluntarily so build them into theinformation you collect about the customer whenmaking a sale. Offer modest freebies – such as afree sample or tips on how to do something solong as people give you demographicinformation.Broadcasting random e-mail to people – calledspam – is not a recommended method though.People are increasingly concerned about theirprivacy and unnecessary increases in the e-mailthey must handle.Streetwise advice on Internet marketingBob Adams, in his book Small Business Start-Up, gives the following pointers to help youngbusinesses avoid becoming tangled in the WorldWide Web:• Walk before you run – A lot of people haveinvested huge sums and seen little to show forit. Others have spent little money, built simplesites and generated strong sales. Test you sitebefore you commit to it.• Traffic may not mean sales – Many peoplemay “hit” on your site by accident or out ofcuriosity. The key is whether people stay longenough to make a purchase.• Keep costs down low – You can create andmaintain a Web page inexpensively with somesoftware products now available.• Know what your web page is for – Web sitesare highly useful for customers to obtaininformation, view catalogues and comparisonshop. What is your Web page offering?Selling by FaxMany small companies can actively market viathe fax machine. It is faster than mail, it providesa paper record which a telephone can’t, and itallows you to use auto-dialers to poll severalnumbers at once. However, faxes are graduallybecoming out of date because of the Internet,which is much cheaper to use with negligible linecharges for the range of its distribution.Sales RepresentativeSelling takes special skills. Don’t dismiss theidea of hiring a sales representative. This is notjust another name for a sales clerk. A salesrepresentative is someone who actively seeks outand makes sales on your behalf.Any sales representative you hire has to reflectand present the image you want for your businessand product or service. Being clear about whatyou want will make it easier to find someonewho fits into your plans.Standard business advice is that salesrepresentatives work best when paid onlycommission, but even salaried sales staff aremore motivated to sell if they receive volumebonuses. Get a contract in writing – for a limitedtime period first – in order to assess performanceof their sales.Shows and FairsA good way to get experience is to design abooth or display and sell your product or serviceat trade shows, fairs, malls and flea markets.Most industries hold shows and fairs.Information about them is usually available fromtrade associations and professional journals. Your42solutions for small business home-based business

esearch will help you identify events importantfor you. Shows and fairs are good places toassess the competition, and to develop a place inthe market. Prices at craft shows may beunrealistic because many craftspeople undervaluetheir products.Information on support for companies doingtrade shows outside of Canada is available fromthe International Trade Centre – Industry, Scienceand Technology Canada. Specifically, check theProgram for Export Market Development(P.E.M.D.)Conventions and ConferencesAn exhibit at a convention or conference putsyour name out there and gets leads, as much as itmakes sales. Attend one yourself as an observerfirst and notice how things are done. Manyexhibits and displays are points of first contact.Customers generally respond positively whenyou follow up a lead from a convention orconference.Marketing effectively at large eventsTo make the most of events like conferences,conventions, shows and fairs, organize yourselfand your exhibit ahead of time. Some things tothink about include:Pre-Event• the number of people likely to be at the eventother exhibits that will be there• materials and samples you have, what youexpect to need, and how you will handleunanticipated demand• how your display will look, how you will setit up, and whether parts of it will have to bereplaced during the event• if you plan to sell a product, decide whetherdisplay materials will be for sale, and howyou will store and handle stock displays• what comes with the facility and what youwill have to bring (tables, curtains or material,shelves, chairs)• who will work with you, and on whatschedule• who will take care of essential businessmatters back home while you are at the event• the product, service, or feature you willhighlight• how you will make sales and record them• how you will record leads• how and when you will follow up on leads• what you plan to spend to take part in theevent.At the Event• assess which displays draw people• give product demonstrations• give people something useful, attractive, ormemorable to take away• keep up the energy levels of the peopleworking in the exhibit or booth• enjoy yourselfPost-Event• how and when you will follow up leads• record and evaluate your sales, contacts andexpenses for future reference• arrange future bookings`Explore Alternative MethodsTelemarketingSelling over the telephone is calledtelemarketing. This can be a direct salesapproach, when you use the telephone tosolutions for small business home-based business 43

generate sales. It can also be indirect, when yousub-contract to a telemarketing company to makesales by telephone.Some markets appear to be saturated fortelemarketing, but there is no harm in tryingsome low-key telephone calls to find leads.As with other techniques, whether or nottelemarketing is appropriate for you depends onyour product or service, your target markets,customer profiles, and the response rate totelemarketing for similar products or services.The estimated response to a telemarketingcampaign must justify the costs, which can behigh.Telephone Company Toll Free NumbersWhen a customer calls a 1-800 number, the costof the call is paid by the company, not thecustomer. Get information on this service fromthe telephone company. The average value oforders received by telephone tends to be higherthan that received by mail, although the numberof orders may be about the same.Consider Indirect Sales MethodsRetail Shelf SpaceGetting products into stores is a critical step tosuccess – and one of the most difficult. Aproduct has to be effectively packaged in aneye-catching way and be within the price rangefor competing products in order to outsell stiffcompetition. Even with all these things goingfor it, getting the attention of buyers andretailers is a challenge, and shelf space may beexpensive. The investment is worth it though, ifyour target markets are likely to look for yourproduct in retail stores.Some possible ways for a new business toobtain retail shelf space are to offer retailers:• Free merchandise to sell on a trial basis• Sample cases or display units• Goods on consignment• Product demonstrations.Large Retail ChainsHaving a product carried by a chain store is adream of many new home-based businesspeople. It is not easy, but neither is itimpossible. Use the track record and salesstatistics from local marketing. Learn about howthe retail marketing system works before tryingto get into it. Perhaps most importantly, don’t beintimidated. No matter how big the chain maybe, you’re still going to have to convince oneperson that your product is worth buying, just asyou have to with smaller, local shops. It maytake time to find that person and get a hearing,but once you do, rely on your belief in yourproduct.Outside Marketing CompanyUsing an outside marketing company doesnot occur to many new home-based businessowners. Consulting outside marketing experts,even on one aspect of your marketing campaign,can increase your expertise and make you feelmore confident about your approach. If yourgoal is to place a product in retail chain stores,definitely consider getting advice from anoutside marketing company. A marketingcompany with a track record of getting newproducts into retail chain stores probably has abetter chance of reaching that goal than you doworking alone.44solutions for small business home-based business

Determine Price StructurePrice is a key part of marketing. Setting prices iscalled pricing. Before you can understandpricing, you have to be clear about costing. Thethree main cost areas that are considered inpricing are:Supplies and materials – These include allmoney spent for supplies and materials used tomake your product or to provide your service.This category is called a variable cost becausethe amount you spend varies with how much youproduce. Shipping and storage charges areincluded as part of supplies and materials costs.Overhead – This is a name for all fixed costs ina business – the business expenses that must bepaid, regardless of sales, such as office expenses,insurance, and interest payments on loans.Another way of understanding overhead is tothink of it as the cost category for all businessexpenses that are not supplies and materials orlabour/time.Labour and time – This needs to be assessed asa separate category when determining costs.Labour-related charges should be calculated intwo ways: labour/time required in producing theitem or providing the service, as well as a salaryin the fixed or operating cost (administration,clerical time, etc.) of your business.For costing and pricing, a business person needs toknow the total time required to produce or dosomething, and how to cost this time accuratelyso it is truly reflected in a final price. A sellingprice can be set in different ways, but all involvethe same three categories of numbers:• Total costs of production (including suppliesand materials, overhead, and time/labour).• Profit or return.• A final selling price.Although different methods treat pricingcalculations in different ways, the three sets offigures combine as shown in this formula:total costs of production + profit =final selling pricePrices for products and services can be set inthree main ways: pricing to the market, pricing toyour costs, and break-even pricing.Why time is often under-estimatedThe time required to produce a thing or provide aservice is often under-estimated by the ownerbecause:• People who are used to doing an activity as ahobby may not count all the time spent toproduce an item.• People used to working for someone else maynot have full knowledge of how much time acomplete job takes.• People may place a lower value on their owntime than what it would cost to hire someoneto do the same work. The cost of hiringsomeone to do the same work is called themarket value for your time.Pricing to the MarketThe section on target market above explainedhow to prepare a competition profile. Price is oneof the most important things to compare. Pricesof competitors for similar products and servicesset the price range that customers will expect.You can use that market price range – what isacceptable to the market – as a guide to set yourprices. Businesses or people to whom you sellmay also price to the market by telling you whatthey will pay for your product or service. As yousolutions for small business home-based business 45

keep records of actual costs, the cost approach topricing will help you make sure all your costs arecovered, which may not be true in a – marketapproach to pricing.The drawback of pricing to the market is thatyour unit costs may be higher than others sellingin the market. If you match your prices on theirs,you may make a loss on each sale!Cost Approach to PricingPrice must cover all costs of goods or servicessold – including production costs of supplies,materials, fixed overhead, and time/labour – plusa profit. Chapter 5 will explain how to calculateand estimate these costs, presented as: costs ofproduction, labour and non-labour, includingoverhead or fixed costs as well as supplies andmaterials.Use this formula to set a per unit price based onyour costs:The selling price per unit:$56.50 + $16.95 = $73.45(or $74 rounded up for use in projections andestimates)Businesses can set different profit rates – forexample 15 per cent profit on supplies andmaterials, 20 per cent profit on labour/time, and25 per cent profit on overhead. These morecomplicated approaches to pricing usuallyemerge in response to the special needs of aparticular business.If your research shows similar products orservices available to the market for much lessthan you could provide them for, you may haveto adjust your profit margin and the return youwant to get, or decide to provide enoughspecialized service or selection that the marketwill pay the extra. Alternatively, you may have todecide you cannot afford to make this item orprovide this service and look for something elseto do.total costs of production per unit + desireddollar profit per unit = selling price per unitCalculating Selling Price Per UnitFor example: A craft item requires...Costs of Productionsupplies and materials $12.00time/labour 2.25 hrs x 16.00/hr 36.00overhead 8.50Total costs of production $56.50Percentage rate of profit desired: 30%(you need to use the decimal form for thiscalculation – the decimal form of 30%is 0.30)The desired dollar profit in this case is0.30 x $56.50 = $16.95Break-Even PriceThe break-even sales point for a business is whenthe selling price covers all costs of producing anitem or providing a service – with no profit. Thisthird approach to pricing uses a formula tocalculate a selling price. The three numbersneeded in the break-even pricing formula are:variable cost per unit, fixed costs, and volume.Remember that variable costs is another name forsupplies and materials costs. Volume measureshow much, in this case how much sales activity.Chapter 5 covers sales volume projections for thefirst year of business operation in more detail.The formula for calculating the Break-EvenPrice is:46solutions for small business home-based business

(Variable cost per unit x Volume)+ Fixed CostsVolumeCalculating Break Even PriceFor example: A business’s fixed costs oroverhead for a year of planned operation is$20,000.The variable costs per unit sold (supplies andmaterials category of costs) are $5.00. The salesvolume expected for the first year of operationis 10,000 units.Fixed costs for overhead, one year: $20,000.00Variable costs per item: 5.00Volume, sales estimate projectedfor one year: 10,000.00Formula =($5.00 x 10,000) + $20,000= $7.00 per unit10,000“Rules of Thumb” in Setting PricesSome types of businesses charge prices accordingto certain “rules of thumb”:• Price is twice labour plus materials, or twicematerials plus labour depending on whichis higher.• Price is materials and labour plus 20per cent for fixed costs, plus 25 per centfor profits.(Please note that this method is notrecommended. Doing a calculation of prices toreflect accurate costs is preferable.)Calculating actual costs is the only sure way tomake sure your prices cover those costs. Labourand time expenses in a home-based business areoften not included in cost and price figures.Labour and time charges are covered partly in thecosts of production and partly as a salary in thefixed/operating or overhead costs. The chapter onFinances builds on the introductory costing andpricing information given here, providing sometips on each of the three main pricingapproaches.New business people with little experience mayset an initial price based on the market, and thenas experience grows, re-set prices according tocosts. These two aspects of price – what isacceptable to the market, and what the costs are –must both be considered. The choices that abusiness makes about its target markets and salesmake a big difference in pricing. For example, abusiness may make an early choice about whichof these two market segments to target – the“good value”, low end of the market, or the“quality conscious”, upscale market. In pricing,as in everything else in business, the customer isthe reference point.Setting pricesIn summary, the key factors to consider in settingprices are:• Marketing strategy and your immediate goals.• Competitors’ prices, and the market.• Market demand for the product and consumerbuying trends.• Need to cover costs and provide an adequateprofit.solutions for small business home-based business 47

Promote Your BusinessAdvertising and promotion are often treatedas one area of activity and expense. Onedifference is that advertising is what you pay fordirectly, and promotion is what you do to getyour product, service or business better known.Below are examples of advertisingand promotion techniques available to homebasedbusinesses.New businesses in particular need to get known,which takes money. Avoid wasting money by firstresearching the costs for different advertising andpromotion techniques. Select approaches thatmake the most sense for your situation now, andplan to change strategies as your business getsestablished. Include realistic advertising andpromotion costs in your expense projections forthe first year; these costs are necessary to achievesales.During the first year, keep track of the responsesfrom different advertising and promotiontechniques. For your second yearof operation, concentrate on the ones that haveproven to work.Use Advertising WiselySome advertising activities include:• Display Ads in NewspapersIf a business’s target market can only bereached through mass advertising innewspapers, the costs of newspaper adsmay be a necessary marketing andbusiness expense. That cost, especiallyfor large display ads, is high. Small adscan be effective too, but keep in mindthat less than 15 per cent of the smallspace is noticed by the typicalnewspaper reader. Contact theadvertising department of newspapersknown to be read by your target marketfor information about rates,opportunities and readership.Display Ads in Trade JournalsA business with a new product can draw itto the attention of retailers through trade journals.In addition to offering display ads, some trademagazines provide free opportunities for newproduct and business promotion. Write directly tolikely trade journals to request a copy ofguidelines, opportunities, and rates for paidadvertising.Classified Ads in Newspapers, TradeJournals and NewslettersPeople do read classified ads. These ads aren’tcostly, relative to display ads, and they maybe a good way to get your business known.Consider classifieds in local, regional, provincialor national papers – whichever best reaches yourtarget market.Direct MailDirect mail as a method of sales was introducedabove. Some information is also included herebecause direct mail is such a familiar form ofadvertising. Targeted direct mail works; that’swhy there is so much of it. That’s also why thereis some saturation and public backlash againstjunk mail. Only direct mail campaigns that arematched to the audience really work, andincreasingly, only sophisticated direct mail gets ahigh response.In the world of marketing and promotion, a“sophisticated” campaign can mean three to sixseparate pieces of direct mail, one after another48solutions for small business home-based business

with a week to ten days between each piece. Thefirst could be a letter alerting the customer towhat’s coming, then a letter of introduction witha “teaser”, followed by a flyer, then aninformation or “tip”sheet, then a direct salesapproach, and finally a reminder post-card.If your direct mail campaign uses a series oftargeted pieces, people may come to recognizeyour business name when the next piece of thestep-by-step campaign arrives – and rememberyour business when the time comes to buy such aproduct or service.Yellow Pages and Other DirectoriesIf your product or service is mainly beingmarketed in a local or regional trading area, theyellow pages of the telephone book maybe the best investment. The telephone companyprovides information about different advertisingoptions in the yellow pages. Business directoriesare sometimes prepared for an area or a city. Seethe “Publishers – Directory and Guide” section inthe Yellow Pages of your local telephone book; ifthere are no listings, check the same section in aVancouver telephone book. If you have Internetaccess, the Yellow Pages for any area is only afew clicks away.Shoppers and FlyersShoppers are special localized newspapers thatonly carry advertising for local business. Flyersare inserts into area newspapers. Both may havea circulation throughout your trading area.Seek PromotionPromotion activities require the imaginative,innovative side of people. Give it your creativebest, keeping in mind that underselling is betterthan overselling. To work for you, all promotionalso has to be consistent with your businessimage. Some examples include:Specialty AdvertisingAdvertising specialties are items that carry theadvertiser’s name, address, and advertisingmessage. They include calendars, pencils,pens, paperweights, matchbooks, personalizedbusiness gifts, pocket diaries, shopping bags,memo pads, ash trays, balloons, measuringsticks, key rings, glasses, and many other similaritems. Advertising specialties help reinforceprevious or future advertising and salesmessages.Trade ShowsIt has become common practice for a sellerto participate in a trade show, exposition orconvention. There are shows for just about everytype of product or service, and they are usually apart of an industry’s trade association and may bepart of the association’s annual meeting orconvention.Samples, Coupons and PremiumsSampling is the free distribution of an itemto customers. It is an attempt to have theconsumer test the product/service, and thencontinue to buy. This may be done on adoor-to-door basis, by mail, throughdemonstrations, or insertion into packagescontaining other products. Coupons offer adiscount, usually some price reduction, from thenext purchase of a product. They can be insertedinto magazines, newspapers, or other mail.Premiums are bonus items free with thepurchase of another product to have thesolutions for small business home-based business 49

consumer try a new product or a different brand.For example, service stations use glassware, icescrapers and beach balls to convince newconsumers to buy their brand.ContestsSubstantial cash or merchandise prizes areoffered by firms to attract additional customers.In recent years, the public’s appetite for gamblinghas increased the use of this method of grabbingthe buyer’s attention.DemonstrationsThe in-store and at-the-show promotions ofconsumer goods is a common example of thistype of promotion. It needs to be done ata time and place closely associated with theactual decision to buy (such as having guestartists at work at a craft fair).Turn Publicity to AdvantageOpportunities for publicity come in many forms,sometimes only limited by human ingenuity andnerve. While this area generally does not havethe same expenses as advertising and promotionit is not entirely cost-free.It includes the expense of time required to createand submit publicity releases, printing andmailing, and other related items.Testimonial LettersThey work because they give credibility. Peoplewho are happy with your product or service areone of your best marketing supports. Be sure tokeep all such comments and letters. Sincecustomers may not always volunteer these letters,consider asking for them, and always askcustomer permission to use testimonial letters.Free PublicitySome other areas to consider include:• Looking for ways to trade your product orservice for free advertising or publicity.• Arranging mutual marketing with anotherproduct or service, especially one that is usedwith yours or complements yours.• Responding to issues and current news topicswith letters to the editor as an expert orcommunity resource.• Offering free demonstrations or workshops andpublicize them on free community bulletinboards and calendars in local newspapers,radio and TV.• Starting an information file of events heldannually (such as Secretaries Week or Father’sDay)• Writing media releases and issue themregularly. Media releases follow a standardformat which you can find in a publicity kit.Word of MouthThe best possible promotion is the satisfiedcomments your customers make to people theyknow. Provide a good product or service, at a fairprice, and support it after sales are made – thegood word will soon spread.Ask satisfied customers to tell their friendsand where appropriate, ask them for namesof people who they think would appreciatehearing about your business.NewslettersSome businesses produce newsletters for theircustomers. These are often done in-house,and may not be slick publications. Businessnewsletters might include updates on thebusiness, news about the industry, or product and50solutions for small business home-based business

service information. Such newsletters aredesigned to provide a service to the market andpromote loyalty as much as to directly makesales. Advertising in these or writing a shortcolumn of useful tips can help get you in touchwith a specific market. Depending on yourbusiness and your customers, you may want toconsider producing a newsletter of your own.Electronic versions of newsletters can beproduced and sent out on-line. They can behoused in a Website and served to anyone whorequests them from a menu at the site. Theproduction of the newsletter can follow templatesavailable in various word-processing or desktoppublishingsoftware.Design a Promotion StrategyBecause promotion is often used as a generalterm to include all means of getting a product orservice known and purchased by customers, aseparate promotion strategy is sometimesconsidered. A promotion strategy answers thesequestions, and may be included as a separate partof a business plan:• How will you get word about your product orservice out to the people most likely to buy it?• How will you inform, persuade and influencepotential buyers?• What type of advertising and publicity will youdo?• How and where will your product or service besold, and why does that encourage customersand sales?• How will you stimulate people’s interest inyour product or service, and increase theirneed and demand for it?A Marketing PackageMost businesses need a varied marketingpackage. One piece of information usually isn’tenough. Some marketing strategies leave a trailof brochures, business cards, samples and tipsheets. What you need in your “marketing toolkit”depends on what you’re selling and on yourcustomers:• a catalogue, or catalogue sheets• a book or collection of samples, photographs,and drawings• product or service information sheets• a video showing your work or the type ofproblems you solve• testimonial letters or statements from satisfiedcustomers and clients• business cards• pamphlets or brochures• sheets of tips, information about using theproduct or service• copies of articles published about the productor service• outline of a telephone follow-up in a directmail campaign• “how-to” follow-up directions for interestedcontacts• copies of Web pages downloaded from yourWeb site.The marketing tool-kit or marketing package canbe part of the business reference manual. Clearplastic protector envelopes will keep marketingsheets looking professional. A display packagemay need to be stored in a carrying case orportfolio for protection and transport.• How will you use sales and current customersin positive promotion?solutions for small business home-based business 51

Know Your ImageImage is an important topic for home businessowners, partly because of the stigma sometimesassociated with working from home. Whatbusiness image are you marketing? A businessimage is affected by many things. Some key onesto think about are:• The personal style of the owner/operator andother key contacts.• Business graphics – logo design, business card,letterhead, packaging, signs, the style ofadvertising and promotion.• Methods of sales – particularly important forsome target markets.• Telephone use – how calls are answered andmessages followed up.• Ways people are greeted and served, how wellinformedsales people are whether or notinterruptions – by people or the telephone – areaccepted during a meeting.• Whether or not a place of work is physicallyseparated from the rest of the house and theactivities going on there.If you have two different market segments withtwo different images, seriously consider usingtwo different product or service names. Even if itcosts more in terms of name, packaging, pricing,etc., it is essential to keep the market segmentsseparate and not confuse the clients who arelooking for different benefits in each segment.For example, if you sell kitty litter to pet lovers,sell it for drying flowers in a completely differentpackage and with a higher price, and sell it as anoil absorbent in yet another package aimed at acompletely different market segment.Using image in marketing means using a certainimage to convince customers that what you areselling is what they want. Who is your idealcustomer? What image will best match thatcustomer’s situation, given the profile youdeveloped through research?Quality control is linked to image. Setting andkeeping standards of high quality in yourbusiness are essential to success. Peopleappreciate getting value for their money. Aconsumer trend of the 1990’s was a marked shiftin certain markets towards quality. Even whereyour market niche may not be aimed at thosesectors, the business reality of competition meansyou have to be concerned about quality.In the anxiety of starting a new business, it mayseem necessary to let a detail like low qualitygoods, poor image, or low quality materials slipby. But each slip in quality control has a longtermeffect on your chances for success.Offer Servicing and GuaranteesAs part of your business research, begin to watchand read advertisements more carefully. Watchfor the number of times that service is promotedas a selling feature of a business. It may beprompt, friendly, and no questions asked. Serviceis a main component of business success. Foryour marketing plan, questions of servicinginclude:• What after-sales support will you offer?• How does that compare with yourcompetition?If you want to stress service as a marketingtheme, outline in detail what aspects are special,and promote them as features.52solutions for small business home-based business

Guarantees spell out what you promise to replaceor repair. They are promises that a businessperson must live up to. Be sure you build in thecosts of returns ( 5 per cent for example) or aftersalesservice as part of your variable costs. Thenyou can cheerfully live up to your guarantees.Warranties are a special kind of guarantee thatusually promises certain standards ofperformance for a set period of time – forexample, promising to replace defective parts fortwo years.Revising Your Marketing StrategyHaving a business plan means you have a basisto work from. Using a plan to help you managemeans regularly referring to it, and makingchanges to keep it current. Evaluating amarketing strategy is an important part of thisprocess. It involves watching how all thedifferent parts of a marketing plan work and howwell they all fit together to support sales. Beingwilling to try something different is one way tomake sure you don’t get stuck with a marketingapproach just because it is familiar or the firstone you tried.• Regularly check what marketing costs arebeing converted into sales. Stop spendingmoney for things that don’t convertinto sales.• Budget enough for advertising andpromotion. This area of business finance isoften underfunded and one of the first to be cutif money is tight. Keep your customerorientation firmly in mind. Advertising andpromotion are necessary for the customer tofind out about the business. Advertising andpromotion expenses are essential businessexpenses and should only be reduced whenabsolutely necessary.And the last word on marketing ... nothingsucceeds like success. Go with anything legalthat works.Some specific ways you can evaluate yourmarketing strategy are:• Keep track of what is working. Somepromotions and advertisements carry asentence like, “Tell them you saw it in theXXX”. This is how a company tries to trackthe effectiveness of its marketing dollars.Other ways include coding coupons orbrochures, and asking customers directly.• Choose the best places for spending yourmoney. Keep your goals clearly in mind. Ifyou are trying to build a base of customerswith a certain profile, choose the methods thatare known to reach that group.solutions for small business home-based business 53

4How Will You Operate?Murray’s Lawn and LandscapingServiceby Genevieve Gardner“I don’t compete with nature – I learn from it andI work with it,” has been Murray David’s mottosince he started his lawn and gardenmaintenance business after retiring from a 28-year naval career.Start-up costs for a lawn and garden business arerelatively low – Murray estimates $5,000 to$10,000 for anyone entering the business – andhe was able to adapt various pieces of gardeningequipment he already owned.Murray makes time to explore the garden with aclient – every week if that’s desired –- and tokeep them informed of what he has done on eachvisit. “One very distinctive feature of mygardens,” he says with obvious pride, “is athrowback to the Navy – everything must bemanicured, trimmed and precise.”Murray also looks after a number of apartmentbuildings and condominiums, though quite oftenhe finds dealing with management companiesmore complicated than dealing with individuals.“It’s important to make sure that you identifywhether the company is administered at the local,provincial, or national level,” he advises,“especially if you are tracking an unpaidinvoice.”In his truck he carries licenses, coursecertificates and an impressive photo album ofbefore-and-after pictures of his best gardenassignments. Business cards and a cellular phonefor accessibility round out his mobile office.Computer records are kept on all his clients’gardens, including dates of mixture applicationsand what bio-safe products have been applied.He willingly prints out this information forclients on request. Charging by the hour, hebases his calculations on a scale of knowledge,number of clients and machinery costs. As hisknowledge expands, he plans to raise his ratesaccordingly.In future, Murray hopes to expand to acomplement of three: someone for moss baskets,himself doing a bit of everything, and anotherperson to do contract yard work with him. “Iwould like to someone. It would be good to sharewhat I’ve learned.”Assessing Your SituationThe expression “business operations” refers tothe activities and systems involved in organizinga business on a daily basis. These aresummarized in the operations section of abusiness plan, which covers:• Location (aspects not directly related tomarketing)• Premises and facilities• Equipment and methods• Materials, supplies and sources• Key personnel and staff• Professional services and resources• Management and training54solutions for small business home-based business

Organize Physical SpaceWhy is Location Important?Zoning ByLawsZoning bylaws outline what is legal within a city,municipality or regional district. The three maincategories of zones are residential, commercial,and industrial. Zoning by-laws restrict what canhappen in each zone with such things as the typeof activity, size of building, how close thebuilding can be to the street, parking, the numberof employees, amount of traffic, and size andtype of outdoor sign.Do your research on zoning early. Sometimesmixed use is possible, for example a homeoccupation that meets certain conditions may bepermitted in a residential area. Without zoningpermission, a home-based entrepreneur cannotlegally . Many do operate illegally but risk beingclosed down at any time.Today, most municipalities recognize the positivebenefits of home-based businesses. Ripple andspin-off effects on the wider community andeconomy are positive. Home-based businessesare increasingly recognized to fill a particularneed in small and rural communities. Thisrecognition has gone a long way to improvingrelationships between home-based business, themore established commercial businesscommunity and municipal governments.Increasing contact and information exchangehave led to cooperation among the three groups,as expressed by home-based entrepreneurRichard Morgan about Mission:“Our Association (of home-based businesses)worked with city council, the city’s license issuer,administrator, building inspector, and a couple ofaldermen to design by-laws that home-basedbusinesses could live with.”Be prepared with property records andinformation for this research – street address, anda legal description of the property, if possible.Start at the Planning Department in yourmunicipality. This is where you will be able tofind out about your present zoning. Be able toexplain exactly what your business will be doing– a description of your Business Concept will beuseful here.Rezoning is possible by applying to a localcouncil. The application process is relativelycomplicated.Rezoning often meets opposition and in manyplaces, zoning changes require public hearings –so there are no guarantees that rezoningapplications will be approved.You may do all your research, set up the businesslegally within current zoning requirements – onlyto find that the zoning gets changed. Your statusthen changes to what is called “nonconforming”.This means your business cancontinue to operate, even though it does notconform to or follow new zoning regulations. Ifsuch a business stops for a continuous period ofsix months or more, it generally loses nonconformingstatus.Typical bylaw restrictionsThe following bylaw example, from the town ofMission in British Columbia (Bylaw No. 1737-1988), has typical restrictions on home-basedbusiness use:Where permitted, accessory home occupations:• Shall be entirely enclosed within a building• Shall not involve the external storage ordisplay of materials or finished productsassociated with the home occupation usesolutions for small business home-based business 55

Shall not consist of:• Occupations that discharge or emit odorous,noxious or toxic matter or vapours; heat, glare,noise or radiation; or recurrently generatedground vibrations.• Occupations that result in traffic congestion,electrical interference, fire hazard or healthhazards.Building Regulations and CodesThe municipal government office – City Hall – isalso the place to get information about other bylawsthat could affect a home-based business onthings like parking, signage, noise and buildingcodes.Building regulations are important to research ifany building has to be done or any changes needto be made to your existing buildings. Plumbingand electrical work may require upgrading. Theprovincial building code applies across theprovince. Permits are also needed in differentareas for certain kinds of work. Be sure of yourbasic zoning approval before undertaking anyrenovation.Permission and PermitsIf you rent or lease your house, certainagreements may be needed between you and theowner. Starting a home-based business ina place you don’t own is advisable only with fullknowledge and permission of the owner.Look at what’s allowed under your tenancyagreement.provincial Ministry of Environment, WasteManagement Branch for disposal of hazardousmaterials, or the local fire department for burningpermits.Most municipalities require and charge a fee fora business license.Certain businesses – in particular those involvingfood – require a health inspection and permit.The Health Inspector, an employee of theprovincial government, usually works closelywith local officials to safeguard the public health.Typical fees for business licensesThe following extract from the City of NanaimoBy-Law No. 3288 is an example of typicalannual license fees.From every person an annual license fee shall becharged for carrying on any of the followingbusinesses:ExampleBusiness ClassificationsMiscellaneousAdvertising agency 4803 $75.00Accounting/bookkeeper 4801 $55.00Answering service 5090 $75.00Animal-kennels/grooming 0100 $50.00Home OccupationsFor any of the aforementioned businesses that areclassified as home occupation, add $50.00 to thelicense fee stated for that particular business.A home-based business needs to considerbusiness license requirements, as well as healthor other permits – for example, permits from the56solutions for small business home-based business

What About Premises and Facilities?Premises means real estate. Facilities arebuildings.Physical SpaceA business needs an appropriate place towork. Assess the space you have and the spaceyou need.• What physical space does your business need?• Is that physical space available in your home,or in buildings on the premises – such as thegarage, shop, or shed?• Will your work space have to share otherfunctions? What effects might this have onboth activities?• Are renovations needed to make availablespace useable?• Will any renovations involve upgrading power,changing plumbing or wiring? Do the costsmake these renovations realistic?• Is any new construction required by thebusiness? Researching construction costs inyour area should give you a cost per squarefoot that you can use to guide buildingdecisions.• Do renovations or buildings require buildingpermits?• How convenient is the space for deliveryof materials, or for a customer to enterand leave?• Will household noise, smells or activitypose problems?• Will customers ever come there? Will they becomfortable in the business space?Planning a Work SpaceSit with pen or pencil and graph paper in thephysical space you’ve identified for the business.Draw the workshop or workspace, showingfurniture and equipment. Connect those withlines or arrows showing the lines of production,how work flows. Use your drawing to decide onthe location of telephone lines, electrical serviceand plug-in’s, lighting and fire-proofing.Production equipment poses special challenges –can you work available space into production andhousehold routines?Take the time to draw up different layouts forproduction space, again paying special attentionto the flow of production. Will a certain layoutmean unnecessary steps in the productionprocess, or have people doing different jobstripping over each other? If you can’t makeexisting space fit production needs, reconsiderevery option before trying to make things workin too small a space.Organizing a Work PlacePeople often say organization can wait becausethey think other, more important things have tobe done first. When organization waits, successoften waits too. If you organize yourself and yourwork space from the beginning, and you budgetthe time to keep it organized, your home-basedbusiness has a greater chance of succeeding. Yourpersonal stress and frustration will also bereduced. As you get bigger, you get busier, sonow is the time to organize.• What kind of image does it present?• Can distinct functions of your operation bedivided from one another if necessary?solutions for small business home-based business 57

Ways of getting a home-based place of businessorganized include:• Assigning a work space to the business, andreserving it for that use without having to shareit with other activities.• Having a set place for the things you use, andkeeping them in that place.• Allowing time to keep yourself organized.Setting up systems is only a first step.Sometimes people set up systems and arebewildered when the systems don’t work.Remember that systems don’t work – peoplemake them work. Maintaining systems takestime, energy, commitment, and the belief thatin the long run the return is worth it.• Maintaining good security. An operating rulefor a home-based business is “keep your workseparate” from the rest of your life. This is onereason that sharing a home-based businessspace, even with a personal hobby, is notrecommended. Keep supplies, inventory,papers, and especially any hazardous materialsecure. If you develop a new design or inventsomething, security takes on a differentmeaning because you want to protect your ideauntil you develop and market it.Select Office EquipmentAssess Your Equipment NeedsConsider your own needs by asking:• What equipment is ESSENTIAL for me tohave on site to start this business at home?• What equipment is NEEDED but not essentialfor me to have at home?• What equipment MAY BE OF USE but is notrequired for start-up?• What equipment could I USE at anotherlocation?• What equipment could I LEASE rather thanbuy, so I can update as technology or mybusiness changes?An equipment list for a new home-based businessis generally restricted to equipment that isessential for success. Research will fill out yourequipment list with the following information:equipment name, specifications andrequirements, sources of new and usedequipment, and prices. Standard advice to newhome-based business people is to considerleasing equipment during start-up, and to buysecond-hand or adapt used equipment. This maybe particularly important in reducingthe amount of debt a business has to carryin its first years, and ensuring that money isavailable for operating and not tied up in capitalequipment.Minimal Equipment and FurnitureA filing cabinet, In-Out-file baskets or trays, deskor worktable, good work lamp/lighting and agood work chair are indispensable.Every business has paperwork. The five pieces ofequipment named are really pieces of officeequipment designed to help you handle paper.Shelving or a bookcase can be an importantaddition to the basic five.Look for used equipment instead of immediatelybuying new. Watch for auctions of officeequipment in newspapers, trade journals, andmailings about government auctions such asthose from Supply and Services Canada. A list ofequipment essentials and wants will help youprepare to take advantage of used equipmentsales.58solutions for small business home-based business

Basic office equipment list• stapler and staple remover• paper punch, 2-hole or 3-hole dependingon whether you bind papers at the top or theside• file folders, dividers and labels• paper clips and clasps• binders or binder cases• invoice and receipt forms (commercial ordrawn up by you)• pens and pencils• paper: working paper, scrap paper andletterhead• telephone message forms (commercial ordrawn up by you)• magazine storage boxes (cardboard or plastic)• containers to hold supplies and smallequipmentBusiness TelephoneFor some home-based businesses, the telephoneis still the primary lifeline to the outside world. Ifso, get a separate telephone line or system foryour business. That expense is tax deductible.Use of a home telephone for business purposes isprohibited by most phone companies. You canalso consider a measured meter line which ischeaper than a regular business telephone line.On a measured meter line, you can receiveincoming calls with a limited number of callsgoing out each month. Perhaps more importantly,it automatically gives you a listing in the YellowPages.A variety of different telephone sets and softwareare available today which allow features like callforwarding,call-waiting, call-display, one-touchdialing, and so on. Check out these features tosee whether the additional cost is worth theconvenience. Also check out the competitivelong-distance plans available form varioussuppliers.We have become so used to treating thetelephone like an everyday part of life that wedon’t always have a telephone style appropriatefor business. Most home telephones are answeredin a casual way. This can give an unprofessionalstart to a home enterprise. Business-like courtesyand accuracy are things to aim for in your owncommunications.Use fairly formal, business-like phrases, forexample, “Of course,” instead of “Yeah” or“sure”. Keep telephone message forms and a penor pencil near the telephone so you can takemessages without interrupting calls. If otherpeople answer the telephone for you, considerlaying out how you prefer it to be answered.Explain the appropriate response to standardtelephone inquiries, and how you like messagesto be taken. Keep these guidelines by thetelephone too.Telephone lines are used to send information ordata as well as voices. Fax machines andmicrocomputers may need telephone lines.If you plan to communicate electronically,research these needs at the same time as youconsider different telephone systems.Cellular phonesThe growing networks of cellular phonesuppliers are rapidly increasing the use of thistechnology. Costs of calls have declined steadilythrough competition. The range and quality ofreception and transmission has improvedsolutions for small business home-based business 59

emarkably, and, perhaps the main benefit, thesize of the phone set itself has become sleek andslim, fitting into a wallet or purse easily.The best advice on buying and using a cellularphone is to ensure that all the features you arepaying for are really beneficial to your businessneeds and not simply gizmos. You should alsoevaluate the service contract you have with thesupplier. Comparison shopping here can revealbig differences.friendly tape on a machine. Choose youranswering service carefully, and regularly callyour own number to check for courtesy andaccuracy.Using a voicemail system has replaced answeringmachines in modern offices.These avoid the problems of tapes runningor the machines malfunctioning. Telephonecompanies offer voicemail features for asmall charge per month.PagersThese rather old-fashioned devices have actuallyremained extremely effective as ways of stayingin touch with the office when on a job or anerrand. They are much less expensive to buy oroperate than cell phones, and because they oftenslip onto a belt or a shoulder strap, they arefunctional for people who frequently workoutdoors. Pagers come in three kinds: beepers,numerics and alphanumerics.Voicemail and Answering SystemsMany people don’t like recorded messages andtelephone answering machines, but these havebecome a feature of modern communication. Thebest kind of message for a home-based businessmachine is simple, short and to-the-point. Makesure you buy a machine thatis voice activated so that clients can leave amessage without the frustration of beingcut off.Answering services are more expensive thanmachines, but as you consider your situation,costs and options, keep your customers in mind.Would a real person answering the phone make adifference? If you agree, remember that a rudeand abrupt living voice may be worse than aPersonal computerIf you haven’t used a computer before in yourbusiness, you should quickly enrol in anintensive, short course on the basics beforeyou make any computer-related purchases. Theinstructor will be able to help you make gooddecisions about an up-to-date system includingthe types of business software programs whichwill fit your business needs. However, avoidtaking too many classes.Most people learn to use computer programs on adaily basis in their work by having other peopleshow them how to use a particular feature. Theymay also contract the specialized work to otherprofessionals – such as accountants or desk-topdesigners.Areas in which a computer can make asignificant difference to a home-basedbusiness are:• computerizing repetitive clerical tasks• keeping track of expenses and income,including personal money used to coverbusiness expenses• improving management procedures, customerservices and delivery, especially in terms oftiming and efficiency.60solutions for small business home-based business

People with experience in small businesscomputer systems advise that two commonmistakes for first-time buyers are that they don’texplore enough options before purchase, and theydon’t spend enough money on their systems tostart with. Don’t make computer systemsdecisions on the basis of price alone.Do enough research, including exploring options,to make sure that the system you buy has thecapacity to help your business now and still beuseful in the future. Research options for leasinga first computer system instead of buying one.ModemA modem is the piece of equipment that letsa computer link with telephone lines to send dataover the phone. Using a modem, yourmicrocomputer can send and receive dataelectronically, over telephone lines. If possible,get the person you buy a modem from to installit. If that isn’t possible, research carefully beforeyou buy, particularly regarding the compatibilityof the modem with equipment you already own.Fax Machine/ScannerFax machines let you send printed documents,graphics and photographs over telephonelines. They have many uses in small business,from sending orders, to price lists, to productdescriptions – quickly and efficiently. For thosebusinesses that don’t have a fax machine, accessis available at commercial print shops, photocopyshops, even at many convenience stores.Some fax machines double as photocopymachines, for small numbers of copies, and someare combined with full telephone systems andwith image scanners.Although the Internet has the capability to sendpictures and files via e-mail, faxes may still bethe only way to send documents that won’t scanwell into the communications software programthat your computer uses.PhotocopierAs with other technology, photocopiers haveimproved in range and quality, and shrunkin size and price. Minimum cost for a basicbusiness-use photocopier is around $600.A copier should be able to copy on standard andlegal size paper, produce clear, clean copies, andperhaps be able to enlarge and reduce images.Expect each additional feature – larger paper,collator, full enlargement and reduction, fasterspeed – to cause a significant jump in price.Determine whether you really need automaticmultiple copy duplication or can get bywith manual feed. Colour print capabilitywill also cost extra but may be necessary foryour business.Materials, Supplies and SourcesSupplies and materials refers to all the things youuse to make your product or provide yourservice. They are one of three main categories ofcosts, the others being labour/time and overhead.The following steps sum up how to treat“supplies and materials” costs:• List all the supplies and materials you willneed to produce the product or providethe service.solutions for small business home-based business 61

• Estimate how much of each supply andmaterial is needed to provide a certain unit offinished product or available service.• Consider the total sales you hope to make inthe first year of operation, in the same units offinished product or available service. Whattotal amounts of supplies and materials doesthis annual sales volume require? The cost ofsupplies and materialsis a key figure in financial calculations,including pricing. Even though the final costfigure for supplies and materials will appear inthe Finances section of your business plan, thesupporting information is usually covered inthe Operations section.Other important aspects of this part of businessoperations are sources, usually called suppliers,and terms of sale.• Suppliers do extend credit to their customers,but usually not for at least six months or longenough for a positive relationship to developon the basis of your sales volume and paymentrecord.• Supplier credit is not a dependable source offinancing for new business starts, althoughterms of sale may work in your favour assuppliers get to know you. They may offerbulk buying discounts or payment periods of30 days instead of cash on delivery (COD).Establish Records and SystemsRecords hold a successful enterprise together. Asinformation and paper flow through yourbusiness, your records have to trace actions andtransactions. Some of this pressure to keep goodrecords comes from legal and tax requirements.Records of expenses and sales are required bylaw. Record-keeping is also key because withoutefficient records, time you need for managingmay be spent on clerical tasks or wasted lookingfor misplaced information.Basic record-keeping systems include:• Business reference manual• Filing systems– chronological file– contacts file– main records– working files– electronic files– inventory records• Financial records, journals and general ledgersNo system maintains itself. Just as a businessplan outline is only a framework within whichyou run your business, record-keeping systemsare frameworks that only regular use reallyestablishes.Use a Business Reference ManualThe research you’re doing on a home-basedbusiness is hopefully all in a binder or a set ofelectronic files.That information and the decisions you makeabout your business will be organized in twoforms – a written business plan, and the businessreference manual. Like a scrapbook of thingsyour research turned up, the manual is anongoing resource.Standard sections for a reference manual are:• General Business Information• Responsibilities• Communications (e-mail, phone, fax, cell)• E-commerce62solutions for small business home-based business

• Travel• Filing Systems• Equipment and Supplies• Client and Customer InformationSet up the binder with dividers or file directoriesto organize your research into a businessreference manual. Some key information willappear both in the business plan and thereference manual. Remember that the purposes ofthe two business documents are very different –that fact and the instructions in this guidebookwill help you decide what information to includein which document. The business plan explainsyour business but the reference manual housesthe information that guides the business.If you only follow one piece of advice givenhere, make it this one – set up a businessreference manual. Advantages include theobvious ones of keeping key informationorganized and accessible, plus less obvious onesof making delegation easier, increasingefficiency, and reducing unproductive time.A business reference manual really shows itsworth when a business expands, needs totrain new employees, or upgrades the skills ofexisting ones. The supporting materials at the endof this guidebook include some expanded detailon standard categories for a business referencemanual.Decide on Filing Systems to CreateChronological FileChronological means “in order of time”. Achronological file (chron file) is a running recordof everything you send out from your business,by date, with the most recent at the front or top.Make an extra copy of all letters, invoices, copiesof reports, memos, faxes, or othercommunications. Maintain a similar electronicsystem for storing e-mail. Avoid printing out e-mails onto paper. Index the binder with one tabfor each month of the year, to keep copies inchronological order by month, or keep eachmonth’s papers in chronological order in aseparate paper storage box or tray. Start a newchronological file at the beginning of each year.Store a previous year’s chron file where you canget to it easily. Consider discarding chronologicalfiles after two years.Like a reference manual, a chronological file willsave you more time, energy and frustration thanyou can imagine. Among its advantages and uses:• Fast retrieval – often faster than using a mainfiling system.• Contacts – you can go through thechronological file and update your contactsand leads.• Protection – against copies that get lost in thefiles or go astray.• Reading file – as part of a regular managementreview.• Volume record – you’ll quickly know howmuch is being sent out by month, and how thatchanges from month to month.• Drafting replies – either you or someone whohelps you with the work can use it as aprecedent and reference manual.Contacts FileDifferent methods exist to store contactinformation about the people you interact with.Contact marketing software and e-mail programshave replaced older methods like revolving cardsolutions for small business home-based business 63

files or index cards. Choose a method that helpsyou keep track of all the contacts you make inyour business so you can keep in touch with themand regenerate business.Main Records Filing SystemMany people don’t know how to set up a filingsystem, which means they end up using files tostore papers but they can’t retrieve information.The key to good information management isaccess and retrieval. Whatever filing system youset up has to be one from which you canefficiently retrieve things when you need them.Office systems experts generally recommend anumbered filing system, in which files areidentified by number instead of alphabetically byname. You can add and eliminate files moreeasily, and filing and retrieval are faster. SeeAppendix F at the end of the guidebook foran example of a numbered filing systemappropriate for a home-based business. Thissystem works well for electronic files too.Working FilesWorking files is a general name for what are alsocalled current, active, or pending files. Keepthese a different colour from main records files.Working files can be kept on top of or in a topdrawer of your desk or in a special part of a filingdrawer. An alternative place to keep workingfiles is at the front of corresponding numberedfiles in the main records system. The files youneed all the time are considered working files. Ifyou use colour to distinguish them, they shouldbe a small number of immediately visible files.Main records folders should always be kept inthe main records system, and should not be takenout, even when you take information out of themfor reference or work purposes. Open a newcurrent file for each thing you’re working on,instead of taking files in and out of the mainrecords system. A system of signing informationout and back in when it is returned to the file canhelp solve the problem of papers always goingastray. This is common when a number of peopleuse the same main records.Two working files that should be two bright anddifferent colours are Accounts Receivable andAccounts Payable. These are kept apart from allother main records and working files so they canbe easily recognized and accessible.Electronic or Computer FileMaintaining electronic files is easier if a simplesystem is followed from the time you beginto use your computer for your business. Thesame general categories used in your mainrecords filing system will keep the two systemscross-referenced. File names, usually restricted toeight characters, are easier to find if they follow aset pattern and are recorded by disk or directory.Use of file name suffixes to designate certaintypes of files is a common way to separatedifferent kinds of files, for example identifyingword processing files as .DOC (for document), todistinguish them from accounting spreadsheetfiles, identified by .DAT (for data). Make surethat the clock built into most business computersystems is activated, and use it to mark the filewith the time and date the work was done.Inventory RecordsA lot of service, retail and business capital can betied up in stock. Keeping control of that stock iscalled managing inventory. This can be a timeconsumingtask but inventory records should64solutions for small business home-based business

help. Two methods of keeping records to manageinventory are physical inventory and grossmargin. Physical inventory is a counting andlisting of the number and value (cost and retail)of all items on the premises. This method isobviously very accurate, but time-consuming. Itcan be expensive to hire people to take inventory,and a physical inventory might only be doneonce a year. The gross margin method is anestimate, often done before regular physicalinventories. Discuss this method with anaccountant or bookkeeper.Benefits of record keeping1. Good records can help identify the sourcesof your income – You may receive cash orproperty from many different places. If youdon’t have records showing your incomessources, you may not be able to prove thatsome sources are non-business or nontaxable.2. Well-kept records can mean tax savings –Good records serve as a reminder ofdeductible expenses and input tax credits. Ifyou don’t record your transactions, you mayforget some of your expenses or input taxcredits when you prepare your income tax orGST/HST returns.3. Well-kept records can prevent most of theproblems you might encounter if RevenueCanada audit’s your income tax orGST/HST returns – If your records are soincomplete that auditors cannot determineyour income from them, the auditors willhave to use other methods to establish yourincome. This will cost you time. If yourrecords do not support your claims, theycould be disallowed.4. Your records will keep you better informedabout the financial position of your businessYou need good records to establish yourprofit or loss, and the value of your business.Information from good records can also tellyou what is happening in your business andwhy. The successful use of records can showyou trends in your business, let you compareperformance in different years, and help youprepare budgets and forecasts.5. Proper books and records may help you getloans from banks and other creditors –Before a creditor gives you a loan, they needaccurate information about your currentfinancial position. You can’t give them thisinformation if you don’t keep organizedrecords. Also, good records show potentialcreditors that you know what’s going onwith your business.Source: Canada Customs and Revenue Agency’sGuide for Canadian Small BusinessObtain Insurance CoverageHow Insurance HelpsMost businesses require at least some insurance.Insurance is often required as a condition of aloan from a bank. In a sole proprietorship, havingenough insurance is particularly essential becauseyou are personally liable for all debts. Withoutinsurance, a situation could occur where personalpossessions and assets have to cover anunexpected business debt or accident. Havingadequate insurance is one way a businessmanages possible risks. Standard advice is toonly insure against what you can’t afford to lose.Don’t pay for insuring what you can afford torisk.solutions for small business home-based business 65

You will probably already have some insurance.Start with the same agent, because a businessrelationship already exists. Treat your insuranceagent as a professional resource – someone yougo to for advice. In this case, you don’t haveto pay for the advice because agents receive acommission from the insurance companies whosepolicies they sell. Ask questions until you’resatisfied that you know what each policy optioncovers, its restrictions, and its cost. Be sure tocompare options on the degree of protection aswell as on cost.Be honest with your insurance agent – he or shecan’t give good advice on incompleteinformation. There is no point paying moneyonly to find that your insurance is void becauseof some restriction. The goal is for you and theagent to come up with a commercial insurancepackage that gives you and your businessnecessary protection.Different Kinds of Insurance AvailableHouse/Business Premises InsuranceThe house insurance you currently hold willprobably not cover your business venture. It maynot even cover equipment or supplies that youcollect in the start-up stage. Upgrading presenthouse insurance to cover business use is anecessary cost of doing business. For example, afire started in your business area could void yourhousehold insurance.Vehicle InsuranceCars and other vehicles used in your businesshave to be insured for business use. Insuranceclaims may not be valid if a vehicle is involvedin an accident under conditions the policy doesn’tcover, for example a vehicle insured for personaluse being used for business.Liability InsuranceA standard homeowner’s or apartment dweller’spolicy doesn’t protect from personal liability if aperson is injured while in a home on business.For a reasonable amount more a year, mostpolicies can be extended to cover injuries tobusiness visitors. This broadened insurancepolicy will not cover injuries or damageoccurring as part of delivering services or sellingproducts off your premises. Insurance to protectyou in accidents that may occur away from thehome is available at around $200.00. Make sureyour liability insurance covers the costs ofdefending yourself if you are sued.Business Interruption Insurance(Loss-of-Income)If your business operation is halted, for examplebecause of a fire in your home, the business billsstill have to be paid. Business interruptioninsurance, also known as loss-of-incomeinsurance, protects you in such a situation. Thecost is based on gross business earnings or anestimate (for a new business), and is usually nottoo high. Usual term lengths are six months andone year.Disability InsuranceDisability insurance is also called accidentand sickness insurance. It can be importantprotection for a self-employed person, although itis relatively expensive and the payments may notbe enough to keep you going in a business incase of disability. Disability insurance protectionconsiderations include:• how disabled one has to be to receive benefits• how long a waiting period there is betweenopening a claim and receiving the first66solutions for small business home-based business

payment (usually a minimum of three monthsafter an accident)• how long payments continue.record won’t be destroyed. Send a copy of visualand inventory records to your insurance agent forfiling with your policy.Partnership InsuranceWhether a partnership is formal or informal, onepartner is liable for the actions of another partner.If you have business partners, research optionsfor insurance to protect you against suits arisingfrom an action on the part of other partners. Thisinsurance is expensive and not that common insmall and home-based partnerships.Product or Service InsuranceYou can buy insurance to protect you againstclaims, injuries, or damages that occur inconnection with your product or service. This isusually expensive. If something about yourproduct or service makes you think you shouldhave this kind of insurance, tell your agent.When Filing an Insurance ClaimAccurate records of inventory, businessequipment, and supplies are necessary asproof of value of loss or damage on anyclaim against insurance. Keep:• receipts of all purchases• an inventory of things in each room in whichyou perform any business activity• a visual record, using a still camera orvideo camera.For insurance claim purposes, receipts plus apicture is the best record. Consider storing therecord of your insured possessions or a copyin a safe place somewhere other than in yourhouse. This way, if there is an accident yourArrange Your Financial RecordsYou are legally required to keep these records.You need them. Financial records tell an owner/operator how efficiently a business is being run,and where changes may be needed to cut costs,maintain quality, or increase return.A small business needs to keep track of thefollowing:• total income and total expenses• all money owing to the business – accountsreceivable• all money owed by the business – purchasesand expenses, accounts payable• petty cash and bank deposits• journal and general ledger• each customer’s account (if credit is given)• equipment and depreciation allowance• inventory• payroll record if a business has employees.Money Coming InA summary of sales and cash should always becurrent, using these categories:• cash receipts, including sales, collections, andmiscellaneous income• cash on hand, money on the premises, cheques,and petty cash• total sales, cash and credit.The Accounts Receivable file is the business filein which to put accounts owing money (thosepaying in instalments, or at the end of 30 days).solutions for small business home-based business 67

It is important to keep this part of the financialrecords of incoming money up-do-date andactive.Money Going OutKeep track of it. If paying by cheque, recordpayments in a cheque book by date, amount,payee and purpose. Mark each invoice withpayment information (purpose, cheque number,and purchase order number if this applies). Putthese documents in a Bills Paid file kept with theAccounts Payable file in the main records filingsystem. Keep bills not yet paid together in thatbrightly-coloured Accounts Payable file.If your accounts are set up as electronic files,ensure you keep regular back-ups stored on disk,CD, or tape. These should be storedoff-site for protection against loss.Petty Cash FundA person starting a home-based business runs therisk of losing any separation between hisor her home and work expenses, especially without-of-pocket expenses. If a business personspends personal money on business items, butdoesn’t keep the receipts, claim the expense, orget reimbursed from a business account, out-ofpocketends up meaning exactly that.This can grow into a problem. Avoid it by settingup and using a petty cash fund. Petty meanssmall. What “small” means depends on howmuch ready cash you need in the course ofbusiness. $100.00 is a reasonable float or startingfund for petty cash. Keep this fundin a box or special drawer or envelope. Aspayments are made for incidental expenses, suchas postage, list the item and the cost, and payyourself back from the business fund.A chronological, itemized list of petty cashexpenses per month, without receipts, is acceptedby Canada Customs and Revenue. When the fundis nearly gone, summarize the items, file therecorded list, write another cheque for the exactamount expended, and cash it to bring the pettycash fund back upto $100.00.Journal/General LedgerThe journal and the general ledger are the heartof your financial record keeping system. Ajournal is a general, original record of financialtransactions. Sales and purchases are entereddirectly into the journal, on a daily basis forbusinesses with daily activity. For businesseswith less regular transactions, entries won’tnecessarily be every day, but the journal recordshould always be kept up-to-date.A ledger is a principal book of accounts intowhich all transactions are entered intoappropriate categories. In a complicatedoperation, information from separate journalsmay be combined and entered later into a generalledger. For straight-forward businesses, whichmost home-based operations are, a journal andgeneral ledger can be combined into onefinancial record.In most cases, these “books” can be transferred toelectronic forms using a variety of accountingsoftware packages.68solutions for small business home-based business

5Will You Make Money?Custom Business Systems Ltd.By Dorothy BrothertonOne way to make money is to print your owncheques.. Sound illegal? Not to Jan Gammie ofPrince George, a former Yukoner with experiencein the clerical support side of gold mining.She found a niche to mine gold right from herown home.Custom Business Systems Ltd. produces blankmanual and laser cheques. These display all theinformation of a regular bank cheque but cost10 to 30 per cent less than current bank chargesfor the service.“We use accounting packages to produce lasercheques. We take time to ensure our cheques arecompatible with a client’s software and printers.We can scan in a logo as well,” explains Jan.She tests ink on the bank information to ensure itmeets Banking and Payments Associationstandards. “You just can’t scrawl any old thingon a piece of paper and call it a cheque,” saysJan.All kinds of equipment line up in Jan’s den-cumbusinessoffice. Churning out cheques are twocomputers, two laser printers, one laser colourprinter, a scanner, and testing equipment.Cheques are delivered to clients within 48 hours,but orders can be filled within a few hoursif necessary.Jan’s partner is her old business collegeinstructor, Pat Norris. “I truly would have beenlost without her,” says Jan. “She has taught meeverything I know about computers andprograms. She was also a great confidencebuilder when at times I found myself at my wits’end.”As electronic payments replace manual cheques,the partners are diversifying their business tocreate other custom-designed items such asinvoices, statements and business cards.Like any business, a home-based operation mustmake money to survive. But just how much willyou need to get started? Where will this moneycome from? How much cash must flow througheach month to keep the bills paid? And howmuch do you need to charge to make a profit?These topics are tackled in this chapter.Of course, many new entrepreneurs have littleaccounting background and may shy away frommaking sales forecasts or calculating net worth.If you are one of them, grab your favouritebeverage and set aside enough time to workthrough this section slowly. It will pay you to doso. Even if you won’t be doing your own books,you need to know what all the numbers mean inyour financial statements. You don’t need specialmath ability or a head for numbers – just thepatience to learn some new concepts. Don’t try toget everything clear on your first read. Learnwhat’s here and return when you need it. Muchof it will become clearer as your first yearunfolds.solutions for small business home-based business 69

Understand the BasicsStarting vs. OperatingIf you are considering a home-based business andneed money, what you are looking for first isstart-up capital. Capital in business meansmoney. Funding needed to run a business, tokeep it going once started, is called operatingmoney or working capital. Start-up capital andoperating capital are totalled separately forpurposes of business finances. Begin to thinkabout them separately now, each one representinga different stage in your business development.Start-up capital is the total amount of money youneed to open your doors for business, and to keepthem open until sufficient revenue can bedepended on. Operating capital is the amountrequired to keep the business going after thestart-up. It includes salaries, wages, rent,expenses, supplies, utilities, advertising,depreciation, and interest payments. Smallbusiness advisors recommend that start-upexpenses include at least six months operatingcapital, because even though revenue will comein during that time, the start-up phase also bringswith it unexpected expenses.A common problem for small businesses isunderestimating how much money is needed,especially for operating. The result is additionalstress after start-up, cash not coming in when it isneeded, and making do with insufficient capital.This is easy to understand, because no person orbusiness wants to carry the costs of unnecessarydebt. Insufficient operating capital is a pitfall toavoid.Obtain Start-up CapitalYour Own MoneyMost lenders want to know that a business personhas invested some personal assets into thebusiness. This translates into ownership, calledequity. That investment can come from:• Selling personal assets• Cutting current personal and business expensesin order to make money available• Drawing on savings• Using credit cards to get cash• Borrowing against life insurance• Selling holdings or investments• Cashing in bonds or savings plans• Increasing a house mortgage• Keeping a job and using a portion of the othersalary for the businessBusiness jargonWhen you launch a business you’ll access twodifferent types of funds (capital) which arehandled separately for reporting purposes later.Start-up capital – This is the total amount ofmoney you need to open your doors and keepgoing until a regular supply of revenue comes in.This money is a one-time only expense.Operating capital – Once launched, you’ll needmoney to pay rent, supplies, utilities ,advertising, depreciation, interest payments andso on, including wages for everyone involved.Friends and FamilyEven with scrimping, saving and carefulmanagement, you may not be able personally toprovide the financing your business needs. Thefirst source of borrowed money is usually family,70solutions for small business home-based business

elatives and friends, who as a group make upmore than 50 per cent of the loansto home-based businesses. Such loans havethe same requirements and pitfalls as all debtsituations – and then some. Always getagreements about loans in writing to save latermisunderstandings and bad feelings. Make surethat all loans, including those with family andfriends, are set up with:• Proper security (explained below in Collateralor Security)• Any terms or conditions• Payment scheduleA payment schedule shows when payments willbe made on both the principal (the amountborrowed) and the interest (the amount it costs toborrow the principal). In some cases, your familyor friends may be willing to lend you moneyinterest free, or to lend money without repaymentuntil the business gets going. Still prepare apayment schedule, showing payments deferred orput off until that point. Keep your financialbackers, including friends and family, informedof your business’s financial picture on a regularbasis.Lenders and Financial InstitutionsBanks, credit unions, and financial institutionslike trust companies lend money to individualsand to companies. A loan to an individualis a personal loan. A loan to a business is acommercial loan. Conditions and terms,including interest rates, differ for the two kinds ofloans. Depending on the amount of riskassociated with a new business venture, a bankermay only be willing to give a personal loan.Home-based and new business people aregenerally considered a poor risk by lendinginstitutions, both because of the 80 per centfailure rate for new business starts, and becausethe loans needed are often small. A mortgage ona house and property is often required,at least until a business gets established. Apersonal loan is common in home-based businessstart-ups.Your spouse or partner may be unwilling to putup shared possessions to secure a home-basedbusiness loan. You may feel that this refusal tohelp you realize your dream means lack ofsupport. If that lack of support is real, it couldcontribute to business failure anyway. Better youknow about it before you get a loan rather thanafter. It may also be true that your family needsbasic security to feel confident and to be able togive you their support.Each source of funding has guidelines andconditions a business has to meet to getassistance. The guidelines are called “criteria”. Ifyou apply for funding, the first thing the programofficer does is check to see if the applicationmeets the criteria. If your business doesn’t meetthe criteria, no matter how good the plan is thatsupports your proposal or application, it can’t beconsidered. As part of your research, getinformation about such funding sources andreview them as possible sources of financing.Pay special attention to the criteria so you onlyconsider those opportunities where your situationfits the guidelines. Otherwise you’ll be wastingyour time.solutions for small business home-based business 71

Secure Operating CapitalEquity FinancingEquity means ownership. With equity financing, alender makes money available for use inexchange for an ownership share in the business.This could be as a silent or limited partner (notactively involved in the business) or as ashareholder. Whether equity financing is possibleor a good option depends on the businessstructure and relationship between the borrowerand lender.Debt FinancingWith debt financing, the lender charges interestfor the use or “rental” of money loaned, but doesnot get a share or equity in the business. Debtfinancing is familiar to most people because it isthe basis of most personal credit.A line of credit – common in business – is a typeof debt financing. With a line of credit, a bankgives a business an upper limit to which it canborrow, for a set interest rate. The businessdoesn’t get the loan in a lump sum, but draws onthe line of credit for funds as it needs them.Interest is only paid on the amounts borrowed. Aline of credit can be an important tool for copingwith cash flow problems. It may also be the onlyfinancing arrangement that a home-basedbusiness needs as a back-up for operating capital,although this is not as likely if investments areneeded in machinery, equipment or inventory.Collateral or SecurityCollateral is what you have to put up to secure aloan. This security reassures the bank or otherlender that if circumstances make it impossiblefor you to repay, the lender has the right to takesome identified thing that covers at least part ofthe value of your loan. As you consider differentkinds of financing and research what is available,pay attention to the collateral each requires. Theusual collateral for home-based business loans ismortgages and personal guarantees.Handling LoansIf you successfully get a loan, make it a rule ofbusiness to keep your lender informed aboutbusiness developments. Even if things don’t goaccording to plan – and hardly anything does –better that your lender knows how things standbefore you need help. The better the relationshipbetween a business person and the bank or otherlender, the better the business’s chances ofgetting advice and possibly an additional loan ina marginal situation.Seek Additional FundsDon’t wait until your business plan is finishedbefore you go and talk to people at lendinginstitutions. When your business concept is fairlywell developed, and you know generally whatyour financing needs will be, make appointmentswith several lenders to talk about a business. Getinformation about different kinds of loans and72solutions for small business home-based business

interest rates or rental charges for borrowingmoney. This is important research even when youplan to get necessary financing from othersources.Shop Around for Best DealsBanking is a business just like any otherbusiness. There are very real differences betweenwhat financial institutions offer. Keep goodrecords, and use these first interviews to“test the waters” and to get a feel for how latermeetings with lenders may go.If the lender – for reasons of its own – wouldnever give you money for your particularbusiness idea, better that you find out now thanlater. Loans officers at banks can help you assessyour business idea, too. If people you speak toexpress reservations about some aspect of yourplans, consider that input carefully. Thesecontacts have experience you can use. If bankcontacts are generally positive, you can feelreassured that you’re probably on the right track.Go Well Prepared with QuestionsContacts at financial institutions will only be ableto provide such feedback if you are well preparedwith certain questions you want answered. Beingwell-prepared doesn’t mean waiting until you arein need of the money.It means knowing what questions you needto research at this early stage of your businessdevelopment.Use the following questions to guide generalresearch on financing options:• Is a certain balance required in a businessaccount before a loan can be considered?• Will the lender give the business a line ofcredit? If so, what are the requirements andconditions?• What are current interest rates for the line ofcredit and other types of loans or financing tobe considered?• Does the lender have limitations on the numberof small loans it grants or the types ofbusinesses to which it gives loans? If so, whatis the current situation?• What is their policy on the size or descriptionof cheques deposited in your personal accountto be held for collection?• Will cheques under that size be creditedimmediately to your chequing accountbalance?The last two questions are important because ifyou don’t have a business account and creditreferences, the lender may hold all cheques forcollection until it has some experience with youand your account. This can affect the money youhave available and your cash flow – because youcan’t count on using money from these depositedcheques immediately.The buck starts here...Rod McQueen in The Last Best Hope: Howto Start and Grow Your Own Business (1995)advises the following when approaching lenders:1. Right church, wrong pew – Don’t wastetime on lenders or investors with no power,no money, and no prospect of ever havingeither.2. One shot – You’ve only got perhaps two orthree minutes to create a positiveimpression. Be enthusiastic and clear.solutions for small business home-based business 73

3. Wear their shoes – Every investor wants toknow clearly how much is in it for them –offer excitement as well as re-payment.4. Research and listen – Bone up on banker’slingo and what lending programs areavailable. Talk their language.5. Ask for the business – Know exactly howmuch you want and what exactly it will beused for. Don’t ask for the moon.6. Be truthful – Just like you would be to thetax auditor.Evaluate What You DiscoverYou may be told that policies are not rigid, thatevery case is different, that without moreinformation your question can’t be answered orpossibilities assessed. Don’t let this put you off.Such answers don’t mean your visit was a wasteof time. You will have an improved sense of thepeople at each institution, and you’ll be able tocompare information you get from differentlenders.If your sources of income are yourself, familyand friends, use the information you get byresearching financial options to get an accuratefeel for the marketplace. Influenced as it is byinterest rates, time spent researching finances isworth the gains in experience and understandingof the business world.Seek Professional AdviceIf you can only afford professional advice onselected aspects of your business, make financingone of them – especially if you plan to borrowmoney. Use your research skills to get as muchinformation as you can. Prepare to get the mostout of professional advice by being able to askexactly what you need to know.Bring a Financing Proposal PackageIf you decide you need a loan, your financial planmoves to center stage. That part of your businessplan is explained in detail below. Make sure youare familiar with every part of it. From thecomplete Financial Plan create an outline ofyour financing needs, before you go to a lenderwith a proposal or application for a loan. Thinkof this as a financial proposal package that helpsyou go prepared with the following key points ofinformation shown separately:• The specific loan and term being requested.• What it will be used to purchase – such ascapital assets like machinery and equipment;fixed assets such as a building; homerenovations, vehicles or inventory.• Your amount of equity in the business, andinvestments by partners, friends or relatives(ownership indicates commitment).• Cash flow forecasts to detail the amount andtiming of cash use.• Contact names, addresses and telephonenumbers for the lending institutions andprofessionals you deal with (accountant,lawyer, bookkeeper, business advisor, etc.)• A personal net worth statement (assets vs.debts) to support a personal guarantee.• Copies of letters of intent, commitments andpotential orders.• Photocopies of your insurance policies, legalagreements and appraisals.• Copies of price lists to support cost and salesestimates (Note: always put wholesale andretail prices on separate pages).• Any appraisal of fixed assets (such as propertyand buildings).74solutions for small business home-based business

Feel and Look ConfidentA lender looks for four things in any loan orfinancing application:1. Character – Are you the kind of personwho pays your bills? Are you reliable?Can you run the business?2. Credit – Do you have a good credit rating?3. Capacity – Can the business generateenough to pay the lender back?4. Collateral – Do you have things of valuewhich can be used to secure or guarantee aloan?These things help a lender decide whether or notyou and your business are a good riskfor a loan. The business plan is your key toconvincing a lender that you are a good risk.Consider revising your financial and businessplan if the feedback you get suggests you needto. Keeping your goals in mind will keep youfrom getting discouraged.Failure to get a loan will not prevent your startup.You may need to change your time frame, butif you’re determined to reach your goals througha home-based business, you’ll find ways toobtain money. If you can’t get credit, then maybeyou’ll have to earn the money some other way –such as by postponing your business start-upuntil you have enough money, or scaling downthe business, or finding ingenious ways to reducethe amount of start-up capital you need.Compose a Financial PlanThe financial plan is the business person’sanswer to the question, “Will the business makemoney?” If you don’t have a good calculator,now is the time to buy one.Don’t take a flyer!The Online Small Business Workshop (Session 4)offered by the Canada/British Columbia BusinessService Centre gives this warning:An experienced pilot does not fly a risky missionwithout a detailed, well-researched flight plan.Yet people everyday, with minimal businessmanagement experience, try to operatebusinesses without active business plans. “Takinga flyer” on a business venture is no less a lifeand death hazard for you, your family and yourfriends, than flying that dangerous mission in amall plane.Make no mistake, when you start a business, yourhome life, your family life and your marriage areon the line, front and centre.Prepare Financial StatementsFinancial statements is a general name for thedifferent ways businesses present moneyinformation. The information actually presentedin financial statements is quite straightforward,although there is a lot of it, called by variousdifferent names. The approach in this guidebookis to introduce and explain the main statements ina complete financial plan. Few home-basedbusinesses will need them all, at least not in thestart-up stage, but a basic understanding of allkey financial aspects is a definite business assetwhen launching a business that is expected togrow.Financial statements covered in this part of thebusiness plan are:• Estimated market share• Sales forecast• Costs of production or servicessolutions for small business home-based business 75

• Supplies and materials costs• Operating expenses – non-labour andmanagerial labour• Capital equipment• Start-up expenses• Income and expenses• Cash flow• The balance sheet (net worth)• Break-even analysis• Sources and uses of financingFinancial statements give information of twomain kinds. One kind is figures about yourbusiness and situation as it stands now. Anexample of this kind of financial statement is thebalance sheet (see Appendix L).The second kind of financial statement is one thatlooks into the future and makes a “best guess”about some part of the business’s finances –sales, expenses, revenue. These are called“projections”, “forecasts”, and “estimates”. Mostof the financial statements supporting a businessplan are of this type, “best guesses” or informed“guesstimates” – for example cash flowprojections, projected income and expenseforecasts, and estimated market share (see thesesections of the financial plan, below).Worksheets that show calculations and figuresmay be attached to a written plan as supportingappendices. The business plan itself, though,usually contains only the final or most relevantnumbers from calculations and financialstatements.To make the most of a financial plan – and toactually manage it instead of having all this databecome divorced from the real life of thebusiness – you have to take the time to compareyour estimates and forecasts with what actuallyhappens later, analyze reasons for differences,and adjust future forecasts in response. Thisdynamic use of business information can sharpenthe edge that good research and planning gives,strengthening a new business’s ability to competesuccessfully over time.For more informationA companion guide to handling financial mattersfor small business owners is available in theseries Solutions for Small Business.Called Business Planning and FinancialForecasting the guide can be downloaded from:www.smallbusinessbc.ca. Click on SmallBusiness Guides, then Solutions for SmallBusiness Series.Estimate Your Market ShareMarket share is the portion of total sales in anarea that each competitor holds. Work done in themarketing section helped establish your targetmarkets, by region and by groupings of potentialbuyers in each region. The financial section usesthese figures:• Total sales – the number made and the dollarvalue – in the trading or market area, forsimilar products or services. (While this mayhave to be an estimate, a surprising amount ofmarketing information is available and may befound through your research. Look in businessmagazines and publications specific to yourindustry such as standard trade journals.)76solutions for small business home-based business

• Estimates of market share of your maincompetitors (this can be given as a percentageof total market share).• Estimates of market share projected for thebusiness, for each of four quarters (every threemonths) in the first year of operation – includetwo figures, the number of items and the dollarvalue.Forecast Your SalesForecasting sales is the starting point forfinancial projections, and the basis of businessbudgeting. List all the products or services yourbusiness plans to sell, and the units of sale foreach. Units are set by the business.A unit for an adventure tour company maybe one package tour of two weeks. For acraftsperson, a unit may be one wooden item. Aunit for a service provider such as a researchercould be one hour of time, or a completedcontract. Beginning to think in “units” is part oflearning to work with the building blocks offinancial forecasting. Decide now – if youhaven’t already – what the sales units are foryour business.A sales forecast can be done for your total sales –the number and dollar value of units the businesshopes to sell in the first year. If you haveidentified two or three MAIN target customergroups, a more useful approach may be toforecast sales separately for each of these targetgroups.Sale price per unit (worked out as part ofpricing, see page 45)Total sales (number of units sold multiplied bysale price per unit)A business doesn’t do just one sales projection,unless it only has one product and one targetmarket. Marketing is usually more demanding ofa business. Your sales forecasts will end uptotalling a final number of units and a dollaramount that the business expects to sell, but thisshould be made up of separate projections foreach product/service and each maintarget group.If you are trying to do a sales forecast for abusiness that you haven’t started yet, industryinformation from your research will be a guide tosales forecasting. Look for recent figuresfor average industry sales, or average sales forfirms similar to yours. If industry informationisn’t available, use your ingenuity. Consultsomeone connected to the industry who canat least help you make a “best guess” for sales.Use information you can obtain on similarbusinesses in related industries.Scrutinize Your PricesThe three ways to set prices are:• Pricing to the market• Cost approach to pricing• Break-even approach.For each product/service and customer group,making a sales forecast involves monthlyestimates for a year:Number of units sold (sub-totals for targetmarkets and one overall total)solutions for small business home-based business 77

These were introduced in Chapter Three. Pricingis so key to success that some additionalintroductory information on pricing as it relatesto business finance is included here.Effective pricing depends on business goals. Doyou want to maximize profits, or do you want togo for high growth in sales? In the first case, youmay choose to emphasize quality and service onhigh-priced items for a target market that wantsquality and will pay for it. In the second case,you may want to emphasize high production andhigh sales volume levels, keeping prices low.These two ends of a market – the high end andthe low end – may both be part of yourmarketing strategy, but the ways you use to reacheach may be quite different.Home-based businesses selling a standardizedproduct usually go for growth. They priceaccording to the market, because the markup oneach item is low. Specialty consulting andprofessional services or high- tech firms are morelikely to aim for higher profits on each sale,setting a high price to cover research anddevelopment and to establish a more securemarket niche. In high tech areas particularly,there is no such thing as a “secure” market niche.Competition moves in as quickly as technologychanges, so in this field, basing a marketingstrategy on volume sales over time just doesn’tmake sense.Pricing to the MarketPricing to the market carries with it somedangers. These include underpricing in order tocompete or make sales. The following pointersmay be useful:• Check out assumptions about true costs.Use competitors’ prices to establish theprice range for similar products or services,but don’t underprice. If your true costs arehigher, your final prices will be higher.Competitors may have access to lower pricedraw materials, perhaps because ofa long-established supplier relationship orvolume discounts. If your true costs includecertain features or services that competitorsdon’t offer, they are justified business costsand have to be covered in price. Service isa feature that many home-based businesseschoose to compete on, because they don’tmake the volume of sales that allows discountsor special sales terms.• Check how the competition reacts to yourentering a market. Be prepared for prices tochange, and have a back-up plan in placefor your own pricing. Pricing means more thansetting a price once – it means watching yourprices in relation to sales and to thecompetition in the market, and then makingnecessary changes in a timely way.The Cost Approach to PricingCommon mistakes of small businesses, homebasedas well as others, in this area include:• Costing materials at original prices rather thanat the cost of replacing them. Use replacementcosts in all financial work.• Not including salaries. Figure out how much itwould cost to hire someone to do what you aredoing. That is a business expense. Charge it asa business expense, even if payment toyourself has to be deferred.• Not including interest your money could haveearned if it had been invested, for example inCanada Savings Bonds, instead of in your78solutions for small business home-based business

home-based business. This loss of potentialincome is too often not considered as a realcost of doing business. Include it.• Forgetting to make allowances for refunds,future servicing, paying down the debt onequipment or machinery – including partialrepayments of principal as well as the usualinterest charges – and loss because of baddebts. These possible costs are ones that anaccountant or a bookkeeper can help youidentify and include in business finances.Break-Even Sales PricingBreak-even pricing runs a risk of underpricing.For example, if your break-even price turns outto be the same as a competitor’s price, and youare pricing to the market, your sales will notinclude any profit/return to you or to the businessfor growth. Including costs of labour and time, inthis case yours, partly as a cost of production andpartly as an operating expense (salary) isnecessary. However, it does not guarantee aprofit. Your business goals are important here.You may decide on a short-term strategy ofbreak-even sales pricing, to gain recognition andmarket share, before moving to a cost approachthat doesn’t just break-even but builds in areturn to the business.Break-even price calculations are only as good asthe information you start with. Good businessplanning and management includes learning totrust your business information because youknow it’s accurate, or you know exactly whichfigures deserve caution because they are“guesstimates”. Many experienced businesspeople call this “trusting your intuition”.Business intuition will get stronger withexperience.Calculate the Costs of Productionor ServicesAnother business term for this financial categoryis “cost of goods sold”. It’s just as important toknow an accurate cost for providing a service asit is to know the cost for products.The section on pricing in Chapter 5 introducedthree main categories of costs:• Supplies and materials (variable because theydepend on how much you use)• Operating (fixed because you have to paythese costs regardless)• Time and labour (staff and your own)These costs are usually figured on separateworksheets, with totals from those sheets usedfor other financial projections such as break-evenanalysis. The instructions below figure costs ineach category separately.Supplies and Materials Costs• List all the supplies and materials the businessneeds to create its product or service.• Estimate how much of each supply andmaterial is needed to provide a certain unit offinished product or provide a unit of availableservice, plus the cost. You can also divide totalannual supply and material costs by the totalnumber of units to find the per-unit cost.• Consider the total sales you hope to makein the first year of operation. Estimate thenumber of units you hope to sell, and calculatethe total annual supply and material cost toachieve that level of sales.solutions for small business home-based business 79

• Include packaging and delivery costs andthe cost of bad debts/returns (three to five percent of the value of sales). Divide this total bythe number of units to be sold for the year.The two sets of figures you will have at the endof these calculations are:1. Total supply and material costs forone year.2. Supply and material costs forproducing one UNIT of eachproduct/service.If you order enough supplies and materialsin bulk for a year, you may be able to savemoney. How could you handle storage? Wouldthe saving be worth putting out that much moneyat one time, at this stage?Operating Expenses – Non-labourOperating expenses excluding the cost of labourare called overhead or fixed expenses becausethese things usually must be paid regardless ofsales. These standard business operatingexpenses are:• Rent• Utilities – telephone, power, services• Car or other vehicle• Transportation• Supplies (office)• Maintenance agreements (photocopier, vehicle)• Advertising and promotion• Legal/accounting• Insurance• Interest and bank charges• Depreciation (decline in value of assetsbecause of use)• Managerial salary• OtherAdapt the list of standard costs to your situation,and prepare a table of operating expenses – nonlabour,by estimating these costs for each monthof the year of operation being forecast.Forecasts about costs of production – non-labour– will give these figures:• Total sales of each product and costs(supplies/materials and overhead) for the yearof operation.• Monthly totals throughout that year (totalsales, monthly costs of supplies/materials andoverhead).• Product/service totals for each month and forthe year (total sales of each product or service,supplies/materials and overhead costs).Operating Expenses – LabourSalaries are a main labour cost, but relatedoperating expenses must be calculated too, suchas benefits and taxes. By job title, list all theemployees or staff needed to produce the salesvolume you have forecast for Year One. Enter thetotal salary or wage for each employee for eachmonth. Adding these gives you total operatingexpenses – labour for each month. Addingfigures for each month will yield a total for theyear.The three types of payroll taxes are CanadaPension Plan, Employment Insurance, andWorker’s Compensation Insurance. Informationabout these is available from related Governmentof Canada offices. Benefits can includemedical/dental, insurance, vacation pay ( four percent of salary for part-time workers). Monthly80solutions for small business home-based business

costs of all such benefits appear in this financialprojection. Amounts paid once a year can bedivided by 12 and costs spread equally over eachmonth.The table of figures you will have at the end ofthese calculations gives total monthly labourcosts, and one total cost for all labour for theyear.List Your Capital EquipmentCapital equipment in a business means all assetswith useful lives of longer than one year – suchas machines, equipment, vehicles, furniture andcomputers.Capital equipment, as assets in your business, hasvalue that Canada Customs and Revenue Agencyrecognizes will decrease with use. This loss invalue on capital equipment is called depreciation(the equipment is said to depreciate or losevalue). To work out depreciation on capitalequipment, take the original cost of equipmentand divide it by the useful life in months. Forexample, a machine costing $18,000 has a usefullife of five years (60 months). Therefore, themachine’s monthly depreciation is$18,000/60 = $300. This figure is called adepreciation allowance on capital equipment.Contact your nearest office of Canada Customsand Revenue Agency to get current informationon allowable depreciation amounts for differenttypes of assets.The capital equipment section of your financialplan should have:• A list of all capital equipment required to startthe business.• Estimated costs for each piece of equipment,new and used (as you do your research,compare your estimated costs with actualcosts).• Sources of equipment.• The useful life (in months) of each piece ofequipment.• Monthly depreciation (cost divided by usefullife in months) of each item.• Total capital equipment costs and totaldepreciation on equipment.Determine Your Start-up ExpensesExpenses and costs are the same thing. All costsrelated to getting the business to the point whereyou have something to sell are summarized aspart of start-up expenses.These start-up costs are figured separately fromoperating costs, which take over oncethe business opens its doors.Many new businesses underestimate the amountof capital needed to operate and overestimatesales in the first months. An important piece ofadvice is to extend the start-up period to cover upto the sixth month of operation. Sales may beslow after start-up. Be realistic about the point atwhich the business can reasonably be expected togenerate significant sales.Start-up costs include:• Equipment and furniture, also called fixedassets (capital equipment).• Supplies and materials (Note: this is only forstart-up – to get your doors open – not for thewhole first year of operation).• Inventory – stock or product ready to sell onthe first day of business• Fees associated with setting up the business –including professional fees (such as legal andaccounting), charges for producing thebusiness plan (such as desktop publishing andprinting), and costs of securing financing.solutions for small business home-based business 81

• Research costs.• Licenses and permits, such as businesslicense• Deposits for public utilities and telephone.• Any renovations (leasehold improvements).• Marketing plan costs, including advertising,promotion, publicity, and communications –especially for grand opening and specialopening promotions.• Memberships and subscriptions.• Labour costs for any employee or staffmember.• Operating money – enough to carry you andyour business for as long as it takes to reach abreak-even point. Be realistic about yourbreak-even point – and consider a longer startupperiod (up to six months) before you expectsignificant operating revenue from thebusiness.• Contingency money – a cushion for the thingsyou overlooked or can’t predict.Prepare an Income StatementThe income statement is a way to figure outprofit or loss, before income tax, for each monthand for each year of operation. Projected incomestatements are usually done by month for the firstyear of operation, and by quarters (three monthblocks) for Years Two and Three.Costs of production + Operating expenses +Depreciation = Total operating expensesTo forecast business income, you need theseprojections, covered above, for each month:sales, costs of production, operating expenses(labour and non-labour/overhead), depreciationon capital equipment. (Each of these wasdiscussed above).Sales – Cost of Production = Gross marginFor complete financial projections, you will alsoneed to work out a figure called gross margin.Gross margin is the cost of production subtractedfrom sales.Gross margin – Total operating expenses =Net profit (net loss) before taxesTo find net profit or net loss (before incometaxes) for each month, subtract total operatingexpenses from Gross Margin.See Appendix J for example of an IncomeStatement.Project Your Cash FlowA cash flow forecast or projection shows howmoney will come in and go out each month overa period of time, typically a year. Cash flow isthe lifeblood of a business. Money coming in isshown as revenue, money going out as expenses.The two together show how cash flows throughthe business. Expenses and revenue are listedfully in the month they are expected to occur. Acash flow forecast shows when the business mayhave money going out but none coming in, so itis an important management tool. You can use itto monitor actual expenses against plannedexpenses. You also use it to anticipate and budgetfor coming expenses. Just as with sales forecasts,cash flow forecasts are usually done for Years2 and 3 by quarters.Cash coming in is called cash receipts. Cashgoing out is cash disbursements. For cash flow,these are estimated and monitored on a monthlybasis. If cash receipts are greater than cashdisbursements, the business has a positive cash82solutions for small business home-based business

flow. If the flow goes the other way, with moremoney disbursed than received, the business has anegative cash flow. Negative cash flows areshown in brackets like this ($2,315). Cash flowprojections total the value of ALL cash receiptsand ALL cash disbursements for each month in a12-month period.Cash ReceiptsMoney In: cash sales, accounts receivable, loansoutstanding, petty cash. For the cash flowstatement, you need TOTAL CASH RECEIPTS.Cash DisbursementsMoney Out: purchases, salaries, payrolltaxes/benefits, rent, utilities, capital equipmentpurchases, accounts payable, loan payments(interest/principal), owner’s withdrawals ordividends. For cash flow statements, you needTOTAL CASH DISBURSEMENTS.Total Cash Receipts – Total CashDisbursements = Cash BalanceFor the cash flow statement you can drop and adddifferent categories of cash receipts anddisbursements so the format fits your business.To prepare cash flow projections for the first yearof operation, consider how much the business isprobably going to spend in each category, andpencil it in. A cash flow statement for a year is atable with a column for each month and a row foreach cash category, in and out. (See Appendix Kfor a sample Cash Flow Statement). Pencil isrecommended because using cash flow statementsto manage involves comparing these estimateswith actual cash flow.Actual cash flow statements ( not a cash flowprojection, but a record of actual businessfinances) are prepared at the end of each monthof operation. The figure to begin with in anactual cash flow statement is the “beginning cashbalance” – the amount the business starts with atthe beginning of the year being projected. Amonthly beginning cash balance is the startingpoint for each month’s cash flow figures. Afterthe first month, this figure is brought forwardfrom the previous month as the Cash Balance.While the arithmetic is not difficult, you can seewhy getting organized from the beginning is soimportant in a business.To use cash flow projections and statementsto manage finances, compare the first month’sestimates with actual cash flow. Adjustsubsequent months according to what yourcomparison shows. Here’s where you will beglad you used pencil to record estimates. Keepcopies of the original projections, so you have anaccessible record of cash flow estimatesand statements. If you tend to overestimate orunderestimate certain figures (or suffer a cashcrunch at the same time each year), these patternswill be evident in comparisons over several yearsof financial projections with actual statements,particularly for cash flow.solutions for small business home-based business 83

Common mistakesAvoid these typical problems by seeking helpfrom others including your professionals.• Waiting too long to start planning and soneeding money in a hurry.• Under-estimating how much money will reallybe needed.• Failing to assess the weaknesses of thebusiness and include these in the business plan.• Over-estimating sales and cash-flowprojections beyond industry standards.• Padding business plans with words and chartsto make up for lack of financial calculations.• Failing to research the lender and so presentingproposal to the wrong person.• Sending the plan too quickly to all potentiallenders rather than tailoring it to one andlearning from the feedback.• Negotiating only interest rates and fees insteadof all aspects of the loan including terms ofrepayment, prepayment, covenants, and otherconditions.• Failing to maintain regular communicationwith lender and not providing updates orprogress reports.Source: KPMG’s Financing for the GrowingBusiness.Access this at strategis.ic.ca/Prepare a Balance SheetThe balance sheet shows the balance betweenbusiness assets and liabilities, plus yourbusiness’s net worth – what you have invested. Abank requires a balance sheet to evaluate whatthe business owns, outstanding loans and thecapital you have invested in the business. Thebalance sheet consists of a list of your assets atyour cost, your liabilities or debts, and yourequity or ownership in the assets. It is a snapshotof your business frozen at a point in time – that’sone of the reasons that the date is usuallyincluded in the heading on a balance sheet. SeeAppendix L for a sample Balance Sheet.The Balance Sheet is organized as follows:ASSETS: Things of value that you or thebusiness own• Current assets: these include cash, inventory,prepaid expenses, and accounts receivable –money the business has or is owed• Fixed assets: items with a useful life over oneyear. In accounting terms, these areinvestments, not expenses, which is why theyappear in the balance sheet and not the incomestatement. The fixed assets category on thebalance sheet also includes the depreciationallowance, worked out as part of a capitalequipment deduction.LIABILITIES: Debts – money the business owes• Current liabilities: financial obligations youmust meet in a year, such as federal andprovincial taxes owed, accounts payable oroutstanding unpaid bills• Long-term liabilities: mortgages, bank loans,equipment leases – any liability for whichpayment continues longer than a year.84solutions for small business home-based business

NET WORTH: The balancing mechanismbetween assets and liabilities – hence the namebalance sheet;• Net worth is your equity, money you haveinvested in the business.Assets – Liabilities = Net WorthList Your Sources and Uses ofFinancingThe Statement of Sources and Uses of Financinghas a place in business startup and in expansion.It is often included in a written business planbecause it is such an important piece ofinformation about the business. It can bepresented on one page, with sources of financingat the top and uses of financing summarized atthe bottom.Sources of FinancingThis part should include:• A list of all owners, investors andshareholders. Beside each, give the total valueof equity, broken down into two other figures,cash contribution and non-liquid assetcontribution. Non-liquid assets means assetsthat cannot easily be turned into cash, such ascapital equipment.• A List of all lenders from which the businesshas or hopes to arrange financing. Namelenders, amount of financing, and paymentperiods for short-term and long-term loansfrom banks (business loans and personal loans)and government program loans.Uses of FinancingList the uses of financing with amounts andtotals. These could include:• Land• Buildings and facilities• Equipment and machinery• Re-modelling and renovations• Initial inventory• Working capital (for operating expenses)• Non-liquid assets contributed by owners(Note: The total amount in Uses of Financingshould be the same as the total for Sources ofFinancing.)This chapter on business finances has introducedyou to a number of terms and ideas, many ofwhich you could be learning about for the firsttime. As a new business person, take the timeyou need to become familiar with these.Concentrate on the things that are important nowat the current stage of your businessdevelopment. You can check back for otherfinancial information when you need it.In addition, the supporting materials at the end ofthis manual include examples of the mostcommon financial forecasts – Income Statement,Cash Flow Projection, and Balance Sheet –required in a business plan.Then add these two categories together toproduce totals.solutions for small business home-based business 85

6Can You Manage theBusiness?Suburbia StudiosBy Marianne ScottThe kitchen table is an integral part of SuburbiaStudios in Tovey Bay on the outskirts of Victoria.About $1.5 million per year is billed from thattable by owners Mary-Lynn and Russ WillmsThe kitchen table wasn’t always part of the officefurniture. Russ quit his position as a busy artdirector so he could play Mr. Mom and take careof their two youngsters. Mary-Lynn joined himsix months later, leaving a high-powered accountmanager job when her mother was diagnosedwith cancer. “Family values are a big part of ourdecision-making and we wanted more time,”explains Mary-Lynn.Since then Suburbia Studios has grown into anadvertising studio that develops print materials,illustration, Web sites and multimedia software.The firm has won more than 300 designexcellence awards, yet remains “faraway fromthe high-pressure corporate world,” explainsRuss. When their two sons come home fromschool, the parents take time off and finish worklater at night when the kids are asleep.Those values match their corporate image. “Wehave soft hearts, broad smiles and bigshoulders,” says their brochure. Mary-Lynnexplains, “We treat a client’s budget asinvestment money. We involve clients closely andreally work to capture what they’re trying to do.Take going on-line. We ask ask our clientswhether a Web site will be truly useful or justtrendy. How will being on the Web help? A site’ssuccess is due to advance planning and comingup with a strategy. It must meet marketingobjectives and not just ‘be there.’ Bad sites domore harm than good.”Suburbia Studios itself is an advanced operation.Five to seven people work out of the house whileothers are linked electronically. Additionalphotographers, other illustrators, writers,software specialists and translators work oncontract or project partnership.Ironically, success may force the company toleave the home for a larger location. “Every fewmonths we revisit that question,” sighs Mary-Lynn, looking wistfully out at the ocean from herkitchen window.Managing is more than just coping. It also meansmore than just keeping the business runningalong smoothly. Not everything is predictable.Unexpected changes happen often. The bestplans are unable to anticipate the future. That’swhere a manager comes in. In this final chapter,we’ll examine some of the key challenges ofmanaging a home-based business.Pace YourselfLet’s start by looking at the first person in ahome-based business – that’s you! How you onhow successful your business becomes. Duringthe start- up phase of a business, you can expectto be busy – even frantic. How you pace yourday to avoid burn-out will be important.86solutions for small business home-based business

Personal StylePersonal style is the name given to the generalway that a person approaches the world –especially tasks, people, and information. Certainpersonal styles make managing seem easy, andothers make it seem impossible. Fortunately,management skills can be learned andstrengthened, usually most effectively from anhonest assessment of strengths and weaknesses.Refer back to the work you did in Chapter 2.Consider what you’ve learned so far throughbusiness research or through experience.Consider the following tips to assess your presentmanagement capacity. Make adjustments asneeded to the management training plandeveloped as part of Chapter 4 .Time ManagementThe way you manage yourself and your businessin relation to the time available may make thedifference between you and the competition. Thisis particularly true in a home-based businessbecause at home, there are always so many othercompeting things to be done. Learning to managetime is continuous, ongoing and difficult work.But the rewards can be great – reduced stress andpressure, increased productivity, a sense ofsecurity and accomplishment, and realmanagement.Learning to treat time as a resource may meanmore delegation. For example, a businessowner’s time spent on clerical details may not betime well spent. Sub-contract out low profit jobs– book-keeping, cleaning the store, organizingthe files, producing an item, making the salescall, delivering the merchandise – so you canmanage other important tasks.Most people have a confused, sometimesinaccurate idea of how they spend time. Withouta good sense of where you’re misusing time,other attempts to manage it better won’t come tomuch. Keep a time log for long enough to have arepresentative slice of your business life, perhapsa week. This is tedious but useful. Figure outhow much time you spend in different activities,using a ratio (time spent doing something to totalhours), percentages, a pie chart, or some otherway. Decide whether you’re spending your timein the way you want to. If you are, keep it up. Ifyou’re not, decide on an ideal time plan whichoutlines how you’d like to budget or portion timedifferently.Time management strategiesThe following ten time-management strategiesmay help you:1. Practice setting priorities and working tothem on a daily and a weekly basis.A. MUST BE DONEB. Should be doneC. Could be done2. Pick one place where you procrastinate andwork at changing that. For example, if youput off starting work each morning, set aschedule with a certain starting time andwork at following it.3. Give yourself deadlines and work at keepingto them.4. Try to develop the habit of handling thingsonce. If something is a priority, deal with it.5. Try to do the difficult parts of a job first, orthe things you’re afraid will be difficult. Getthe big jobs or unfamiliar tasks out of theway.solutions for small business home-based business 87

6. Divide your work into blocks that you CANfinish in the time you have available. Pieceworkmay fit best into certain schedules.7. Don’t be paralyzed by your desire forexcellence or for “the right way” to come toyou. Right ways to manage time comethrough practice.8. Set up a new routine that clearly contrastswith the one you’re trying to break. Don’tmake exceptions until the new habits areestablished. Taking a break, on schedule,without exception, may be the key to changeand a more balanced life.9. Learn to say “no”. Don’t waste time feelingguilty or anxious about what you can’t do.10. Efficiency is doing the job right;effectiveness is doing the right job. Don’tbecome rigid in your approach to timemanagement. A little flexibility will keepyou open to opportunities.A major opportunity in a home base is also amajor risk – drawing on the energy and time ofother people in the household to get the businessestablished carries the risk of undervaluing them,or taking contributions for granted. This canresult in resentment against the business. Whenyou’re working at home, you’re not available forlife tasks. When you’re taking care of a homeand family responsibilities, you’re not available,without previous planning, for work in thebusiness. The stress works both ways. This is oneof the reasons that – even for family memberswho volunteer their time – good work schedulesand clearly laid-out tasks are so important indelegating work.LenderTwo important suggestions in this guidebook areto develop a good working relationship with yourbanker or lender and to keep backers informedabout good and bad business developments.Build RelationshipsThe relationships that connect you to your lender,suppliers, clients or customers, service providers,bookkeeper and other professionals are thelifeblood of your business. Certain relationshipshave particularly important effects on homebasedbusiness success.FamilyFinding and keeping a balance between work andhome life can be difficult in a home-basedbusiness. Chapter One covered the importance ofthinking about this before start-up. It’s just asimportant to keep the potential effects in mind asyour business gets established.SuppliersA solid relationship with suppliers can be builtover time, especially if you live up to your end ofagreements and pay on time. Don’t expect moreof suppliers in terms of credit or special pricesthan they can give. Everyone in business isjuggling different demands and pressures.CustomersEven if you never see them, your relationshipwith people who buy your product or service is,in the end, the most important one for you andyour business. High quality products or servicesprovided at a fair price are the foundation for thebest business relationship.88solutions for small business home-based business

Keys to managing these relationships includedelegating responsibly and giving credit so thathelpers/family/workers feel recognized andworthwhile.Manage Your FinancesSeek additional CapitalAt different times and for different reasons, manybusinesses need to find an infusion of workingcapital – due to a boom, a rush of orders, anexpansion, a move to another business location,or to tide the business over a period ofunexpectedly low sales.Sources for start-up capital may also be sourcesof operating capital – friends, family, and lendinginstitutions. Because an established business hasa track record and tangible or real assets, it canbe easier to borrow money for operating than forstart-up. Other possible sources for operatingcapital:• Have customers leave a deposit when theyplace an order.• Stagger product deliveries to match sales sothe business isn’t stuck with a large inventory.• Take goods on consignment, which means youdon’t pay until an item sells.• Obtain supplier credit.• Take the full time allowed to pay your bills –in a cash flow crunch, the hope is you willhave turned your inventory (sold the products)when your suppliers’ bills come due.• Consider sharing the work with a partner.• Ask friends to invest in your business.• Merge with another company.• Seek venture capital.Reduce Your Taxable IncomeAccording to the Canadian Income Tax Act, allmoney you spend “...for the purpose of gainingor producing income” can be deducted from yourbusiness and full-time employment income. Ifyou work out of your home, you can deduct aportion of your telephone and rent, as well as aportion of lease or mortgage expenses. Checkwith your accountant. A reasonable portion ofvehicle expenses, office equipment, furniture andsuppliers, business stationery, and relevant bookscan also be deducted. If you already own these,you can transfer them to your business at “fairmarket value” and still use the tax deduction.Depreciation rates on equipment are set byCanada Customs and Revenue Agency (CCRA)as part of taxation laws. These rates are differentfor different categories of equipment.Some possible ways to reduce your taxableincome from a home-based business:• Write off all business-related books,magazines, manuals, journals and newslettersyou have bought over the years that have beenused by you to make money in your business.Make a list of titles and value, and sell thereferences to the business. This lets you showthe resources as a business asset to be writtenoff 100 per cent when you show a profit. Talkto your book-keeper about this option, whichmay involve claiming the value as personalincome.• Sell overdue accounts to a collection agency.solutions for small business home-based business 89

• Claim as deductions from taxable income theexpenses of the physical space you use. Claimeither the square footage used by the businessas a portion of your house’s square footage, orany room entirely given to your business in aratio with all the rooms in the house.• Claim pay phone and parking meters. Use yourdaily calendar or appointment book to recordsuch expenses for which you have no receipts.Transfer this record chronologically onto yourmonthly petty cash sheet, marking which arepaid by cash and especially noting cashexpenses that have no receipt. Without thathabit, small amounts of cash spent willcontinually dribble through your fingerswithout being recorded as business expenses.The ones paid by cheque will show up as abusiness expense in your cheque book.• Organize receipts in envelopes, then transferamounts to financial records. If you losereceipts, legitimate business expenses can stillbe deducted. Note the event and expense inyour appointment book and include with otherreceipts a brief explanation of any expensesclaimed but not supported by receipts.• Apply for a gasoline excise tax rebate,available for automobile use for business. Thepost office has application forms.• Identify and keep a running list of all businessassets and their costs; make sure you deductdepreciation allowance – called capital costallowance deductions in tax calculations.• Sub-contract instead of hiring employees, atleast initially. The benefits include lessadministration and paperwork and greaterflexibility to deal with changing workdemands. Once the business is established, itmakes sense to hire.Business NumberYou receive a Business Number (BN) when youopen up one or more of Canada Customs andRevenue Agency’s four main business accounts:These are:• Goods and Services Tax• Payroll deductions• Corporate income tax• Import/exportThe BN is a numbering system that identifies youand the various accounts you maintain.Registration kits can be obtained from BusinessWindows, located in many Canada Customs andRevenue Agency offices in BC.Handle the Goods and Services Tax (GST)Every business that has revenue of $30,000 ormore in any 12 month period must registerfor and from that point on collect the seven percent GST on their sales. In addition theymust file a GST return reporting the GSTcollected on their sales and the GST paid on theirpurchases. However, if you do not have revenueof more than $30,000 in any 12 month period,you are considered a “small trader”, and it isoptional to register for the GST. This means thatsmall traders who are not registered for the GSTdo not charge GST. If a small trader reaches the$30,000 limit within a 12 month period, they arerequired to register for the GST.90solutions for small business home-based business

You may, however, choose to register even if youare a small trader. While the option of notregistering may look attractive, think carefullybefore choosing it. While not registering willsave you the time and cost of administering(collecting and remitting) GST, it also means thatthe 7% GST that you pay on all supplies andservices you purchase for your business cannotbe claimed back. As a small trader, you become,in effect, a consumer – not a business in thecontext of GST. In practical terms, this meansthat all the costs of a small trader (exceptsalaries, on which there is no GST) will risesignificantly under the system. The overall effecton your competitiveness will almost certainly benegative.Deciding whether to claim small trader status isfairly straightforward. You simply need tocalculate your taxable expenses for the year anddetermine whether the 7% you paid is “worth”the cost of registering and doing the paperworkof collecting and administering the GST. Youalso need to decide whether you can staycompetitive if your expenses are effectively 7%more than the next person’s.Monitor Customer CreditProviding financing arrangements for customerscan increase sales. In that way, credit is a salestool. However, managing credit requires settingup and keeping good records.Handling Accounts ReceivableOf particular importance is how you manageyour accounts receivable. As with other parts of acredit program, managing accounts receivablemeans learning to use records. Divide accountsreceivable into three categories; 30, 60 and 90days. A written letter will clean up most 30 and60 day overdues, while a telephone call canusually clear up 60 and 90 day overdues. Astandard recommendation for small businesses isto use a credit collection agency after 60 daysand before 90 days.In-House Credit ProgramIt’s common in any business to have to wait forpayment. Customers are billed or invoiced. Mostcredit programs charge interest after theallowable payment period.Financial plans have to consider the costs ofcarrying slow payments as well as bad debts.Payment delays occur for many reasons. Have acontingency or back-up plan in place for timeswhen payment takes months to arrive.Open Charge AccountCredit card companies survive on the percentageof card sales that businesses pay them. Thesepercentages run between three per cent and sixper cent, depending on volume and average sale.Businesses with small sales pay a higher rate.A credit card program has these advantages overan in-house program:• The business owner doesn’t have to run acredit check.• You get your money right away.• Risk is less.• You save the time needed to bill customers forcredit sales.• Most of the buying public have and use creditcards.solutions for small business home-based business 91

Respond to GrowthYou’ve got a great product or service. Yourbusiness is on a solid foundation. Your marketingprogram is starting to pay off with orders firsttrickling and then rolling in. For many newbusinesses, that wave of orders can comecrashing down if the owners are not prepared tohandle the volume of success.When you develop your marketing plan, berealistic about what you can handle. As yourbusiness gets established, regularly check back tosee if you were realistic or whether someadjustments need to be made in what you canproduce. Have back-up plans for the additionalfinancing, equipment, supplies and labour thebusiness needs to meet different levels ofproduction volume. Don’t promise what youcan’t deliver.When there’s more to do than you can handle, theoptions are often limited in reality. But the mostlikely ones to consider are:• Say “No”• Work harder• Delegate• Recruit volunteers• Hire help• Subcontract work to other people• Use the time you have more efficientlySay “No”A difficult aspect of handling unanticipatedvolume may be learning how to say “No”.Consultants in particular often face the dilemmaof being offered a contract or project of interestwhen they’re already overextended. Eachsituation is different. You may want to accept acontract or project that you know will bedemanding because of what it might lead to. Inother cases, the best thing may be to turn down atempting contract because your realisticassessment is that you wouldn’t be able tomaintain quality or produce on the schedulerequired.Work HarderWorking harder is the most typical response tohaving too much to do. What once was a regularday expands on both ends, eating into other waysyou’d hoped to spend your time. Working harderis not always working smarter. While it’sinevitable to some extent and should be expected,it isn’t necessarily a good business decision orpractice to maintain. Burnout is a very realcondition, not one you can rebound from easily.Working harder should be at the bottom, not thetop, of the list of options for handling too muchwork. In a home-based situation, this option hasan additional risk of serious imposition on yourfamily. Keep in mind your original reasons forgoing into business.DelegateThe alternative to working harder is whatbusiness writers call working smarter – learningto delegate, to assign and to subcontract as partof managing time and work. Delegating is one ofthe most difficult tasks for many owners andmanagers. Unfortunately, while you’re gettingyour home-based business established, youprobably won’t have the luxury that exists inmany work places of passing certain tasks on toothers, even if you were clear about what otherscould do. But you can delegate some of thefamily chores or household task to others,especially during times of crisis.92solutions for small business home-based business

Recruit VolunteersDrawing on the volunteer energy of family andfriends can make your home-based business achance to build something together. You can alsogive important skills to family members. Letthem know you appreciate them, and they maynot expect any other sort of return. Find out howother people in the household feel about workingwith you and what recognition or return theywant. Use what you know of the personal stylesof people in the household – including yourself –to assess how realistic their involvement is inthe business as a volunteer or as a paid staffperson. One possibility is to keep good track ofthe contributions that different people make toyour business. Use a section of the businessreference manual for this. When the business getson its feet, ensure that people who’ve helped youget a return.Hire staffHiring employees involves some legalrequirements and obligations, particularlyaround:• Health benefits, Workers’ Compensation,Unemployment Insurance and Canada PensionPlan.• Workplace standards and conditions.• Disability insurance.• Human rights.Zoning determines whether or not you are legallyallowed to have employees in your home-basedbusiness. Many municipalities restrict employeesin a home-based business. For example, anamendment to the Mission by-law controllinghome occupation use states:(Various residential zones) shall have a maximumof 2 employees per house occupation use and amaximum of 1 non-resident employee.Where the employees of a home occupation donot conduct their occupation on the subjectproperty, (they) shall have no restrictions on thenumber of employees.If hiring is an option, you may feel you need thecontinuity and stability, or the specialized skills,of employees. Becoming an employer involvesmany things. The process of hiring includes:• Developing a realistic job description withreasonable tasks• Finding good candidates, interviewing them,and making a decision about who to hire.Managing personnel once you have themrequires various directive, personality andcommunication skills, in addition to those youneed to run the business yourself. Hiring aspouse or family member has implicationsfor taxation. Talk with your bookkeeper oraccountant.Sub-ContractSub-contracting blocks of work or certain taskshas proven more realistic than hiring for manyhome-based business people. Generally, theperson with whom you sub-contract takesresponsibility for himself or herself. While it mayseem on an hourly-rate comparison that you paymore for sub-contracting than for hiring,comparing real and total costs of the two optionscan change that impression. If you do subcontract,a plan similar to the staffing planoutlined above but simpler will help you keeptrack of and assess the costs and benefits of subcontracting.You can check with the CanadaCustoms and Revenue Agency guide to assist indetermining if the person is self-employed or anemployee.solutions for small business home-based business 93

Seek Strategic AlliancesThe downsizing of many large corporations inthe past decade has shown that increasedprofitability can come from concentrating on thecore of one’s business and outsourcing all otherbusiness functions to companies that specialize inthese areas. Your home business also can use thistechnique to your advantage. You can grow byforming alliances with other companies. Ratherthan taking on new overhead, you take onstrategic partners. You grow the business but notits size. For many entrepreneurs wanting to avoidthe headaches and bureaucracy of managing alarger company, this can be an attractive growthstrategy.For example, a company that produces vacationproperty log houses might grow its market shareby finding lumber mills in different parts of thecontinent who would manufacture the logs intopre-assembly kits. Distribution of the kits couldbe contracted to a national trucking chain whosupply customers located by a direct salesmarketing company. As the lead company, youspecialize in the order fulfillment and customerservice by providing a 1-800 telephone line forpeople to call if they have trouble puttingtogether the kit. Instead of constructing a nationaldistribution system, you establish a networkof interrelated businesses, each performing aseparate function.Some different ways in which the network can beformed are:• PartnershipTwo or more companies enter into a legalagreement to bind their companies together oraspects of their operations together.They share the profits and losses of theirenterprise. Professional services, such asmedical clinics or legal offices, are typicalexamples of such group partnerships.• Joint VenturesRather than have a permanent relationship,companies can come together to work onspecific projects or ventures of a temporaryduration. A typical example is a constructionproject where the property developer,architectural firm, building contractorand others may enter a contract togetherto build a housing sub-division.• OutsourcingOne company enters into a contract withanother to supply it with a certain service for aset price or fee. The contract may have beenput out to tender first and then bids accepted.Security, janitorial, cafeteria, and accountingservices have typically been outsourced bybusinesses rather than provide these functionsin-house. The practice is spreading widely toinclude personnel services, managementconsulting, and marketing expertise.• Independent contractorsOngoing relationships to provide a service can becontracted with other companies which stillremain independent from you because they haveother clients. Typical examples are manufacturerslicensing local appliance repair companies toperform warranty work, or freight transportationhandled by independent owner operators, orbuilding trades sub-contracted to localjourneymen. Increasingly, many clerical,equipment maintenance, and professionalservices are being contracted in this way.94solutions for small business home-based business

• Strategic alliancesAnother name for a partnership or joint venture,this term is used to describe situations wherecompanies align their operations to achieve acommon goal. This can involve suppliers andproducers sharing the costs of research anddevelopment for a new product, or smallcompetitors banding together to form a strongerposition against another competitor. Examplesinclude airline companies utilizing each other’sground services at certain airports to avoidduplication and medical technology companiessharing the costs of research and testing.• Virtual companiesAdvances in computer and telecommunicationstechnology now allow a business to compete inworld markets yet operate from a remote base,including a home office, a vacation cottage or asailboat. For example, a coupon marketingcompany could operate from a Gulf Island homein B.C. but hire representatives in every majorCanadian city to contact restaurants, golf courses,cleaning services and other coupon users. Thecoupon books could be produced and distributedunder contract with other local agencies.Since the whole operation is outsourced, thisnationwide business appears to be much largerthan it really is. Maintaining contact with agentsvia fax, phone and e-mail, the company’s apparentlarge size is virtual rather than real.A new paradigm emerges“...in our view, teaming up with otherorganizations of various sizes will soonbecome the modus operandi for all business anew paradigm for success in an evolvingglobal marketplace. After all, our nature is toaffiliate with others...As millions leave behindthe social organizations we call corporationsand agencies, it’s only natural we turn to newways of joining with others.”Paul and Sarah Edwards and Rick Benzel.Teaming Up (1997)Due to the numerous ways in which alliances andpartnerships can be formed, this approach allowsfor considerable flexibility and creativity –qualities that will be needed in the ever-changingnew economy of the future. However, becausethe parties in network relationships rely heavilyon each other, there can be drawbacks and higherrisks. Yet the network strategy may be the onlyviable option for many small companies.Some things to evaluate when consideringthis approach:• Does a network already exist? – Clearly,you’ll need to be able to find suitablecompanies to network with. Some may comefrom business referrals, others may be found intrade publications or from manufacturer’sdirectories. Mature industries – such as foodand beverage preparation or toys and gamesmanufactures – that have many suppliers,producers and distributors are easier tonetwork with because the infrastructurealready exists and you simply need to findwilling partners. Emerging industries – such assoftware production or cellular phonetechnology are also ripe for networking.• Are the benefits of networking real? – Sinceowners may not have considered networkingas a growth strategy, you will probably have tosell people on the concept initially. They maynot immediately see the benefits, so you willsolutions for small business home-based business 95

need to be sure there really are advantages totaking on partners or contractors. Lettingothers know the inside workings of youroperation and letting them have a piece of theaction may simply be giving away trade secretsthat your partner could copy to theiradvantage. They may see your offer as asimilar threat to their independence.• Can a network be effectively structured? –Putting together strategic alliances involvesmuch up-front organization. It may becomemore time-consuming than simply going italone. You will probably need to employ theservices of several professionals, such aslawyers and consultants, to help brokerthe deal. You may even have to translate yourcommunications if dealing in foreigncountries. Just negotiating a mutuallybeneficial agreement is one thing. Ensuring itis enforceable is another.• Is there a common goal? – Enteringpartnerships, joint ventures and subcontractingrelationships is like gettingmarried: the new entity is the sum of thestrengths and weaknesses of each party. This isthe key advantage and the source of most risk.You now become inter-dependent.Respond to ChangeOne problem with managing a business instead ofrunning it (or letting it run you) is that much ofwhat is involved in good management isinvisible. It’s easier to work with tangible things,things you can get your hands on, or to talk withsomeone about daily operations, than it is to dothe dogged brain work of managing a business.Projections and ForecastsMuch of that brain work involves looking intothe future and trying to understand how it willaffect your business.The four key projections needed for regularbusiness management are:• All the costs of producing an item or providinga service and making the business conceptavailable in the market – supplies andmaterials, time/labour, and overhead.• Marketing and distribution costs – costs ofgetting it into the hands of customers.• The operating procedures and expenses – youshould always be looking to improveefficiency because this is one way to keepcosts low and be competitive• The money situation coming in and going outof the business, daily and on a cumulativebasis over weeks and months.These four areas translate into the four mainquestions that your business plan originally setout to answer:• Business Concept: What are you selling?• Marketing: How will you get it to buyers?• Operations: How will you run your business?• Finances: Will you make money?96solutions for small business home-based business

Future-gazing can never be accurate but you willget better at predicting costs, trends and marketdemand as your business experience grows.Business records give a running record ofestimates and reality. The adjustments neededbetween the two will lessen with time andexperience. Factors not anticipated can be addedto plans, steadily reducing risk and unpleasantsurprises.Keeping track of costs is one of the first essentialsteps in the process of controlling costs. Theseare business management skills that continue tobe important throughout the life of the business.Environmental ImpactUntil recently, few Canadians knew much aboutthe impact of their business operations on thenatural environment. Now, over 90 per cent ofthe population identifies it as a top priority issue.The environment is no longer something that newsmall home-based businesses can afford toignore.Start thinking about the environmental impact ofyour business early. If production processes havehazardous by-products, by-laws may prevent youfrom establishing a business home base, even ifyour conscience doesn’t. Legal, environmentallysafe disposal of any such product is a businesscost that will likely rise with pressures forenvironmental regulations as awareness ofhazardous materials grows. Liability forenvironmental clean-up will be a parallelbusiness concern.Marketing analysts predict a “green” boom inmarketing in the years to come, including use ofthe “environmentally friendly” aspects ofproducts to promote sales. Studies of “babyboomers”,those influential consumers bornbetween 1940 and 1960, show that thisdemographic group is environmentally aware andplaces value on the environment. These trendssupport the need for any new business managerto be equally aware and to consider theenvironmental attitudes of target markets.An obvious example is for your business toestablish a recycling policy for paper and otherwaste which you produce in the office orworkshop. Contact your municipality forinformation on current recycling programs andincentives in your area.Business Cycles and Economic TrendsBusiness cycles in our economy often follow apredictable pattern. Understanding and workingwith those business cycles can prevent you frommaking costly mistakes. If you ignore or don’tunderstand how business cycles affect the overalleconomy, you may make the right businessdecision, but at the wrong time. For example, abusiness producing custom-made windows won’twant to expand when housing starts are downand construction is slow.The particular form that these business cyclestake in your trading area and industry can bebetter understood by talking with local peopleand industry contacts, and by steadily adding toyour knowledge of current business affairs.British Columbians are having to adjust quickly tointernational realities. A home-based businessoperation, no matter how small, is part of widereconomic relationships which are changing andreforming quickly. No new business can avoidbeing influenced, or can afford to ignore theinternational economic picture.solutions for small business home-based business 97

Just two examples illustrate the kinds ofdevelopments that new business people will wantto be informed about: revisions to tradeagreements among the United States, Canada andMexico; and the impact of the decisionsnegotiated among member states of the WorldTrade Organization. Decisions made at theselevels might not seem like they have an effect onhome-based business, but they do. The globaleconomic picture may not seem relevant to mostnew home-based businesses, but it is. Suchevents influence many things that in turninfluence you – interest rates, to name just one.Researching the ‘world’ of business at that globallevel may be a lower priority for most homebasedbusiness start-ups than more immediatequestions of business planning. However, oncethe business is established, you should spendsome management time on current economicaffairs.Explore Global MarketsGlobal economic trends is also important formany home-based businesses because futuregrowth may depend on an export market. Forspecialized products and services, a Canadianmarket may just be too small. Export sales, ofservices as well as products, are expected tocontinue their increase in importance to Canadianbusinesses, including small and home-basedoperations.Exploring international markets is particularlyuseful for home-based businesses which sellproducts and services for which there is only asmall local market. The world is a big place.Reaching beyond your own backyard can behighly profitable if you can handle successfullythe corresponding increase in production.Consider these ways of achieving increasedmarket penetration:Home business owners can be reluctant to seekout export markets and international buyers. Thisis understandable: foreign languages, culturaldifferences, tariff barriers, slow communications,and other hindrances created real and perceptualhindrances to international trade. But in the lastdecade, the proliferation of English, theemergence of cheap telecommunicationstechnology and the spread of free trade practiceshave opened overseas markets to small business.Some ways to take advantage of this are:• Register with a database A variety ofCanadian and overseas databases now listcompanies that are looking for new markets orwhich are seeking suppliers for foreignmarkets. The World Information Network forExports (WINS) is one example.• Use expert assistance All large cities inCanada have International Trade Centresfunded by the federal government. Some citieseven have embassy branches with tradeofficers. Similarly, a wide range of training,counselling and mentoring programs areavailable to provide help.• Attend tradeshows International trade showsare held periodically both in Canada andabroad. These present current information,expose you to any competition, and offer costeffectivenetworking opportunities.• Seek financial aid Both federal and provincialgovernments offer business loan programs orother forms of funding mechanisms to assistbusinesses to enter the export market.• Take a course Several excellent andinexpensive training programs are offered fornew exporters to learn the ropes, gain adviceand avoid pitfalls. Some are available inperson,others on-line or via software disc.98solutions for small business home-based business

Where to find help with exportingWIN ExportsA computerized database of Canadian exporters.Registering your company opens doors to foreignmarkets and online bulletin board. Contactnearest ITC office for registration form.Export Development Corporation (EDC)A variety of financial and risk managementservices to help Canadians competeinternationally. 604-664-5828http://www.northstar.caTake a World View...Export Your ServicesInteractive software to develop your own exportplan for services industries. 819-956-4800Market Intelligence Service (MIS)An information request service to assistbusinesses access importing and exporting dataand reports. 1-800-328-6189New Export to Border States (NEBS)A brief inexpensive training course showingCanadian companies how to begin selling in theUSA. Includes tours and networking. Contactlocal ITC.New Exporters Training and CounsellingProgram (NEXPRO) A mentoring program tohelp businesses develop export potential. Contactnearest BDBC office.Exporter’s Guide A publication that outlinesoptions for financial transactions abroad.1-800-267-8376Program of Export Market Development(PEMD)A variety of financial assistance vehiclesfor small export-ready companies to aidexpansion. 1-800- 267-8376.Automated Customs Information ServiceRecorded 24-hour messages on regulations andother topics. Personal help available duringbusiness hours. 1-800-461-9999Alliance of Manufacturers andExportersCanada Non-partisan organization promotingworld trade. 416-798-8000Expand E-Commerce CapabilityWhile technology has already become a crucialpart of the operation of most small businesses,it’s significance can only increase in comingyears. Every home-based business ownernot only needs to use the new technologiesefficiently, but also to develop ways to usetechnology effectively to develop the company’spotential as an e-commerce enterprise. You don’tneed to be a technical wizard. This is simplyanother aspect of developing winning strategiesfor business success.“In the 21st century, the Internet is going to beas important a business tool as the cash registerand the telephone have been during the 20thcentury.”Task Force on Electronic Commerce,Industry CanadaYet e-commerce is a double-edged sword formost small business owners. It can accelerategrowth by speeding up the processes ofconducting business, but at the same time itmultiplies the difficulties of managing thatgrowth effectively to avoid becoming overextended.Without the deep pockets of largercorporations, small business cannot afford toexperiment with technology. This means theysolutions for small business home-based business 99

need to be clear on the advantages anddisadvantages for their business of implementingtechnological change.AdvantagesE-commerce offers several benefits for the smallbusiness owner. These may each appear to beobvious at first, but when taken together theircollective power is considerable:• Improve response time – Informationtechnologies have revolutionized our ability tosend messages quickly. Customers can placeorders and have them fulfilled far faster usingnew technologies than they could only adecade ago. Business correspondence can besent and received and acted upon in the sameday. Credit card enquiries are now approvedinstantly. The Internet can transmit a 42 pagedocument, for example, from Toronto to Tokyoin two minutes – that’s 720 times faster thanovernight delivery by courier.• Overcome geographic distances – The worldhas shrunk as new technological advancesbounce signals around the globe. Customerscan shop without leaving their living room.Salespeople can remit and receive informationremotely. Information can be accessed fromlibraries and databases anywhere withouttravel to the physical location where it isstored. New markets can be penetrated orserved without needing a branch office in theregion.• Reduce operating costs – Convertingprocesses into electronic formats has sliced thecost of doing business for many firms. Usingcellular phones, word processing software andelectronic DayTimers have reduced the needfor secretarial staff, for instance, while just-intimeinventory handling and automatic orderprocessing have reduced distribution costs andother overheads. The cost of communicationhas fallen dramatically as well. Transmitting a42 page document from Toronto to Tokyo viae-mail costs about $0.095 compared to $26.25by overnight courier.• Restructure relationships – The ease ofaccess to the benefits of technology allowcompanies to re-invent their connections tosuppliers, customers and even competitors.New strategic alliances become possible andold dependencies are reduced. For instance,companies can shop the world electronicallyfor suppliers rather than be limited to localproviders. Small companies can combineexpertise to handle larger and more complexorders together, liaising with each other byelectronic means.DisadvantagesAs the pace of technological change growsand more business applications are found,the consequences of becoming caught in awhirlwind of trouble become more serious.Investing in e-commerce seems inherently risky,perhaps even a gamble.• Rapidly changing – Only ten years ago thefax machine was a marvel which introducedthe electronic transmission of pictures. Today,fax machines collect dust in the wake of ourability via e-mail attachments to deliver digitalimages that the receiver can download andmanipulate. The same transformation isoccurring with ordering processing anddatabase management technologies as well as100solutions for small business home-based business

production machinery and transportationequipment. Leading edge has become bleedingedge, and electronic standards or technologicalapplications can change overnight.• Expensive to implement – Introducing thelatest technology almost always incursconsiderable capital outlay to purchase thehardware and software. Depreciation of mostnew technologies occurs rapidly and money tobuy replacement equipment must be budgeted.The time needed to learn new applications andto train employees to use new equipmentefficiently can also be considerable. Whileoperating costs do fall over time, the initialinvestment is often expensive, especially ifdebt financed.• Complex to manage – The interface betweendifferent technologies is frequentlyproblematic with incompatible protocols,wiring, and operating capabilities. Headachesare common experiences when ensuring thatequipment will perform as expected as well ashaving contingencies for times when it doesn’t.Staying abreast of the latest technologicaladvances and system upgrades is also timeconsuming.Seven ways to leverage technologyTime was when technological improvement wasso costly it only favoured big business. Timeshave changed big time. Like other smartentrepreneurs, you can capitalize on this trend.1. Make a corporate video, either to woo afinancier or to wow a client. Video editingvia a PC costs less than $5,000. Cost todistribute on CD-ROM is $1 to $2.Hollywood here you come!2. Install your own online ordering system viaa website using tools from IBM and others.Customers place orders using credit-cards.You have your very own EDI for peanuts.3. Check out mail-merge on yourwordprocessing program and use it to createmail-outs to prospective customers.. Eventhe envelopes can be customized!4. Install a contract-manager software programon your PC and begin building your owndatabase of contacts. Use this to generatenew sales and leads. Hooking to your phoneline allows you to autodial out.5. Search for prospects for free using theCanada 411 database provided bySympatico. This gives no-charge access toover 10 million Canadian home and businessphone numbers (excludes Alberta andSaskatchewan) At http://www.canada411.sympatico.ca/6. Get a multi-functional office copier – Theall-in-one office machine now combines fax,scanner, copier and printer in one box. Allfor $500-$1000 when each one boughtseparately would cost 3-4 times that amount.7. Install a voice-recognition software programand get hands-free word-processing. Thedictaphone is dead but you may still need asecretary to open the snail mail!Adapted from: Jim Carroll and Rick Broadhead.Small Business Online: A Strategic Guide forCanadian Entrepreneurssolutions for small business home-based business 101

Success factors for E-CommerceIf you are ready to venture onto the InformationHighway, enhance your chances of survivingwhen you go digital by learning from IBM’sconsultants. Here’s their wisdom gained fromhelping create over 18,000 e-commerceoperations in the past few years.For more information, go to: www-ibm.com/software/info/soul/it/guide.htmlSeek technical expertiseE-commerce is as much about business vision astechnology. The most successful e-businesses arepartnerships between business owners andinformation technology experts. Companies thatmake e-business central to their business domuch better in the long run than those that makeit an afterthought or treat it as a peripheral.Link to your strategic planFor most organizations, the key to a successful e-business transition is making their e-businesspriorities the same as their other businesspriorities. This makes e-business an investmentinstead of a bet.Move swiftly and deliberatelyWhen you move to e-business, it pays to movequickly and completely. In many industries,business cycles already reflect e-businessefficiencies and speed. Waiting for Internettechnology to “mature” will probably meanceding advantages to bolder competitors.Fully integrate the technologyIt pays to integrate e-business with your coreoperations from the start. This approachleverages business-proven systems you alreadyhave, saves you from doing dumb things likeselling products that aren’t available at prices thathave changed; and ensures that customer serviceand accounting are consistent across all saleschannels.Ensure systems are dependableScalability, availability, and security are notoptional. Extending business-critical applicationsto the Web doesn’t make them any less critical.In a system that is only available 95 per cent ofthe time, five per cent of sales transactions arelost.Satisfy customer needsCustomer knowledge is everything on the Web.The company that knows its customers best anduses what it knows to serve them better has ahuge advantage in this one-to-one environmentwhere competitors are only a click away.Focus on the big pictureThe key to transforming any major process is toidentify all of the sub-processes that are a part ofit. This sounds obvious until you consider thatmost business processes span multiple operatingenvironments and customers. It pays to focus onthe whole – rather than on the systems designedto serve just pieces of the business.Allow for future expansionPlan to overbuild for traffic you don’t expect toget initially. Triple-digit growth is the norm in e-business, and unpredictable 1,000 per centdemand spikes are common. Early overcapacityis less expensive than starting again if your sitecrashes and customers move on.Build in compatibilityA vital component of e-business is a way tomanage the performance of all your systems,networks, and applications – as a singleenterprise.102solutions for small business home-based business

Plan for changeAn “ideal solution” that uses technology that isspecialized to your business may not be as reliablein an e-commerce world as a solution that usescommon technology.Twenty reasons to use the Internet as agrowth tool1. Reach a worldwide audience.2. Do business with an affluent market.3. No barrier of time zones, you are open 24hours/day.4. Reach consumers when they are ready to buy.5. Open a new channel of distribution for yourcompany.6. ...Or sell products only on the Internet.7. Offer lower costs to consumers and beat thecompetition.8. Beat competition to new markets because theyaren’t online.9. Make additional sales more easily.10. Create cost efficient catalogues that are longon details.11. Low cost of doing business.12. Low cost of entry.13. No or low rent.14. Interact with customers.15. Engage the senses by using audio, video, andmultimedia to create relationships and sellproducts.16. Conduct market research online.17. Find out competitive information.18. Provide quicker customer support.19. Decrease cost of printing and distributingmarketing materials.20. Reduce warehousing costs.Consider Leaving HomeWhen will you know if your business is ready toleave home? Do you know whether you want to?Starting a business at home may be the only wayto start a business at all. Keeping a business smallenough to continue operating from your homemay be a goal, or you may welcome growth andexpansion. Ongoing evaluation and regular reviewcan help you recognize when you’ve outgrownyour home base and are ready to move.Your business plan is invaluable here, too. Canyou afford the additional expenses of moving to acommercial or industrial location? Have you builtit into your pricing and profit use? Can you justifynot moving? As part of the assessment process,talk to the key people you’ve involved in yourbusiness to this point: family, banker, bookkeeper,accountant, insurance agent, industry mentor orbusiness consultant.Use the contact networks you’ve developed,especially suppliers and shippers. Would a changein location mean a change in relationships you’veestablished with key suppliers? Ask customerswhat a change from a home base to a commercialbase might mean to them.The decision to move from a home base to acommercial location shouldn’t be made in anoptimistic or pressured moment. With the samecareful research and assessment you’ve used toget the home-based business established, youshould be ready when the time is right.Use Your Business Plan to EvaluateTackle the issue of staying or leaving as one partof a regular review of all aspects of your business,its goals and its future. Your business plan can bethe basis of such re-evaluation in two ways. Use itsolutions for small business home-based business 103

as part of your ongoing review as you regularlymonitor things in the business. Then, once a year,do a more formal review of business performanceagainst planned performance. For this annualreview, your previous written business plan willbe invaluable. The annual review is the time tocheck back on the projected progress points laidout in your plans. Did you achieve your goals?Were your projections accurate?Such an annual review is often done as part ofcompleting and filing the tax return. What youlearn from evaluating a previous year should beapplied to planning for the coming year. As partof the annual review, prepare a summary of yourconclusions and the changes you plan to make inthe next year.As you can appreciate, having a written plan canbe very useful for knowing what to evaluate inyour business success. Revising the plan givesyou new objectives to strive for.104solutions for small business home-based business

7ConclusionFirst StepsThe previous chapters in this manual haveoutlined what’s involved in planning your homebasedbusiness start-up – what to sell, how toreach buyers, how to run your operation, how tocalculate your finances, and how to manage thebusiness.Now you are ready to launch the business. Thissection offers a review of the basic informationyou will need for taking your first steps intobusiness.Start-Up ChecklistUse the following checklist to review all of thesteps involved in starting a home-based business:Business Concept• What type of business will you start?• Is there a need and can you fill it?• Do you have a good understanding of how tomarket your business?• How will you create a positive professionalreputation?• Which business structure (sole proprietorship,partnership, corporation, business cooperative)have you chosen and why?• For partnerships, is your Partnership Agreementand Buy Sell Agreement part of your businessplan?The Marketing Strategy• What is your customer profile?• What is your business’s market or trading area?• Estimate total sales volumes for your business.• What will motivate prospective buyers to buy?• Compare competitors’ sales volumes.• What inventory will you stock or what amountof service will you provide (first, second andthird year projections)?• What benefits do your products or services offercompared to the competition?• What is your pricing policy?• What selling and promotion methods docompetitors use?• How will you distribute products or deliverservices?• What selling techniques have you chosen?• Have you explored e-commerce as a marketingstrategy?• What promotional methods will you use?Operations and Administration• What renovations or changes are needed to youroffice/shop space?• Will your work space be large enough, separate,quiet, well lit?• Is your work space organized: telephone, office,work area and equipment, and productionprocesses?• Is your business name registered?• Have you obtained professional advice: legaltax and accountingsolutions for small business home-based business 105

• Are business/professional activities andpersonal/household activities physicallyseparated as much as possible?• Is professional advice being obtained on aregular or as-needed basis; legal, accounting,bookkeeping, industry expert, business advisor,other?• Have you planned your insurance needs withan agent and secured adequate coverage?• Are all furniture, equipment, and machineryneeds itemized?• Can used, recycled or leased items reduceequipment costs?• Are plans for hiring, training and payingemployees in place?• Are you going to sub-contract work instead ofhaving employees, in order to simplify paperwork and maintain business flexibility?• Are business needs for supplies and materialsitemized and incorporated into financialprojections?• How will you handle expansion, unexpectedsuccess and high demand?• How will you handle unexpectedly low sales,sagging markets, and unanticipated economicshifts that could result in fewer sales than youprojected?Laws and Regulations• Have all required licenses and permits beenobtained?• Is the business operation in compliance withzoning and other bylaws?• Are provincial and federal sales taxes coveredin your plans?• Do you need a GST number?• Do you need a PST number?• Are municipal taxes allowed for in financialcalculations?• Are all regulations and laws that affect thebusiness adequately researched and is thebusiness operation in compliance with them?Financing and Cost Control• Have you determined your start-up costs?• Do your projections include the time it willtake for the business to develop sufficient salesto support itself?• What are your sales forecasts, expenses andprofits?• What is your break-even sales level?• Have you prepared one realistic and onepessimistic forecast for each key financialarea?• How will you control costs and expenses?• How much working or operating capital willyou need?• Are funds available for unforeseen difficultiesduring start-up (to be expected)?• Mow much of your own money will you beable to invest?• Where can you borrow or obtain additionalfunds?• Have you discussed financing with lendinginstitutions and suppliers?• Have you prepared a list of personal andbusiness assets that may be needed forsecurity/collateral?• Has a separate bank account been opened forthe business?• Have bookkeeping (financial records) andfiling systems been planned and put in place?106solutions for small business home-based business

• Do accountants and bookkeepers have a designatedrole in the business, and has their advice beensought?• Do you understand legal obligations for yourbusiness debts?You, the Business Owner/Operator• Is your written business plan completed?• Are you confident about your skills at managingtime, stress, and many different kinds ofresponsibilities at the same time?• Are your expectations about yourself as anentrepreneur realistic?• Are your expectations about the home base foryour business realistic?• Do you have management skills, or are you takingsteps to develop them?Operational EssentialsHere’s a list of things that should be in place beforeyou open your business:1. You must obtain a business license in the city ormunicipality in which you planto operate.2. If you are starting a retail business inBritish Columbia you must contact theConsumer Taxation Branch of the Ministry ofProvincial Revenue to obtain a Social ServiceTax (provincial sales tax) number. check outtheir website at: www.gov.bc.ca/rev/3. If you want to use a business name other thanyour own, you must do a name search andregister a business name with:CORPORATE REGISTRARMinistry of Finance. Their website is:www.fin.gov.ca/registries/Or contact your local BC Government Agent. Even ifyou want to use your own name, filing a businessname is recommended.Business names may also be registered at theCanada/British Columbia Service Centre and atvarious OneStop centres. To locate the OneStopcentre nearest you, see list in next section below.4. Call on Canada Customs and Revenue Agencyto set up business and employee income taxdeductions.www.ccra-adrc.gc.caAn information package on the kinds of businessexpense deductions that are allowed is also availablefrom the Canada/BC Business Service Centre.Registering for employee deductions would involvegetting a payroll number (part of the BusinessNumber). This can be done by contacting a BusinessWindows office at 1-800-959-5525, or by using aOneStop station, and is only necessary if employeesare being hired.5. If you plan to hire employees, register with theWorkers Compensation Board.www.worksafebc.com6. Find Employment Standards Information from:www.labour.gov.bc.ca/esb/welcome.htm7. If you decide to form a Corporation, SoleProprietorship, General Partnership, LimitedPartnership, Co-op or Society contact theCorporate Registry, atwww.fin.gov.bc.ca/registries/ , or your localChamber of Commerce orBC Government Agent.8. Check with your insurance agent or oneknowledgeable in business insurance, homebasedbusiness experience if possible, and getproper coverage before starting. Considerbusiness premises/home (fire/theft), vehicle,liability, business interruption or loss-ofincome,disability, partnership insurance.solutions for small business home-based business 107

9. If purchasing a business, pay all funds to yourlawyer in trust for release when she or he is sureall contingencies are looked after.OneStop Business RegistrationThe OneStop website is: www.onestopbc.caThe OneStop system is a user-friendly computerprogram that enables new and existing businesses tocomplete multiple government applications quicklyand efficiently in one location.OneStop can be used by people to register soleproprietorships, general partnerships, and to getBusiness numbers, PST numbers and WCB numbersfor completed corporations, co-operatives, andsocieties. The whole process will only take 30 to 60minutes.BC REGISTRAR OF COMPANIESDeclaration for Proprietorship or Partnership (NameRegistration)BC CONSUMER TAXATION BRANCHApplication for Registration as a Vendor (ProvincialSales Tax)WORKERS’COMPENSATION BOARDEmployer’s Registration Application, and PersonalOptional ProtectionCANADA CUSTOMS AND REVENUE AGENCYBusiness Number Accounts: GST; corporate incometax; payroll deductions; and import/exportOneStop locationsOneStop is currently available at personal computerworkstations across the province.For a listing of OneStop locations, check outwww.onestopbc.ca/locations.htmproprietorship, partnership or corporation. Otherinformation is required to complete the registrations.Please checkout www.onestopbc.ca and click onOneStop Requirements for information on what youwill need. It is important to know that the agenciesincluded in OneStop are likely not the only businessregistrations that you need to complete for yourbusiness. Find out more from the BC BusinessResource Guide: guidelines and requirements forbusiness, available at: www.smallbusinessbc.ca,Popular Resources – click on Small BusinessGuides and select Solutions for Small BusinessSeries.Equity Capital ProgramThe Equity Capital Program (ECP) is the operatingname of the investment incentive program set out inthe Small Business Venture Capital Act. Thisprogram is designed to encourage private sector,arm’s-length equity investments in BC-basedbusinesses which undertake activities that enhancethe export of BC- produced goods and servicesreplace imports, or otherwise diversify BC’seconomy.The prime objective of the ECP is to increase theavailability of equity capital in BC and encourageinvestment in BC businesses, leading to businesscreation, expansion and preservation in valueadded” sectors of the provincial economy.For more information, visit:MINISTRY OF COMPETITION, SCIENCE ANDENTERPRISEBusiness Investment Branch, atwww.bcinbusiness.gov.bc.caWhat You’ll NeedIn order to complete the registrations, in all cases youwill need to know the type of business ownership:108solutions for small business home-based business

Western Economic Diversification:Small Business Loan ProgramWestern Economic Diversification (WD) hasarranged for a number of financial institutions tooffer patient and flexible debt financing to smallbusinesses in Western Canada, with particularemphasis on knowledge and export-basedindustries.Whether your business has one employee or afew hundred, you may be able to take advantageof the flexible terms offered by our financialpartners. WD loan programs help a wide range ofsmall businesses involved in advancedtechnology, advanced materials and advancedmanufacturing technologies, informationtechnology and telecommunications, knowledgebasedindustries, health industries, biotechnology,environmental technology, agricultural valueaddedprocessing and tourism industry.For more information contact:Western Economic Diversificationwww.wd.gc.casolutions for small business home-based business 109

Appendix AList of Business TermsAccounts payable: Money owed by a person orbusiness accounts to be paidAccounts receivable: Money owed to a person orbusiness by customersAgent: A person authorized to act for anotherperson, referred to as the principal, in dealingwith a third personAssets: Everything that money value can beassigned to, such as equipment, land, cash, andmoney to a person or business (accountsreceivable)Balance sheet: The liabilities of a businesssubtracted from the assets; what is owned minuswhat is owed to a business. Sometimes thebalance sheet is called a “statement of net worth”because the figure that results from assets minusliabilities is net worthBusiness plan: A written summary of a businessand its plans for reaching its goalsCapital: Money or property owned or used inbusinessCollateral: Things with value used to secure orguarantee a loan; most lending institutions willnot loan money that is not secured by collateralCompany-owned: An outlet owned and operatedby a parent company unit:Confidentiality: Keeping an idea or invention toones self so it doesn’t get copiedCopyright: Protection from being copied orstolen; given by law to creative works such aswriting, songs, computer software, video andother images; one of four forms of protection forideas available in CanadaDealer: A person or firm that markets a productin a particular areaDistributor: Middle person, wholesaler; agent orbusiness firm that distributes goods to dealers orto other companiesEntrepreneur: A person who organizes, operates,assumes the risk for and gets the benefits of abusiness ventureFinances: MoneyFranchise: A kind of business involving threeessentials: a franchise fee, a common trade name,and a continuous relationship with a parentcompanyGrant: Money that does not usually have to bepaid back, provided that the rules under whichthe grant was given are followedGross profit: Profit before income tax has beenpaidIncome: Money or revenue coming into abusinessIndustrial design: Protection for an invention’sshape and appearance against anyone making onelike it; one of four protections for ideas inCanadian lawInvention: A new product, process, or way ofdoing something. To be patentable, an inventionhas to be new, useful, not obvious beforehandand a technological improvement over whatexisted beforeInvest: Put money into business to get a profitLeads: Names and contact information forpotential customersManufacturer: A person or business who makesor manufactures a productMarket: A group of buyers; trade, buying andselling110solutions for small business home-based business

Marketing: All the things involved in makingsalesMarket Research: Finding out as much aspossible about potential buyers or customers,including the competition they buy from nowMarket Survey: A survey of a particular group ofpossible customers or an aspect of a market.Examples of market surveys include pricingstudies, test product surveys, surveys that look atthe needs of a group of end users, and studies ofshifting trendsMiddle Person: A person or firm specializing inservices involved in the purchase and subsequentsale of goodsNet Profit: Profit after income tax and all othercosts have been paidOn Consignment: Goods shipped or turned overto an agent for sale, with payment to the shipperto follow sale, or products given to a retail outletwith payment to follow retail saleOperator: An entrepreneur who buys a businessopportunityPatent: The legal right to own an invention inCanada for which royalties can be charged. Apatent is protection against others making, using,or selling an invention without the inventor’spermissionRack Jobber: A wholesaler serving retail stores;selects, assembles, prices and deliversmerchandise, and arranges and maintains thedisplay on the shelves or racks on a dealers floor;sells primarily on a consignment basis, butfrequently on other termsRetail: Handling sales to the final consumer ofgoods and services, often in small quantities andamountsRevenue: Money coming into a business, oftencalled incomeRoyalties: Charges an inventory can collect forthe right to make or sell a patented invention orcopyrighted workSecurity: Another name for collateral; somethinggiven as a pledge of repaymentTurnkey: Everything you need to start a businessis in place; all you need to do is turn the keyWholesaler: A middle person who sells toretailers and other merchants, or to industrial,institutional and commercial users but not usuallydirectly to end customersWorth, net worth: The total assets of a businessor person, including cash, land, accounts payable,etc., Minus total liabilities (the value of all debts);a balance sheet showing assets and liabilities issometimes called a statement of net worthPrincipal: A person who appoints another to actas an agentProfit: Return to a business person after allexpenses and costs, including taxes, have beenpaid out of revenueProtected Territory: Exclusive territory in whichto sell a product or service; granted to anoperator by a parent companyPrototype: A working or demonstration model ofan idea or invention that proves it really workssolutions for small business home-based business 111

Appendix BList of ResourcesMany materials were consulted in the preparationof this manual. There is not space to credit all ofthem. Most are available at libraries bookstores,or from the fol1owing sources:Government PublicationsThe following lists are published by the Ministryof Competition, Science and Enterprise. Thesepublications can be obtained online at:www.smallbusinessbc.ca. Click on SmallBusiness Guides and select Solutions for SmallBusiness Series.• Exploring Business Opportunities: A Guide forEntrepreneurs. Suggestions for discovering andtesting new venture ideas• Business Planning and Cash Flow Forecasting.Guidelines for business planning, attractinginvestors and applying for financial assistance;worksheets for preparing your own cash flowforecast• British Columbia Resource Guide: guidelinesand requirements for business. A reference ofthe most commonly asked questionsPopular Small Business MagazinesHere is a list of magazines that focus on smalland home-based businesses. They are availableon local newsstands and are frequently nowavailable on line. Use your search engine tolocate their Internet addresses:• BC Business• Business Start-Ups• Business In Vancouver• Canadian Business• Family Business• Franchise Times• Home Business Report• Home Worker• In Business• Inc• Industry Week Growing Companies• Minority Business Entrepreneur• Nation’s Business• Profit Small Business• Self-Employed America• Small Business Canada• Small Business Journal• Small Business News• Small Business Tax Review• Spare Time• Success• Wealth Building• Your CompanyWeb SitesHere are some useful Internet site locationswhere information for small and home-basedbusinesses is available, usually for free:• BC Ministry of Competition, Science andEnterprise: www.gov.bc.ca/cse/• Business Development Bank of Canada:www.bdc.ca• Canada/BC Business Service Centre:www.smallbusinessbc.ca• Canadian Business Service Centre:www.cbsc.org• Canada Customs and Revenue Agency:www.ccra-adrc.gc.ca/• Entrepreneur112solutions for small business home-based business

• Canadian Internet Business Directory:www.CIBD.com• Canadian Youth Business Foundation:www.cybf.ca/• Community Futures DevelopmentAssociation of BC:www.communityfutures.ca• Entrepreneur Magazine :www.entrepreneurmag.com• Home Business Report:www.homebusinessreport.com• Human Resources Development Canada:www.hrdc-drhc.gc.ca• Inc Online: Resource for growing your smallbusiness: www.Inc.com/home/• Internet World Magazine: www.iw.com• Motive8 Online: www.motiv8.com• Small and Home Based Business Links:www.bizoffice.com/• Western Economic Diversification Canada:www.wd.gc.ca• Women and Business:www.search.com/• Youth Business and Entrepreneurship TrainingProgram: www.youth.gov.bc.ca/• Youth Resource Network of Canada:www.youth.gc.ca• Lets Talk Business: www.ltbn.com/• AllBusiness.com/index.jsp• BizLand.com• digitalwork.com/platform/index.html• Entreworld.org• businessownersidecafe.com• Office.com• Onvia.com/content/default.asp• Workz.com• SBA.gov• Edge.lowe.orgAssociationsHere’s a list of associations in British Columbia orelsewhere that home-based business owners maywish to consider joining:Homebased Business Associationservices include:Western Businesswomen’s Associationwww.westernbusinesswomen.bc.caAssociation of Women Business Owners,Lower Mainland B.C.www.wbo.caCrafts Association of BCwww.cabc.netFirst Nations Employment andEnterprise Centrewww.firstnationsemployment.comAboriginal Business Canadaabc-eac.lc.gc.ca/Business Council of British Columbiawww.bcbc.comCanadian Federation ofIndependent Businesswww.cfib.ca/default_e.asp?l=eYoung Entrepreneurs Associationwww.yea.caSUCCESS Small Business Development andTraining Centrewww.success.bc.ca/eng/location/sbctre/• Smartonline.comsolutions for small business home-based business 113

Appendix COrganizationsGeneral Organizations and Sources forInformation on Small Business:• Chambers of Commerce, Boards of Trade• Regional Economic DevelopmentCommissions and societies such as:• Community Futures DevelopmentCorporations• Women’s Enterprise Society of BC• Economic Development Centres andCommittees often advising municipalgovernments• Municipal arid City Governments andPlanning Offices, arid Regional DistrictOffices• Government Agents Offices• Trade Industry and Professional Associations• Financial Institutions: banks, trust companiesand credit unions• Accounting Firms: large ones publishnewsletters and brochures• Colleges, Universities, School Districts and theOpen Learning Agency: business courses andbusiness/economic development centres andbusiness courses• Women’s CentresCommunity Futures DevelopmentCorporations (C.F.D.C’s)For information about CFDC and locations, visit:www.communityfutures.caConsumer Taxation Branchwww.rev.gov.bc.ca/ctbGovernment of CanadaPublic Works and Government ServicesCrown Assets Disposalwww.wair.qp.gov.bc.caMINISTRY OF COMMUNITY, ABORIGINAL ANDWOMEN’S SERVICESwww.gov.bc.ca/mcaws/Ministry of Competition, Science andEnterprisewww.gov.bc.ca/cse/Provincial Incorporation – Corporateand Personal Property RegistriesMinistry of Financewww.fin.gov.bc.ca/registries/corppg/default.htmVancouver Public Librarywww.vpl.vancouver.bc.cainfo @ vpl.vancouver.bc.caWestern EconomicDiversification Canadawww.wd.gc.caProvincial OrganizationsBusiness Development Bank of Canadawww.bdc.caCanada/British Columbia BusinessServicewww.smallbusinessbc.caCanadian Manufacturers and Exporterswww.the-alliance.com/index_flash.htmCanadian OrganizationsCanadian Council for AboriginalBusinesswww.ccab-canada.comCanadian Federation of IndependentBusinesswww.cfib.ca114solutions for small business home-based business

Communication CanadaCanadian Government Publishinghttp://publications.communication.gc.ca/Industry Canadawww.strategis.ic.gc.caSources Of Funds IndexCanadian Reference DirectoryCanadabiz@homestead.comStatistics Canadawww.statcan.caThe Entrepreneurship Instituteof Canadawww.entinst.caAppendix DDifferent Kinds of Home-BasedBusiness OpportunitiesYou may have a clear idea about the business youwant to start. The different kinds of opportunitieson the list show the scope of the business worldand the range of possibilities in it.• Producing a product• Providing a service• Becoming an agent for someone’s product orservice• Importing products and services made outsideCanada• Rebuilding or remanufacturing products• Taking local markets to new markets• Imitating successful products or business ideas• Buying the right to make or sell a product, orselling the right to a product you own toanother person to make or sell, often in anotherarea• Offering replacement products for goods nowimported• Inventing or locating an invention you canpatent or claim rights to• Transferring a system, a product, service, orskills from one type of business industry toanother• Identifying market gaps or shortages andfilling them• Buying a franchiseSome of the most profitable homebasedbusinesses are in these areas:• pet care and grooming• event planning• landscape/gardeningsolutions for small business home-based business 115

• light manufacturing• hair styling• maid service• computer services• bed and breakfast• home care• consulting• catering• daycare• counselling• herb growing• multi-level marketingSome Ideas for Home-BasedBusinessesAnimal boarding, careAudio and visual production servicesBed and breakfastAnswering ServiceArt gallery and sales, in-homeBaking, specialty products (non-wheat, additivefree, low salt)Baby itemsBeekeeping, honey productionChild Care, elder care, special needs supportCar services, specializedCatering, food or sector specialty (gourmet orfilm industry)Children and specialty entertainment, e.g,clowns, magiciansCleaning, house and commercial/institutionalComputer MappingConsultant, wide range of services and subjectsComputer Services, design, create, do layout;publish; manage other people’s data; providemail order services; publish price lists,catalogues, listings, newsletters; rent equipmentor time on computer systems; write or printresumes, proposals, reports; sell data; teach aboutcomputing or using available software programs;teach other skills and subjects; troubleshoot;write programsConvention and conference planning, logisticsand supportCooking services, specialty or targetedDistributingEvent and party planningFarming, specialty, including organic, herb,special product (kiwi, holly)Design and layout, creative services in producingdocuments and audiovisualsDoor-to-door sellingFashions, specialty (maternity, children’sclothing, applique)Desktop PublishingEnergy services (energy loss detection, energyefficient planning and renovation)Food Products, particularly those tied to trends,natural food, non-beef items, low fat, concernwith food purityFootwearFundraisingFurniture polish, wax, stainFurniture repair, small-scale manufacture116solutions for small business home-based business

Glass blowing and design, retail andindustrial/commercialGardening, yard and lawn maintenance,landscapingGuided tours and sightseeingGift basket serviceHobby, craft, and art suppliesHome renovations and maintenanceImage consulting (ward-robe, communication,and executive seminars for professionals)ImportingInformation service, consulting or informationbrokeringInterior design, commercial or residentialInternet ResearchJewellery, original designs and work, repairLawn and garden careMail order servicesMaternity fashions and specialty productsLeisure activities, including instructionMedia productions and servicesNovelty items (T-shirts, mugs) targeted to certainmarket, e,g.. new parents or grandparentsOffice planning office systems design.installationPackaging. retail and “breaking bulk,” sortinglarge quantities into smaller ones andrepackaging them for salePersonal services, housesitting, errandsPhoto postcards, picture postcardsPhotography and photographic servicesPolishes and cleaning productsPottery, particularly specialty styles and productsPlacement and assistance (temporary help)servicesPrintshop, various services related to copying,printing, document productionPool cleaningProfessions that don’t require special facilities,eg., accountant. lawyer, public relations andmanagement consultantsPublishing and publishing services (editing)Rebuilding or remanufacturingRecreationResearchResume’sSeminars and courses, workshopsSewing and tailoringShoe repairSports equipmentTelephone soliciting serviceTraining arid training materialsTutoring and instructionVideotapingWordprocessingWritingPersonal shoppingsolutions for small business home-based business 117

Appendix EEntrepreneurial EvaluationHow Do You Rate as an Entrepreneur?Instructions: Read each statement and check“yes” or “no.”1. I understand myself and my potential whichmakes me optimistic and enthusiastic whenI undertake something.YES NO2. When I am asked, or if I decide, to plan.work out and do a difficult project, I usuallycomplete it in at least a satisfactory manner.YES NO7. I enjoy giving my best to everything I do;successfully completing a job gives me afeeling of satisfaction.YES NO8. I would like to be my own boss and makemy own decisions, although I know thisrequires a lot of work arid discipline.YES NO9. I feel comfortable about managing otherpeople, including telling them what to doand having to make all the importantdecisions by myself or with others who aredirectly affected.YES NO3. When I believe in something I can convinceothers of its merits.YES NO4. I realize that success depends on wantingsomething, will-power, and personaldiscipline; I have those three things.YES NO5 Although I take other people’s opinions intoaccount, I keep the right to make finaldecisions.YES NO6. I believe that first steps to success includesetting personal goals and planning how toachieve them; I have done or amdoing this.YES NO10. I know how to motivate my colleagues atwork. or my staff. and believe I would beable to motivate my business partners andemployees by giving then a sense of my ownenthusiasm.YES NO12. I am not afraid to work hard and for longhours if it is necessary. I can do severalthings at the same time.YES NO13. When I decide to do something, even if it iscomplicated. I give it everything I have,overcoming obstacles as they appear.YES NO118solutions for small business home-based business

14. I find unexpected situations stimulating,especially when I’m organized and knowwhat I’m doing; I don’t mind taking risks orfacing uncertainty.YES NO15. I believe that work strengthens my characterand abilities, makes the most of mypotential, and makes life more interesting.YES NO16. For me, money is a good measure ofsuccess.YES NO21. I am always thinking of new and better waysto do things.YES NO22. I find it hard to do nothing or sit still. Thesense of accomplishment that goes withresponsibility for getting things done givesme energy.YES NO23. I can make long-term commitments andplans to accomplish my goals and get whereI want to go.YES NO17. I take calculated or intelligent risks; I’velearned some differences between takingrisk informed and being foolhardy.YES NO18. Everyone’s life is full of problems. The trickis to learn how to solve the problems andadjust your life to changes that come.YES NO19. Success is not the result of luck, but the fruitof good planning and hard work (maybefertilized with luck!)YES NO20. I take the time to check back on the resultsof my decisions and reflect on whether ornot they were good decisions the best Icould have made at the time – and what I’velearned since.YES NO24. My parents, relatives or close friends of thefamily were in business.YES NO25. I have some previous experience managingindividuals and work.YES NO26. I really enjoy participating in clubs,associations and groups, and I have donedifferent jobs in them.YES NO27. Whenever I have spare time I like toresearch practical, concrete ideas.YES NOTotal the “Yes” answers, and assess the score:22-26: Most likely to be successful in business17-21: Capable of making a business succeed13-20: Able to make a business succeed but maynot have actively thought about it or analyzedwhat is involved in running a businesssolutions for small business home-based business 119

9-12: Lacks some qualities but with some workcan be successful8 points or fewer: Unlikely to be successfulalone; should consider working for someone elseor getting a senior partner who can manage thebusinessTo help you identify areas of strength andweakness, consider each set of questions as agroup:• Questions 1-8 determine your motivation.• Questions 9-14 indicate business orientation.• Questions 15-18 indicate business attitudes.• Questions 9-22 assess your genuine interest inbusiness as a life goal.• Questions 23-26 help determine familiaritywith business and management.Source: Adapted from Devenez EntrepreneurQuebec, Les Presses de l’Universite, Laval,1986, Fortin, Paul A. We thank the Foundationde’ l’Enrepreneurship for granting permission touse this materialAppendix FSelf-Analysis QuestionsHere’s a list of questions to ask yourself aboutyour readiness to operate a home-based business:Personal Resources• Do I have the energy to tolerate long hours andconcentrated effort?• Do I have the self-direction to work alone?• Do I have techniques in place to controlpotential stress?• Do I have the confidence to accept any failuresand turn them into opportunities?Life Style• Can I communicate my feelings and dreamspositively to my family?• Will I keep my family informed and involved?• Will I be able to say “no” to holidays or leisureactivities if necessary? Will those who gowithout me understand?• Will I be able to maintain a personal andfamily life as well as run a business?• Can I prepare my self to not have a personallife for some time?Finances• Will I be able to budget my business expensesand stick to the limits I set?• Do I understand financial statements and whythey are important to my business?• Do I appreciate the importance of tracking andcontrolling expenses, inventory and debt?• Are alternate sources of income available forliving expenses?• Am I realistic about household and lifeexpenses and sources of income that can bedepended on until the business getsestablished?120solutions for small business home-based business

Stability• Is my home-life financially organized and canthe business income he secured fromhousehold demand?• Am I healthy, with energy reserves andemotionally prepared for business stress andsuccess?• Does every family member appreciate myobjectives and how important the business is tome, to us?• Do they support me?• Will my home life remain stable if my businessfails?Professionalism• Am I willing and able to work long hours forfuture benefits?• Am I realistic about how long success maytake, and committed to making the businesswork?• Are my planning skills and sense ofresponsibility strong enough to build asuccessful venture?• Do I have the knowledge to make thisparticular business succeed, or should I besecuring that knowledge first?• Do I want business success enough to set andkeep high standards of products and services?Appendix GHome-Based Business ReferenceManualThe general outline of the business referencemanual was introduced in the text. The followinglist expands on the usual contents of referencemanual sections.General Business Information• business name, structure, names of allinvolved, addresses• purpose of business product or service,significant dates• layout of physical working space showingoutlets, etc..• map showing trading areas and key sitesrelated to business• information on the competition in your tradingarea• names and contact numbers for key businesscontacts; bank or lender, accountant,bookkeeperResponsibilities• owner/operator, outline of main responsibilitiesand tasks• responsibilities and tasks for any helpers,volunteer or paid instructions for helpers onhow to handle any likely emergenciesHandling Mail• categories in which to sort mail as it comes in,eg.. action, reading, personal, by projectdirections on what to do with mail in eachcategorysolutions for small business home-based business 121

Communication• telephone system information, includingbusiness telephone number, any calling cardnumber (used for billing)• telephone answering primer – message on theanswering machine, how the telephone is to beanswered and messages to be taken• photocopy center or print shop: address anddirections, price, any special services and costs• fax services: address of public fax service,charges for sending and receiving, fax number,any special services and costs, instructions forpreparing documents to send by fax, samplefax cover sheet• electronic network information name ofnetworks of electronic billboards andinstructions for calling to get on-lineWord processing• samples of blank letterhead and all businessforms• samples of most commonly sent letters (style,layout)• summary of instructions on preparing letters,reports, any documents regularly produced,including typeface and layout• directions on how to mail or send regular, rushand priority items, e.g. fax courier or prioritypost, first class mail• outline of acceptable standards – for typingmistakes. smudges on paper, use of white-out,etc.Filing Systems• chronological file system; where it is and howto use it• main records filing system; how it is set up,names of main categoriesEquipment and Supplies• main supplies ordered regularly, for office andproduction; where supplies and materials arekept• names of main suppliers• annual calendar for ordering supplies; includeordering instructionsClient and Customer InformationThe Contacts File is usually kept separately fromthe reference manual but a section of the manualcan be used for client information, or a separatebinder established as a contacts file.• name, personal and business• position in business or relationship to yourbusiness• contact information, including telephone,address, fax; details about initial contact, andfollow-up; purpose, how contact wasconcluded• purchases to date• any special information you may want toaccess quickly.122solutions for small business home-based business

Appendix HFiling System CategoriesUse this as a guide to a main records filingsystem. Start with the main categories, e.g.,Administration, Communications, and add toyour Filing system as you need to.Administration1-1 General Administration1-2 Automobile1-3 Courier Service1-4 Depreciation1-5 Equipment1-6 Electrical1-7 Furniture1-8 Insurance1-9 Licenses1-10 Mail1-11 Telephone1-12 UtilitiesCommunications2-1 General Communications2-2 Advertising2-3 Contacts2-4 Brochures and Promotion Materials2-5 Government Correspondence2-6 General Correspondence (when individualfiles are not opened)2-7 Clippings, Newspaper/Magazine2-8 Public Relations2-9 SubscriptionsConsultants and Professionals3-1 General Consultants and Professionals3-2 Administration and Management(including-11 Taxation office systems)3-3 Business-specific (3-3-4 Computer;3-3-5 Financial; 3-3-6 Marketing)Education and Training4-1 General Education and Training4-2 Client/Customer Education4-3 Business Education and Training4-4 Conferences and Conventions4-5 Seminars and Workshops4-6 Business Management TrainingFinancial5-1 General Financial5-2 Accountants and Auditor5-3 Accounts Payable5-4 Accounts Receivable5-5 Bank; Correspondence5-6 Bank; Loans, Credit5-7 Rank Signing Authority5-8 Bank: Statements5-9 Bank: Reconciliation to end of section5-10 Business Financing5-11 Taxation5-12 ContractsForms6-1 General Forms6-2 Alphabetical list by form to end of section2-10 Competitionsolutions for small business home-based business 123

Legal7-1 General Legal7-2 Business Structure7-3 Lawyer, Solicitor’s Firm7-4 Licensing Requirements7-5 Municipal BylawsMarketing8-1 General Marketing8-2 Contacts8-3 Trade Association Information8-4 Industry Events (trade fairs, showsconferences, convention)8-5 Annual Events9 local and regional8-6 Customer Profile8-7 Target Market Information8-8 Marketing TechniquesClients’ Files11-1 General Clients11-2 Leads and Prospective Clients11-3 Individual Client Files, alphabetical bycompany or individual’s nameAccounts Payable12-1 General Accounts Payable (paymentinformation)12-2 Accounts Payable (BILLS PAID)12-3 Accounts Payable, alphabetical bysupplierAccounts Receivable13-1 General Accounts Receivable13-2 Accounts Receivable, (RECEIVED)13-3 Accounts Receivable, alphabetical byname of business or person8-9 Publicity’ and PromotionPersonnel9-1 General Personnel9-2 Applications (resumes)9-4 Benefits9-5 Deduction Information9-6 Payroll Information9-7 Taxation: Employee9-8 Workers’ Compensation BoardProducts and Services10-1 Genera! Products and Services10-2 Alphabetical to end of section, productsand service files124solutions for small business home-based business

Appendix IPrimary Market Research TechniquesProsConsFocus groups(8-12 people)• In-depth probing• Wide open responses• Observation of interaction anddynamics of participants• Requires a professional facilitator• Additional cost of room andobserversQuestionnaireConsistency & objectivityCan calculate responsesAdditional questionnaires can beprepared if necessary• Inflexible• Time consuming to prepare, printand calculate responsesSurveys prepared bycollege or business students• Inexpensive• Third party• Survey prepared under guidanceof program instructor• Many students can carry out arange of data collection• Priorities and time frame may notbe the same as yours• Inexperienced at obtaininginformationInformal talks withcustomers• Open and revealing responses• Inexpensive• Subjective and non-verbal info• Opportunity to ask unpreparedadditional questions• Subjective• Time consuming• Must prepare key issues inadvance• Responses may be vague andcontradictory without muchthoughtInterviews(one on one)• Face to face discussions• Combines objective andsubjective information• Opportunity to obtainadditional comments• Requires more prep time to develop closedand open ended (probing) questions• Time consuming to arrange appointments• Few people may be willing to be a subjectsolutions for small business home-based business 125

ProsConsInternet• Able to reach a broad crosssection of people from all overthe world• Very inexpensive• Responsive can be immediate• No personal interaction to fullyassess or discuss feedback• Not all people who respond areyour potential market• People will not have hands-onexperience with productCompetitors• Observations on traffic counts,average sale checks andcustomer patterns• Observations on any marketaspect, i.e., location,advertising, pricing, etc• Competition in othercommunities willing to talk tosomeone who won’t be a threat• Biased• Unwilling to talk to potentialcompetitor• Travel and long distance costsSuppliers, distributors,agents and brokers• Inside knowledge of industry• Knowledge of players, trendsand quirks• Could favor existing dealers• May get jaded comments withnarrow viewpointRetired from the industry• No axe to grind• Objective and open• Knowledge of industry, its.pitfalls and who succeeds• Information may be dated• May be jaded and tired ofbusiness concerns126solutions for small business home-based business

ProsConsMentor (experiencedbusiness person outside theindustry• Objective• Can analyze situation and bebrutally frank• Can assess your own capacity,resources and managerialability• Can advise on strategy & majordecisions• Lacks specific industryknowledge• Not always available on ano-fee basissolutions for small business home-based business 127

Appendix JSample Income StatementDoe Widgets Ltd.Forecasted Income Statement (Monthly 20X1)SalesJanuary February March April May June July August September October November DecemberWholesale $ 8,000 $ 9,000 $ 12,000 $ 12,000 $ 12,000 $ 14,000 $ 18,000 $ 18,000 $ 16,000 $ 14,000 $ 12,000 $ 12,000 $ 157,000Retail $ 16,000 $ 16,000 $ 16,000 $ 18,000 $ 20,000 $ 20,000 $ 20,000 $ 16,000 $ 18,000 $ 18,000 $ 20,000 $ 18,000 $ 216,000Total Sales $24,000 $25,000 $ 28,000 $30,000 $32,000 $34,000 $38,000 $ 34,000 $ 34,000 $ 32,000 $ 32,000 $ 30,000 $ 373,000Cost of GoodsVariable Labour $ 1,000 $ 1,000 $ 2,000 $ 2,000 $ 2,000 $ 2,800 $ 2,800 $ 2,800 $ 2,800 $ 2,100 $ 2,100 $ 2,100 $ 25,500Cost of Materials $ 14,400 $ 14,800 $ 16,000 $ 17,400 $ 18,800 $ 19,600 $ 21,200 $ 18,400 $ 19,000 $ 18,200 $ 18,800 $ 17,400 $ 214,000Total Cost of Goods $ 15,400 $ 15,800 $ 18,000 $ 19,400 $ 20,800 $ 22,400 $ 24,000 $ 21,200 $ 21,800 $ 20,300 $ 20,900 $ 19,500 $ 239,500Gross Margin $ 8,600 $ 9,200 $ 10,000 $10,600 $11,200 $11,600 $14,000 $ 12,800 $ 12,200 $ 11,700 $ 11,100 $ 10,500 $ 133,500Operating ExpensesPower $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 2,400Salaries $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 43,200EI, Cpp other Benefits $ 460 $ 460 $ 560 $ 560 $ 560 $ 640 $ 640 $ 640 $ 640 $ 570 $ 570 $ 570 $ 6,870Advertising $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 2,400Office Supplies $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 600Insurance $ 210 $ 210 $ 210 $ 210 $ 210 $ 210 $ 210 $ 210 $ 210 $ 210 $ 210 $ 210 $ 2,520Maintenance $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 1,200Legal & Audit $ 1,000 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 3,420Delivery $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 3,360Licencing $ 30 $ 30 $ 30 $ 30 $ 30 $ 30 $ 30 $ 30 $ 30 $ 30 $ 30 $ 30 $ 360Packaging $ 140 $ 290 $ 320 $ 320 $ 340 $ 360 $ 420 $ 380 $ 360 $ 340 $ 370 $ 360 $ 4,000Telephone $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 960Misc $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 1,200Total Operating Expenses $ 6,450 $ 5,820 $ 5,950 $ 5,950 $ 5,970 $ 6,070 $ 6,130 $ 6,090 $ 6,070 $ 5,980 $ 6,010 $ 6,000 $ 72,490Depreciation $ 19,050 $ 19,050Interest Expense $ 950 $ 950Total Expenses $ 21,850 $ 21,620 $ 23,950 $ 25,350 $ 26,770 $ 28,470 $ 30,130 $ 27,290 $ 27,870 $ 26,280 $ 26,910 $ 45,500 $ 331,990Net profit / Loss $ 2,150 $ 3,380 $ 4,050 $ 4,650 $ 5,230 $ 5,530 $ 7,870 $ 6,710 $ 6,130 $ 5,720 $ 5,090 –$15,500 $ 41,010Provision for Tax $ 8,202Retained Earnings $ 32,808128

Appendix KSample Cash FLow StatementDoe Widgets Ltd.Forecasted Cash Flow Statement (Monthly 20X1)129January February March April May June July August September October November DecemberReceiptsCash Sales $ 16,000 $ 16,000 $ 16,000 $ 18,000 $ 20,000 $ 20,000 $ 20,000 $ 16,000 $ 18,000 $ 18,000 $ 20,000 $ 18,000 $ 216,000Accounts Receivable 1 $ 7,000 $ 8,000 $ 9,000 $ 12,000 $ 12,000 $ 12,000 $ 14,000 $ 18,000 $ 18,000 $ 16,000 $ 14,000 $ 12,000 $ 152,000Loan Proceeds $ –Investment $ –Other $ –Total Receipts $ 23,000 $ 24,000 $ 25,000 $ 30,000 $ 32,000 $ 32,000 $ 34,000 $ 34,000 $ 36,000 $ 34,000 $ 34,000 $ 30,000 $ 368,000DisbursementsAccounts Payable 2 $ 18,000 $ 14,400 $ 14,800 $ 16,000 $ 17,400 $ 18,800 $ 19,600 $ 21,200 $ 18,400 $ 19,000 $ 18,200 $ 18,800 $ 214,600Variable Labour $ 1,000 $ 1,000 $ 2,000 $ 2,000 $ 2,000 $ 2,800 $ 2,800 $ 2,800 $ 2,800 $ 2,100 $ 2,100 $ 2,100 $ 25,500Power $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 2,400Variable Labour $ 1,000 $ 1,000 $ 2,000 $ 2,000 $ 2,000 $ 2,800 $ 2,800 $ 2,800 $ 2,800 $ 2,100 $ 2,100 $ 2,100 $ 25,500Power $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 2,400Salaries $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 43,200EI, Cpp other Benefits 3 $ 400 $ 460 $ 460 $ 560 $ 560 $ 560 $ 640 $ 640 $ 640 $ 640 $ 570 $ 570 $ 6,870Advertising $ 1,000 $ 200 $ 600 $ 400 $ 200 $ 2,400Office Supplies $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 600Insurance $ 2,520 $ 2,520Maintenance $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 1,200Legal & Audit $ 1,000 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 220 $ 3,420Delivery $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 280 $ 3,360Licencing $ 360 $ 360Packaging $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 4,000Telephone $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 80 $ 960Misc $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 1,200Loan Repayment 4 $ 500 $ 500 $ 500 $ 500 $ 500 $ 500 $ 500 $ 500 $ 500 $ 500 $ 500 $ 500 $ 6,000Line of Credit Repayment 5 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 8,000Total Disbursements $ 28,190 $ 22,990 $ 23,390 $ 25,690 $ 28,290 $ 29,890 $ 30,570 $ 30,970 $ 26,970 $ 26,870 $ 27,000 $ 26,600 $ 326,420Starting Cash Balance $ 5,900 $ 710 $ 1,720 $ 4,330 $ 8,640 $ 12,350 $ 14,460 $ 17,890 $ 20,920 $ 29,950 $ 37,080 $ 44,080 $ 198,030Plus Receipts $ 23,000 $ 24,000 $ 25,000 $ 30,000 $ 32,000 $ 32,000 $ 34,000 $ 34,000 $ 36,000 $ 34,000 $ 34,000 $ 30,000 $ 368,000Less Disbursements $ 28,190 $ 22,990 $ 22,390 $ 25,690 $ 28,290 $ 29,890 $ 30,570 $ 30,970 $ 26,970 $ 26,870 $ 27,000 $ 26,600 $ 326,420Cash Flow Calculation $ 710 $ 1,720 $ 4,330 $ 8,640 $ 12,350 $ 14,460 $ 17,890 $ 20,920 $ 29,950 $ 37,080 $ 44,080 $ 47,480 $ 239,6101 Wholesale sales are paid for 30 days after they are sold.2 Suppliers are providing 30 day terms.3 Withholdings are paid on the 15th of the month following the expense.4 The Term loan is repaid at $500 per month. In the forecast year, this represents a total of $950 in interest and $5050 in principal repayment5 The $8,000 line of credit is retired in $2,000 payments

Appendix LSample Forecasted Balance SheetDoe Widgets Ltd.Forecasted Balance Sheet (Monthly 20X1)31 Dec 20X131 Dec 20X2AssetsCurrent AssetsCash $ 5,900 $ 47,480Accounts Receivable $ 7,000 $ 12,000Inventory $ 15,000 $ 15,000Total Current $ 27,900 $ 74,480Capital AssetsPlant Equipment & Furnishings $ 45,000 $ 36,000Computer System $ 11,000 $ 7,700Vehicles $ 22,500 $ 15,750Total Capital Assets $ 78,500 $ 59,450Total Assets $ 106,400 $ 133,930LiabilitiesCurrent LiabilitiesLine of Credit $ 8,000 $ –Accounts Payable $ 18,000 $ 17,400Expenses Payable (Withholdings) $ 400 $ 570Income Taxes Payable $ – $ 8,202Total Current Liabilities $ 26,400 $ 26,172Non-Current LiabilitiesTerm Loan $ 11,500 $ 6,450Shareholders Loan $ 10,000 $ 10,000Total Non-Current Liabilities $ 21,500 $ 16,450Total Liabilities $ 47,900 $ 42,622Owners EquityRetained Earnings $ 58,500 $ 91,308Total Liabilities & Owners Equity $ 106,400 $ 133,930130solutions for small business home-based business

Appendix MRegistering a Company Name for Usein British ColumbiaIf your business has a name other than your own,even if you’ve just added “and daughter” or “andassociates” to your name, you need to file a namedeclaration. This ensures that those who dobusiness with a sole proprietorship can find outthe name of the person they’re actually dealingwith.When registering a business, you must first havea name approved by the Registrar of Companies.This is done using a name approval form whichcan be submitted to the Registrar of Companies,Government Agents’ office, Canada/BC BusinessService Centre, or OneStop Business RegistrationOffice. The name must meet the criteriaexplained on the form and not be in conflict witha B.C. incorporated company. The fee forsubmitting the form is $30.00. Once the namehas been approved, it is reserved for 56 days, thesecond step must be completed within these 56days.The second step for Sole Proprietorship/GeneralPartnership is:Submit a declaration for Registration of Generalpartnership or Sole Proprietorship form. Thisform can be submitted at the same places as theName Approval, or filled out using a One-StopBusiness Registration Computer. The fee fordeclaration of proprietorship/partnership is$30.00.The second step for setting up aCorporation is:Submit completed incorporation documentsdirectly to the Registrar of Companies inVictoria. These documents can either be drawnup by a lawyer or purchased in a standardized kit.Fees for incorproating a company are $300.00with an optional$25.00 fee for a certified copy of memorandumand articles.To find the OneStop Business RegistrationService location nearest you, see page xx.You may also mail a list of three or more names.in order of preference, to the Registrar ofCompanies along with $30.00 for each3 names you want searched. You will thenreceive written notice that a name has beenpreviously used or is available. At that point youpay $30.00 to register the business name. Youcan apply in writing for name searches to:Registrar of Companieshttp//www.fin.gov.bc.ca/registries/corppg/default.htmYou can also go to any government agent officein BC or to the Canada/British ColumbiaBusiness Service Centre to havethe information sent to Victoria for you. Chequesare payable to the Minister of Finance andCorporate Relations.Name approval can also be done at:Keyinfo BCwww.keyinfobc.com( private company )solutions for small business home-based business 131

Appendix NAssistance DirectoryUse the following list to begin creating your ownAssistance Directory. This requires youto identify the individuals in your communitywho can provide the information and assistancethat will be helpful to you in starting your homebasedbusiness.Local Community FuturesDevelopmentCorporation Business OfficerNAMETELEPHONERegistrar of business namesNAMETELEPHONELibrarian of the local libraryNAMETELEPHONEManager of nearest Chamberof CommerceNAMETELEPHONEPerson in charge ofbuilding permitsNAMETELEPHONEPerson in charge ofbuilding inspectionsNAMETELEPHONEEconomic Development OfficerNAMETELEPHONEManagers of at least twolocal banksNAMETELEPHONENAMETELEPHONESmall business instructor at thenearest college or universityNAMETELEPHONE132solutions for small business home-based business

solutions for smallbusinessThis publication is part of the Solutions for Small Business series sponsored by WesternEconomic Diversification and the B.C. Ministry of Competition, Science and Enterprise.Both agencies are committed to supporting the needs of small businesses and furtherinformation about small business programs and services is available on each agency'sweb site (www.wd.gc.ca and www.gov.bc.ca/cse/).The Solutions series is also available on both web sites as well as on the web site ofCanada-B.C. Business Services (www.smallbusinessbc.ca). The other titles in the series are:Business Planningand FinancialForecastingBC BusinessResource GuideGuidelines andRequirements forBusinessExploring BusinessOpportunitiesA guide forEntrepreneurs