Business Recipes for Success

How To Start A Business Part 5- The Demand Gap

With the target market segment in mind, statistics as to population
should be the basis of determining the demand. If the restaurant is
going to cater to employees and students, the demographic profiles
of these population segment in the AREA where the business is going
to be located are very important.

Example, if the number of employees and students total to 30,000
and 50 per cent of them are potential customers (some bring their own
food, some do not eat in restaurants/fastfoods and some other reasons to
trim down the total population.

How many of these would be targeted? Did I hear 10 per cent. Some write
this randomly, 10 per cent, 5 per cent even an ambitious 20 per cent
on the ifrst year of operation.

But what about the supply? In restaurant business, it is the number
of eateries or food establishments that are in the area which are also
the competitors.

There is also what is called as seating capacity of the proposed
restaurant.

The seating capacity pertains to the number of customers that
can be accommodated at one given time e.g. 50 tables with 4 chairs
each. During peak periods, what is the expexted seating capacity
expressed in percentage as in 80 per cent or 80 or 40 tables out
50. And what is the turnover during peak periods?

What's the capacities of the competitors? If the market segment
totaled about 15,000 and total capacities of the cometitors amount
only to 10,000, then there is a gap of 5,000 not being served.
With 100 seating capacity and an assumption of 3 turnovers during
peak hours, the target clients number only 300/per meal/day.

One should remember, that the restaurant has no specialty that
would give it competitive edge to the restaurants already in
business in the locality.


business plan,capital,financing,franchise,demand,supply,demand gap,market segment,target market

posted by cathy at 6:14 AM

How To Start A Business Part 4-Determining the Demand

Several people go into business because of one or two of the following reasons:
1. friends/relatives convince them that the business is profitable.
2. there's mushrooming of the types of business they want to go into.
3. have money will invest in business.
4. become rich
5. some friends are into business
5. they have a lot of time to spare

You bet, I did not include the reason why one should be into the business because there is demand and supply is not enough. This is what they call in marketing/economic parlance as DEMAND GAP. The difference between the supply and the demand.

The number two reason which is mushrooming of the businesses i.e. you found them every where like mushrooms does not indicate demand. It is mere copy cat phenomenon
which in the long run would cannibalize each market just to survive. Then sun sets
and only one or two remain standing when the sun rises.

So how do you know that you are in the market where there is still opportunity to
expand.

We take a look at the external and internal environments of the business.
We take the demographic profiles of the target clients/customers and assess
the companies which are currently in business. You guess it right, the COMPETITORS,
because this spells the SUPPLY.

Let me use the restaurant as example. I am going to use other businesses as I discuss
some other related topics.

How do you assess the market.

External?

Location. What's the population ? You do not take the whole population as a whole.
You have to restrict the number to your potential market in terms of age,
income bracket and lifestyle.

Arggggghhhh Butof course Virginia, the whole population of a state/province/city
is not your potential clients. With those numbers come the infants and the aged.
If your restaurant caters to young urban professionals, then by all means get
the statistics.

Lifestyle defines the type of restaurants that you are going to put up e.g.
kind of food, time to open and to close and the theme and design of the restaurant itself. You are not going to hang frames about dogs and cats, baloons and ribbons
if your target are those who have past their kiddie stage.

You are not going to close at 6:00 p.m. when your potential clients are just about
to start their happy hours.

So where do you get the numbers, honey. Ask me.

Geographic Location

This pertains to the place where the business is going to be located.

Strategically located ? How far is this from actions or activities of
the target market? It should not be necessarily at the footsteps of the offices or achools but it should not also be at the place where the customers have to take the "plane/the bus and the train" going to that nook of yours.

Who are the people in your neighborhood?

If the target market belongs to a certain bracket of income, the neighborhood of the restaurant should be a concern to the proponent.

Who would like to eat in the restaurant where "undesirables" can just walk in
or hang out outside the restaurant.

When the Jolibee, Daly City, California was in its first months of operation, the parking area became a hang out of young Filams which by the look of it belonged to gangs doing things that parents would not like to see. They may have been Filam youths who were studying in the school in the vicinity known for notoriety of the young people.

Next the SUPPLY and the DETERMINATION OF THE DEMAND GAP.

business plan,financing,franchise,demand,
supply,demand gap

posted by cathy at 5:40 AM

How to Start a Business Part 3 -Sources of Capital

I have prepared feasibility studies (business plans)for businesses which capitalizations ranged from a few thousands to millions. Sources of
financing were no problem for incorporators/project proponents who were
already established businessmen who just would like to diversify in
terms of business holdings/exposure. If one industry becomes a sunset,
there are other businesses to which they can fall back on.

Let's go back to the restaurant business. This is the pro-forma
of the project cost:

Total Project Cost

Kitchen Equipment      xxx
Dining Equipment      xxx
Office Equipment      xxx
Furnitures and Fixtures     xxx
Leasehold Improvements     xxx
Working Capital Requirements    xxx
Organization Cost      xxx
Total       XXXX

The capitalization requirement depends on the capacity, type and image of the restaurant.

The capacity is expressed in terms of seating capacity. How many tables and chairs? Type. Will it be partly serve yourself,(turo-turo)order from the counter and bring the food to the table or waiters get and bring the orders to the customers?
Image of the restaurant refers to the profile of clients it would be catering to.

Sources Of Capital

1. You - This is on the assumption that this is single proprietorship.
2. Bank - The business cannot apply for a loan in the bank without the owner's use of collateral coming from the personal assets. There may be goverment program thru
foreign loan assistance that help small businesses if the project falls on this category.

(I've volunteered in one Church charity project helping people prepare simple project studies for small businesses with financing coming from the Charitable foundations).

3. Equipment Suppliers- If the equipment could be purchased on terms, then
the costs could be a deduction from the cash needed right away to open the
business. Credit cards of the sole proprietor could be tapped.

4. Relatives - if they are going to trust you. :)

5. Friends - We tapped our friends when we started the business which they thought would never take off. They may be friends but there is a need to promise something
in return to part with their savings. We promised 10 per cent. (When they saw
that it was a profitable business, they expressed their interest to convert the
loan to equity). And that is another story.

When people are convinced that there is a market and business success is guaranteed, there will be no problem of getting the needed capital.

Next: So how do you determine if there is a market ?


business plan,capital,financing,franchise

posted by cathy at 4:34 AM

How To Start A Business Part 2

Frequently Asked Questions

1. How much capital do I need?

The capital depends on the kind of business one is planning to engage in.
This includes the working capital requirements for months until the
income/collections start pouring in or are enough to finance the operation.

Let us take an example of how to estimate the capital for a small
restaurant that is not franchised.

Assumptions:
1. Place is leased
2. Sole proprietorship
3. Place is going to be renovated


1. Equipment /Dining/Kitchen/Big and small such as Oven, Stove,Grills, Coffee makers/
Refrigerators /Freezers/Cooking Pans etc.

2. Glasses/Diningware/Utensils

3. Furniture/furnishings such as tables and chairs for Dining area, Office Desks/Filing cabinets/ etc.

4. Office Equipment such as Cash registers, vaults, PC's, printers, etc.
5. Renovation which includes non-detachable cabinets/counters/lighting fixtures
etc.

6. Food and drinks inventory- the non-perishable ones and with longer shelf lives.

7. Food inventory-refers to highly perishable and should be good only for a number of days requirement (initial)

8. Supplies (Kitchen and Office)

9. Working capital Requirement -this represents the number of weeks or months
budget for recurring expenses until enough cash flow is generated from the business.
For a restaurant which are mostly cash transactions, this would be shorter than
the businesses where collections average 30 days.

1. Food inventory (especially if there is no established suppliers yet, once the restaurant business is known, suppliers come and extend credit as much as 30 days.

2. Salaries and Wages for personnel
3. Rent or lease
4. Miscellaneous- a catch all account for expenses that do not fall under
the general categories
5. Organization cost-includes licensing, business permits, promotional expenses
before the launching and MY PAYMENT as consultant for preparing the business
plan for you. hehehe

Next: Sourcing of Capital

business plan,capital

posted by cathy at 6:36 AM

How To Start A Business

The sure way of success to business is starting it right.

While others are just plain lucky to become successful businessmen, some may not just
have the same luck. While others got already ideas how to start, where to start
and when to start, some have the money but they do not know what business to invest in.

The following are options for people who do not know how to start.

1. Acquire an existing business
2. Franchise
3. Start a business by yourself

One advantage of acquiring a business is facility to enter the market. Major considerations for decision to acquire are the following:
1. Reasons for the sale - mismanagement? wrong place ? not profitable?
product obsolescence? no market?

2. Cost - Reasonable Sales price? Unpaid obligations? The price may be reasonable
but there may be claims that may arise in the future which were not disclosed by the
seller. Common businesses sold in the US are board and care facilities. There are consultants that may work with the buyers for assessment of the real values and some orientations regarding the legal requirements of operating this type of business where government
could be one of the clients. In the Philippines, common businesses sold are restaurants, beauty shops, gift shops and retail outlets.

3. Legal Issues such as leases that may expire; legal claims that may arise;
Laws that are for enactment in the near future that may affect operation in the future.

Franchising


What is good in franchising is there is already a market. Promotion is
centralized and backward integration activities are also handled by the
Franchiser.

The initial cost is high as well as the succeeding overhead since franchise fees may be required based on monthly or annual revenues.

Starting a Business

This is the riskiest and the most challenging among the three. Is there a need for business plan to see whether the project is feasible or not.

If the prospective investors are high profile, then there is a need for one to convince them, that the business proposal is financially profitable and viable.

If it is a small business, then the following may just be considered
FAQs (Frequently Asked Questions).

To be continued...


business plan,capital,franchise,investors

posted by cathy at 4:31 PM

Forms of Business Organization to Choose from

There are forms of business organization that a person can choose from in putting
up the business.

Single or Sole Proprietorship
1. Single Ownership- This is the simplest form with the following advantages:
a. easy to form
b. less problem in decision-making
c. easy to dissolve

disadvantages are:
a. limited capital- the business' capital may be limited by the limited resources of the owner that working capital requirement may be a problem. Example is when the collection of the business is longer than anticipated and vendors' demand for payment ia shorter in terms of payment.

b. unlimited liability- the liability extends up to the personal assets of the owner. If the business fails, the government, vendors and other creditors can run after the personal properties if the business assets are not enough to meet the payments.

c. loans may not easily be secured compared to the other types which have more people as guarantors/payors.

Partnership
This is a type of business organization where there are two or more partners. In the US, an S type of corporation is treated like a partnership, taxation-wise. Profits./losses
are distributed to the partners/stockholders and are taxed or are treated as losses/deductions from the other personal incomes of the taxpayers.

Partnership should always have one general partner whose liability after dissolution and liquidation of the business extends up to his personal assets. Limited liability partners are liable only up to the extent of the value of their investments. When business resources are exhausted to pay creditors, the personal assets of the limited liability partners can not be held to use for payment of obligations. An industrial partner is one whose investment is not cash or tangible assets but his expertise or services that he rendered in exchange of partner's equity.

Corporation
Corporation is formed by a group of investors called incorporators.
The incorporators are the stockholders but stockholders may not necessarily
be incorporators.

In the Philippines, there is what is called family or closed corporations.
These are stock corporations which ownerships are strictly for members of families
only. Closed because the stocks are not publicky traded in the stock market. There
are family corporations however where majority ownerships are still held by the families and the rest are publicly traded.

The minimum paid-up capitalization depends on the kind of industry the business will be engaged in.

Non-profit organization. oops.

posted by cathy at 3:11 PM

SO YOU LIKE TO PUT UP A BUSINESS

First thing that comes to mind is CAPITAL.Lay persons however (those who do not speak
the bizz lingo for you)associate capital with money, hard cash. But this is not so, capital can come in the form of assets, tangible and intangible.

Capital in the form of tangible of assets may be in the form of building, home, cars or land that are invested in business. Investment means the ownership is being relinquished to the partnership or corporation. For sole proprietorship, these tangible assets should be solely used for business.

Even intangible assets can be used to start a business. If you have copyright to a book, song or literary manuscripts, an agreement with some financiers can become a step toward a lucrative publishing business.

For people who have the know-how, the industrial partnership proposal is attractive to start a business with a hardly a penny coming from the pocket.

Next question is another C, that is the Class or type of business that an individual or group of individuals would like to go into.

When I say Class, it also refers to category as defined by the Tax authorities in order to classify the businesses according to their activities.

1. Merchandiser-The business is a buy and sell of merchandise without altering their original form. The purchases are made in bulk or distributorships have been made with the producers. Income is from the net profit after deducting the cost of the merchandise sold and the operating expenses in running the business.

2. Producer/Manufacturer- The business acquires raw materials, processes and sells them as finished goods. Distribution may be handled by the business or by contracted distributors either exclusive or by territories.

3. Services - The business does not buy anything to sell but the services it renders to clients such as accounting/bookkeeping/law firms/medical/dental and home assistance services such as plumbing, painting and babysitting.

posted by cathy at 1:51 PM