“How to Manage Your Start up Business”
Entrepreneurs Brief Guide – Volume 2
Dr Jim Porter
This e-book consists of twelve “Entrepreneurs Brief Guides”, addressing all you need to know about managing a new start up business. It contains independent and practical advice for entrepreneurs and small to medium sized businesses (SMEs). Designed to help your business achieve its primary objectives of growth and profitability through acquiring and retaining customers, this guide is invaluable to any start up company and small business owner.
Learn how to:
Manage Legal
Issues
Purchase
Negotiate
Price Your Products and
services
Prepare Your Budget
Manage Your PR
Write an
Advertisement
Manage Direct Mail
Improve your sales
Manage
Credit Control
Care for Your Customers
Benchmark Your Business
Copyright
How to Manage your Start up Business
Dr Jim Porter
.Revision: SW.02.001
Copyright © 2011 – All Rights Reserved.
Smashwords Edition
This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please purchase your own copy.
Thank you for respecting the hard work of this author.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without the written permission of the author.
ISBN:
978-1-4661-1928-4
Publisher: Smashwords, Inc.
Chapter No.1: How to Manage Legal Issues
When launching your start up business, you should be aware of certain basic business laws governing your commercial activities of purchase, sale, lease etc. This basic understanding of business law will help you to avoid or face any legal difficulties which you may encounter.
LEARN HOW TO:
Recognize when to seek help
Understand contractual requirements and implications
Seek the help of a solicitor
When launching your start up business, you should be aware of certain basic business laws governing your commercial activities of purchase, sale, lease etc. This basic understanding of business law will help you to avoid or face any legal difficulties which you may encounter.
The business laws will usually cover your contracts (with your customers and suppliers), trading (selling the products to the members of the public and the restrictions applied), employment law and VAT etc. Each business is different and laws are complex and dynamic therefore you should contact a solicitor to find out more about the laws applicable to your situation.
Recognise when you need legal advice
Business owners need to seek professional legal advice on the following:
Setting up a company structure. Irrespective of the business structure you choose; whether it’s self-employment, a partnership or a limited company, make sure the proper legal agreements are drafted.
Seeking a business premises, particularly when negotiating the terms and conditions of your lease agreement.
Compliance with regulations, as you need to be aware of current and new regulations that apply to you, some of which may be specific to particular industry sector.
Contract terms and service levels relating to your business, as you should be aware of your legal responsibilities towards customers and suppliers.
Protecting your business’s intellectual property and confirming your ownership. Make sure that all intellectual property rights relating to your products or services are protected and that you are not infringing the rights of other businesses.
Financial matters, particularly the legal implications of raising finance from different sources, for example.
Debt control and management, as you need to protect your business against bad debts and seek advice on debt collection.
Acquiring a franchise, as you need to check all the small print with a specialist lawyer.
Employment law matters.
Statutory rights
Although these rights are not written, all contracts have the implied terms. If these rights are breached in anyway, then the consumer can return the defected goods and get his/her money back or claim damages.
Certain conditions to be fulfilled for these are:
The goods sold must be of good quality and fit for the purpose required by the customer.
The goods must match their description in terms of quality, labels, claims made by the seller etc.
The goods must match up to the sample of the goods that had been provided to the customer.
Buying goods from someone who is not an authorised seller does not guarantee the return of your money in case you want to return it.
Therefore, ensure the seller you buy from is entitled to sell.
A customer’s statutory rights cannot be altered. The seller must always add the disclaimer ‘This does not affect your statutory rights’ to notices about the consumer’s terms of trade.
Terms of trading
A ‘terms of trading’ document can also be produced by a business for setting out standard conditions in the contracts. It should include the following clauses:
The details of the price, the payment method and the payment date.
Details of how the delivery will be made.
Mention of clauses limiting the seller’s liability (statutory rights of the customers).
Clause providing the seller the legal ownership of the goods until they have been fully paid for. Also, a clause for the seller’s right to delay the delivery if the circumstances are beyond his / her control.
Finally, it should also include a clause clarifying that beyond the buyer and the seller, nobody has any rights under the contract.
The sellers’ contract
With the help of a solicitor, draw up a standard terms of trade in simple language without any jargons. Ensure the buyer agrees to the terms of the contract before making the deal.
The contract can be in writing and if so, it must submit to your terms of trade. Invoices come into the scene only after the contract has been made.
If the buyer buys against your advice, then ensure you ask them to sign a written confirmation for doing so.
As a seller, you must describe all the details of your product/service truthfully and do not make any exaggerated claims. You must mention the limitations of the products so that you will not be charged with withholding information about the products. Finally ensure that all the instructions have been provided to the customer along with a representative sample and allow the customer to examine the product on their own.
You should always ensure that the products match the need and interests of the customers. But do not always ask them what they will use it for as you will then be held accountable if the products are unfit for use.
The buyers’ contract
As is the case with a seller, the buyer too should take the help of a solicitor to draw up a terms of trade for their purchases. In this case, ensure that your terms are agreed upon over the seller’s.
Always protect your rights under your terms by asking a lot of detailed questions about the products; ensure the product matches your specifications and is of the quality and standard you expect. Explain to the seller what you need the product for and examine the product thoroughly. Make notes of all the claims made by the seller.
Ensure the seller informs you of all the technical limitations of the products beforehand.
Always inspect the goods before signing any delivery notes and if you still have some reservations, then communicate the same to the seller. If you need the delivery urgently, ensure you inform the seller in writing.
Other laws
There are various other aspects of law which you must be generally aware of. Some of them are:
As a seller, ensure all your products meet the safety regulations because the seller will most likely be held liable for any injury or death of a customer caused by defective products or services. Contact your local trade council for the accepted standards.
As a customer, if you feel you have been overcharged for a product, then inform your solicitor to get the bill assessed.
Making false claims and descriptions and stating misleading prices are all considered illegal.
Some type of businesses, such as those offering credit, may require a licence whereas other businesses, such as those involved in selling food, may require extra regulation.
If you store any basic information about customers on your computers, you must declare so to the Information Officer as this may be prohibited or regulated under various data protection laws of your country.
Taking the help of a solicitor
A good solicitor can help save you a lot of time and effort by giving you the right advice. In return, you will have to pay their fees and any extra money they had to spend on your behalf. Some tips:
First of all, research basic information on laws which are likely to affect your business.
Search for a reputable solicitor through existing contacts e.g. friends, family, colleagues, partners etc. You can also check with your regional chamber of commerce and trade councils.
Always ask all the important questions about the solicitor’s experience, work, fees etc. if they have been recommended by a personal contact.
Some small businesses prefer hiring a small firm of solicitors as it is usually cheaper and easier to establish a good relationship with the individuals.
Decide if you need the solicitor’s advice for a particular task, such as drafting a contract, selecting premises, collecting debts, representing your case in court etc.
Ensure you know the hourly rate you will be charged before you hire a solicitor. You could also be charged for advice given over the telephone.
Give comprehensive instructions to your solicitor on what you need doing.
Draft a written agenda and prepare in advance for the meetings you will have with your solicitor.
Finally, avoid paying a bill until you understand what it is for.
Sometimes even good solicitors may have their own limitations, therefore ask them which specialist you could contact or if they know anyone who would be more suitable for the job. Good advice from an effective solicitor can be very helpful so do not hesitate in paying extra for a more experienced solicitor.
Managing your relationship with your solicitor
Although the majority of businesses enjoy a positive relationship with their solicitor, it is pivotal to check the quality of service from your solicitor, and ensure it is worth the money you are paying.
In order to maximize the benefits from your business relationship, it is important that you monitor the effectiveness in terms of cost and efficiency of using a particular solicitor.
By regularly reviewing the range of services that a solicitor offers, you may find that it is possible to make the relationship more cost effective if you take advantage of the range of services they provide. For example, your solicitor may be able to give you advice on employment law, or on the insurance that you may need to protect your business in the event of a claim.
You are advised to regularly check:
If the legal advice you have been receiving from your solicitor has been of value
If you solicitor has been consistently acting in your best interests, even when things aren’t working in your favor
Whether your solicitor's charges are reasonable and in line with their competition
If there are other legal issues that can be handled by your solicitor more effectively than handling them yourself in house
What to do if things are not right
If you are unsatisfied with the legal services you are receiving from your solicitor, it is recommended to do the following.
To start with, you should write directly to the person who handles complaints at your solicitor's business.
When writing, briefly outline what the nature of problem is, request a confirmation that it is being dealt with and ask how soon you should expect a resolution.
Should your complaint be about your solicitor's invoices, then you need to act promptly. If you do not act within a certain period of time, you may weaken your position and may be liable to pay.
If your complaint is not resolved satisfactorily through an internal complaints procedure, you can forward your complaint to the Legal Complaints Service which offers an independent, impartial and free service.
In conclusion, if your business is based in the UK, instead of hiring a solicitor you can always contact the Federation of Small Business or the Federation of Private Business for advice over the phone.
Tips
If you are unsure which legal structure would best suit your business, you can get advice from an accountant or solicitor.
Seek expert advice from an accountant or a solicitor early in your planning, through to completion, to avoid costly mistakes and unexpected obligations.
Pprotecting your business’s IPR is essential to your business’s future success, so it's vital to understand your rights and how the law can help you.
When recovering debt, the court will expect you to make an effort to resolve the dispute with the other party before you take legal action.
Chapter No. 2: How to Purchase Efficiently
For most of the new businesses, effective purchasing can lead to an increase in profits and improve efficiency. Most of the time, when businesses are troubled because of high prices charged by their suppliers, the managers step in to negotiate with the other suppliers and knock a few percentages off their price.
LEARN HOW TO:
Specify your purchasing requirements
Select your suppliers
Maintain a good relationship with your suppliers
Consider alternatives to purchasing
For most of the new businesses, effective purchasing can lead to an increase in profits and improve efficiency. Most of the time, when businesses are troubled because of high prices charged by their suppliers, the managers step in to negotiate with the other suppliers and knock a few percentages off their price. Even a minor reduction in their prices can lead to major savings for the business and boost their quality.
Detail what you want
You must always specify what you want from your supplier and what you expect from your purchase:
You must identify the features of the goods/services that will be supplied to you and agree on the details and specifications with your supplier, such as size, features, quality, appearance and procurement time.
However, over specifying might lead to a reverse effect and may cause increase in prices or the suppliers might get irritated.
You must have a documented proof of your agreement in writing as verbal documents maybe difficult to prove later on.
All the specifications and terms of purchase that you have greed upon will form the basis of your purchase contract.
You relationship with your supplier could be strained in the future, so having a mutual agreement and contract will help in avoiding such misunderstandings.
Also, the supplier will have a clear understanding of your needs and will ensure they are taken care of suitably.
Steps to select your supplier
First off, you can randomly select your suppliers from:
Suggestions from your friends, employers or contacts.
The existing suppliers in the market.
The suppliers of your competitors.
The yellow pages or directories in libraries and on the internet.
Trade journals or trade associations.
The database from the Chamber of Commerce in your region.
In the next step, you must shortlist the suitable suppliers and contact them explaining your exact requirements. You can ask them to send in their price lists and product details so that it is easier for you to decide.
Choose out the suppliers you are sure can offer the quality you are looking for and then compare them for their:
Quality of service.
Reputation and image.
Product sustainability.
Price range.
Delivery time involved.
Proximity to your company warehouses.
If you are looking at long –term supply contracts you must ensure that the suppliers meet your standards. Check for their professionalism, their enthusiasm for your deal, whether they are financially stable and if they will be able to cope with your order or not.
Then, you should collect quotes and other details like discounts offered etc. which you can use later for negotiation. You must also check with your prospective suppliers about the possible change of prices in the near future and how you be notified the same.
Finally, narrow down to two or three choice and then compare for the best deal among them. Avoid bargaining and negotiating too much on the prices for a healthy long term relations with your suppliers.
Check the worthiness of your supplier
When dealing with new suppliers, you are advised to carry out credit checks to ensure they have the cash flow to deliver what you are expecting from them.
Prior to signing a contractual agreement, it is highly essential to carry out due diligence to check the other party can fulfill the terms of the agreement. This is most fundamental when entering into a long-term contractual supply agreement. Extra care should be exercised with single source suppliers, as your business becomes dependent on their survival. You therefore need to carefully assess the risks associated with your suppliers going out of business.
Equally, it is very likely that your new supplier will run checks on you to verify that you have a good credit rating and you are capable of paying for goods or services.
It is good practice to seek references on the supplier from existing or past customers. Most professional suppliers should be happy to put you in touch with some of their existing or previous customers, bearing in mind that they are unlikely to put you in touch with a dissatisfied customer. Should they refuse to do so, this may suggest they have something to hide.
Agreeing a contract for your purchase
Upon agreeing a deal, it is good practice to draft a contract that reflects what has been agreed verbally. In certain circumstances, a verbal contract may be adequate and is legally binding, but unfortunately they are not heavily reliable in court.
When drafting a contract, both parties should agree on its contents, which may include:
Details of the products and services to be delivered by the supplier
Details of pricing, payment terms and delivery schedules
A clause confirming the supplier's right to ownership of the goods until they're fully paid for by the purchaser
A clause limiting the seller's contractual liability, without infringing on the purchaser's statutory rights
The terms and conditions used may be your own, the supplier's or a mixture of the two, depending on who holds the bargaining power in the negotiations.
You are advised to seek legal advice when drawing up your standard terms and conditions.
Plan to secure a contract that protects your interests and that shifts the legal responsibility for any problems to the supplier.
Inform your supplier in writing of your requirements and ask them for a written confirmation of the suitability of their products and services for their intended purpose.
When appropriate, ask explicitly about any hidden problems or shortcomings and keep a written record of all assurances given prior to placing an order.
Make sure that your contract covers the after-sales services you require.
Incorporate into the contract what will happen if there are any problems with the goods or services supplied to you. The supplier may for example replace individual faulty goods or the whole batch, within certain period of time.
State the likely penalties for failure to meet delivery times or quality standards, such as a future discount.
State how to resolve dispute or exit procedures that must be followed when either party is dissatisfied with the relationship or wants to terminate the contract.
Maintaining relations with your suppliers
First of all, you should invest most of your effort and time to maintain good relations with the suppliers whose supplies are most crucial to your production.
Try to give most of your orders to a few suppliers, and if appropriate ask for bulk or cumulative discounts.
You should avoid over dependency on one supplier and should always have other alternatives.
You must ensure that the supplier fits adapts well to your ordering systems. You should discuss in advance whether the supplier will always quote your reference number or how you will pay for the goods if a part of the delivery is incorrect.
You should also ensure beforehand, how you would deal with faulty supplies of the goods by your supplier. The payment, replacement and delivery for this scenario should be agreed upon.
You must agree upon the payment terms with your supplier. Whether you are going to give an advance (always ask for discounts on advance payments) or will the payment be made after the delivery of the consignment. If you have doubts regarding the supplier’s creditworthiness, then avoid advance payment options.
As long as you treat your suppliers well, they will treat you well. You should keep them updated with your needs and ask for their views and ideas.
Some tips for purchasing:
Let price not be the criteria for your choice of supplies, instead purchase those products which offer you all the benefits.
Try focusing your price cutting efforts on the items you spend most of your money on. While focus your quality boosting efforts on those items which will enhance the quality of your product.
Maintain an accurate record of all your purchases.
Do not try over negotiating with a supplier you intend to boy from regularly.
Delivery of the supplies
Aim to minimize your stock levels as holding stock ties up money and increases warehouse costs. You should make the delivery of the supplies, the responsibility of the supplier. But before this ensure:
The reliability of the supplier’s deliveries.
The storage space you have.
The time period between placing an order and receiving the supplies.
Whether the supplier will hold stock for you or not.
Device your own ordering system, in sync with the actual needs of your business. This way you will know when you have to place the order; a weekly stock check, the ordering routine etc.
Specify the delivery terms clearly in your contract to avoid late deliveries.
Ensure your supplier understand the contract and the time constraints affecting your business.
Keep track of deliveries as and when they arrive. In case of late deliveries, contact the managing director of your supplier as a follow up.
The delivery performance standards should be classified as a separate clause in the contract.
Always check what you have received before signing off the delivery note.
Consider your alternatives
Before investing in any equipment, you must consider the various possibilities that you have. This way you can reduce the amount of capital you are investing in your business and thus save extra costs.
The various options you have could be:
If you have enough cash to add to your capital, then you can outright purchase new equipments.
You can also consider purchasing second hand equipments, as long as they are reliable and the ownership can be transferred into your name.
You could hire the equipments, this way you can buy the equipment without having to pay for your purchase in one go. Although you must compare the cost of your hire purchase with other financing options such as bank loans etc.
Another option could be to lease/rent the equipment. This way you are allowed to use the equipments by paying for it and without buying them.
You could also consider subcontracting the work to outside suppliers. But you must ensure that they meet you standards and quality of the products.
Equipment provisions
When purchasing your equipments, you must have an idea of your requirements, such as the technical specifications of accuracy, wastage, safety, reliability etc.
You must have an idea of how you will use the equipment. Check for the compatibility, guarantee and technical support. Expensive equipment will help you save money in the long term, but just ensure the reliability of their engineers and how soon you will have an option for expanding or upgrading.
Always check for the costs involved of: purchase, delivery, installation, maintenance and running costs.
For major and expensive purchases, always gather the afore-mentioned information before hand itself to make a right choice. Always read the small print.
Investing in office supplies
Investment in office supplies is never given the due attention and therefore many start-ups end up paying more than necessary. Certain tips:
Always make the initial choices yourself and then delegate the responsibility for procurement.
Never overstock as office supplies can easily be refurbished the next day.
Certain office supplies specialists (bookstores etc.) can prove to be more efficient than your local office suppliers.
You can contract your office services, as they are far more cost effective than permanent staff. This can include- cleaning, security, maintenance and document controllers. This will prove to be cost effective and you will have access to updated technical expertise.
In the UK, contacting the Business Link at 0845 600 9 006 or www.businesslink.gov.uk can be very helpful for gaining information.
Tips
Good suppliers offer products or services that match the needs of your business. Be sure of your business needs and what you want to achieve by buying, rather than simply paying for what suppliers want to sell you.
You need your suppliers to deliver on time and be honest. The best suppliers communicate with you regularly to find out your needs at a particular moment in time and how they can serve you better in the future.
Ask friends and business acquaintances to recommend a supplier. You're more likely to get an honest assessment of a business' strengths and weaknesses from someone who has used its services.
Ask potential suppliers to give you a firm price in writing. You can also ask about discounts for long-term or high-volume contracts.
Quotes
“When people talk about successful retailers and those that are not so successful, the customer determines at the end of the day who is successful and for what reason.” Gerry Harvey
“This may seem simple, but you need to give customers what they want, not what you think they want. And, if you do this, people will keep coming back.” John Ilhan
“We intend to conduct our business in a way that not only meets but exceeds the expectations of our customers, business partners, shareholders, and creditors, as well as the communities in which we operate and society at large.” Akira Mori
Chapter No. 3: How to Negotiate
For many start-ups, negotiation is considered as a waste of time and embarrassing. However, as a seller, it is important to have good negotiation skills so that you do not waste money by needlessly giving out discounts or missing out on the chance to increase your sales.
LEARN HOW TO:
Set a negotiation strategy and objectives
Be confident when negotiating
Purchase at lower prices and sell at higher prices
Seal a good deal
For many start-ups, negotiation is considered as a waste of time and embarrassing. However, as a seller, it is important to have good negotiation skills so that you do not waste money by needlessly giving out discounts or missing out on the chance to increase your sales.
Some important rules
Every deal is different from another therefore there is no single formula for successful negotiation. However there are some guidelines which you can refer to:
You must always have a well-defined set of objectives. For example, for selling you might have the key objectives of a) an acceptable price b) a standard volume of production and c) the best feasible payment terms with your buyers.
You must try to understand from the other side’s perspective as well. They might have issues relating to their own objectives of price or timing of delivery. Sometimes your opponent may not be ready to concede; in this case you must know your opponent’s negotiating position so that you can strike the deal in your favour.
You must always try portraying the deal as a ‘win-win’ situation for both sides. By convincing the customer of the benefits they will receive by buying your products and by offering value for money, you can ensure a healthy long term relationship with them. Also, avoid making concessions without ensuring you’re getting something in return.
Having a written negotiating strategy is helpful as it helps in defining everybody’s role. On it you should list your objectives, some of the concessions that you believe you are ready to offer and your negotiating tactics.
Setting objectives of negotiating
When setting objectives for sale or purchase negotiations, you need to consider a range of key issues:
Price and value for money
Delivery
Payment terms
After-sales service and support
Quality and compliance standards
Life-time costs of a product or service
Whether or not the product or service is essential to your business
Prior to negotiation, you need to identify all factors that are most important to you and to decide what you are prepared to compromise on and what you are not. Ultimately, your main objective is to achieve your desired outcome.
When negotiating, aim to remain realistic. If you are not willing to make compromises, you may fail when negotiating a deal. You should also consider what offer your counterpart, supplier or purchaser, is willing to make and how you will respond.
Bear in mind that if you want to do more business with the other party in the future, you should plan to reach a deal that both parties are comfortable with.
Striking the best possible deal in the short-term is important, but maintaining a good long-term relationship can be more profitable for your business.