FAQ Starting A Small Business (Includes Vision, Strategy, Numbers, Tactics)

 

 

Starting A Small Business

I am sure that you are here because you are interested in starting or operating a Micro or Small business of some kind. Well; that is amazing and ‘yet’ a bold choice.   

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Now, I said amazing because I want to congratulate you on your passion for wishing to start your very own Small Business model, and it can be a lot of fun, but I say BOLD because it ain’t no walk in the park, and you may already know that.  That’s not to say that it cannot be done of course, but the more information or knowledge and experience you are armed with when starting out the better.

 

EXPERIENCE  = If you have prior experience of business then this will help you unquestionably, and you can draw from this is your new role. 

EDUCATION = If you have an MBA or another qualification, in some kind of business education which can help you then this will be an advantage. 

EXPERTISE = If you are an expert in a specific or certain area and this will help you in your role then this will be an advantage. 

Imagine that you have scaled Everest several times, and you will be attempting again. There are of course uncertainties EVERY SINGLE TIME up there and you could still perish as there are simply unknowns, however – having reached the summit before, you will know the route, you will have memorized certain parts to be aware of and you will have understood what it took from you.  So you take what is necessary back up there.

 

Have you ever thought about scaling Everest? I am pretty sure that it can be very scary and stepping outside the confines of safety is not for everyone, and if you are in a well paid job or career now but, are choosing to be to be free of this and what you have always been used to, it can be tough, but it doesn’t mean it cannot be done. 

 

Feelings of fear and uncertainty are very common and expected. After all, a change of life from what we are used and know can bring about many uneasy feelings.  However, hopefully this common list of questions and answers will help you to get that one step closer to starting your dream enterprise, whilst at the same time perhaps reducing some of your fears and even lowering some of your risks.

So, good for you for being here this shows that you are serious about getting it right.

One more thing; if you already have an interest or passion or some experience in the area/market/niche you wish to become a part of then congratulations on that also, as the greatest and most successful business owners and operators are those who have a vested interest in the core subject area they operate in.  Simply – the more you know and love your market the greater chance you have at succeeding.

Let’s get right into it: 

 

 

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FAQ Starting A Small Business (Includes Vision, Strategy, Tactics)

Take notes

Q: HOW DO I START A BUSINESS?

A:  CONDUCT MARKET IN-DEPTH RESEARCH as this will show you if you are able to become a solution in a market and hopefully be a better solution than what is out there. Your idea, passion or experience could be just what a market needs, or it could be an un-tapped market.  Your job is to fully explore the area and the current buyers in this area. We need to gather data and look at competition but also see who our potential customers may be. Then you will be using this to create a plan in order to carve out your competitive advantage.

WRITE YOUR BUSINESS PLAN This is the key to starting any business the right way. It is your very own roadmap to ensure that you can mitigate risk, and increase your chances at growing a successful business model. This Map will help you structure your business, and it will help you decide how to operate it, grow it and attract the right customers. This will also enable you to secure investment from the most appropriate experienced lenders to give you the funds you will likely need.

FUNDING YOUR BUSINESS MODEL So we talked about securing funding. Not all businesses need funding, if you operate a micro business you may be seeding the business from savings, or build it lean on a shoe string if it requires very little investment. But if you do need funds you this is where the plan will tell you how much you will need.  I can firmly recommend that you don’t borrow from family members, and you also keep your business accounts separate from your personal accounts.  People fall out over money, so be very very careful where you raise capital or seek investment.   There are many ways to fund your business and at MY TOOLS PAGE you can have a look.

PICK A LOCATION Now, you may be able to work from home as I do, or you may wish to work and travel which is also possible today, but this i another area you have to firmly establish.  Will your business be local? And if so, how will you stand out from your competition?  This is one of the most important factors of starting any business. If you build a business in the wrong location or at the wrong time it can be fatal.  It might be a bricks and mortar model, a container business or even an online business, but be aware that the choices you make early on will make or break your growth and success.  This can also affect what TAX you pay, and your legal requirements and the revenue you can expect.

BUSINESS STRUCTURE DECISIONS The structure you choose which has to be legal of course will affect how you register your business. But also yout TAXES, and your personal liability. So deciding upon a structure is best explored with a partner, team or another expert who understands this area, to ensure you are making the right choice.

CHOOSING A NAME FOR YOUR BUSINESS This can take a while depending on what kind of business you wish to operate. What also comes into play is your brand.  You have to explore how your brand name comes across and you have to conduct sufficient research in the area, and look at what consumers are already buying into. Look at competition also and others in a similar niche or market to you.   This is where you need to define a name which best reflects you and your brand and at the same time ensure that the name is an extension of your vision, mission, ethics and ethos.  This becomes a significant part of your overall strategy. Finally, you need to ensure that your name isn’t already being used by another.

REGISTERING YOUR BUSINESS Once you have completed everything I have talked about so far, you are now ready to register your business. It’s the time to legalize it, and to ensure you protect your brand name.  If your business name is different to your name then you will need to register this and let all legal bodies know.

GET TAX ID You will be using your tax ID in the important steps to be able to start your business and to grow it. This means opening a business bank account, and paying your taxes. It’s a bit like a social security number but for your business.  This can vary in what is required depending on where you live and which country you reside in.

APPLYING FOR A LICENCE AND PERMITS Ensure you keep your business legal and above board so you can run it without any hiccups. The licenses and permits you will need for your business will vary depending on your industry, where you live such as location and several other factors.

OPENING A BUSINESS ACCOUNT  A Small Business bank account is advised and this will help you to handle all of the legal, tax, and daily issues of operation.  Ensure you have all the right paperwork with you as this will help you set up your bank account much easier. Here in the UK I personally recommend Starling bank here as I found their structure, customer support, features and usability very good. But here is a list of the best business bank accounts should you wish to explore further.

 

 

FAQ Starting A Small Business (Includes Vision, Strategy, Tactics)

 

 

 

 

 

 

FAQ Starting A Small Business (Includes Vision, Strategy, Tactics)

 

VERY IMPORTANT: Ensure that whilst all of this information is understood and applied you need to ensure that you are coming from a place of YOU! An extension of you, your values, your missions, your ethics, ethos and long term goal.  There is little point in spending time and money on something which you have no passion for you or which is not authentically related to you and your identity.  The greatest businesses come from those who run them as an extension of who a person is.   So WHO ARE YOU ANYWAY?

 

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Now it is time to focus all your efforts on launching and opening your business, and managing and operating your model as you grow it with the right team, products, systems, processes and structure.

 

Q: HOW SHOULD I FORM MY BUSINESS OR COMPANY? 

Depending on where you are in the world this will differ. You can start a business as a sole trader, as a limited company, and I can recommend that you speak to a professional when setting this up to ensure that you are making the right decisions about what choice to make.  There are many articles to help you with this and I recommend fully exploring your options before making any decision. HERE IS A GREAT SIMPLE ARTICLE BY SIMPLY BUSINESS EXPLAINING the difference between a sole trader and a limited company. 

Q: WHO SHOULD I BORROW MONEY FROM TO START MY BUSINESS?

Some businesses and startups require very little investment so this can depend on the type of role and business you wish to operate. For example: As a Coach, trainer or consultant, you only have yourself and minimal tools and resources required to operate, so it can be quite cheap to start and this may also reduce financial risk.  But other business models may require us borrowing money. One tip I will give you right now is to avoid borrowing money from family and friends if possible. The reason is that it is personal, and if things don’t work or there are disagreements then this can cause friction, falling out, and lost relationships.   HERE IS A GREAT ARTICLE TO SHOW YOU THE VARIOUS OPTIONS YOU HAVE

 

 

FAQ Starting A Small Business (Includes Vision, Strategy, Tactics)

Further questions?

Here is a great article with the 20 most common questions asked about starting a business  

Here are 9 questions every smart entrepreneur asks when starting a business

 

 

 

Here is my Vision, Strategy and Tactics Tips When Starting Out:

 

Ready?  Grab a nice beverage as this will take some time.

OK, so you may be getting closer to seeing what you may be doing in your new role as a BRAND YOU expert, and I highly recommend this option, as it can be low cost, easy to set up and all of us have experience and even expertise in some area we can share and get paid for. 

But – you need to have a great strategy and this is a necessity, but even then is does not guarantee anything. NOTE: No matter what type of Small business you wish to create – what you will now be reading applies to all businesses. Take your time and take notes.

However IF you have no strategy or a very poor one then of course you are WAY less likely to get anywhere worthy.  Yet so many startups, budding business owners and small independent business owners fail to start this way. 

You need a strategy as it goes to the very core of your model and it helps you to determine which direction you will be taking; so try to get this right and you are 80-90% more likely to succeed over your nearest competition.

If you fail to even consider this then you will struggle way more than those who implement it.

As a leader of your operation you will want to have that plan of action in order to achieve a particular goal and this will be the guide which dictates the DIRECTION and SCOPE of what you do.

This is what can embody the vision of where we are headed, and HOW we will get there which means that we are able to align our 1) INTENTIONS with our 2) EXPECTATIONS and 3) VALUES.

By the way – the journey is never a really smooth one.  We have to expect challenges, setbacks, obstacles and more and even though this is the case with the right strategy we will be way more equipped to deal with whatever get’s in our way and it will guide us through this ever evolving business landscape towards our goals. 

 

How is our strategy shaped?

It is shaped by:

1) KNOWLEDGE = What do you already know and what can you bring to the situation? 

2) EXPERIENCE = What have you done before in other business or work areas which can serve you in this role?

3) RELATIONSHIPS = Who and what are you connected to and what needs evolving and nurturing to help you? 

4) RESOURCES = What is required and do you have all you need and if not what do you need to bring in?

5) CORE COMPETENCIES = What are your harmonized combination of multiple resources and skills that will distinguish you in the marketplace from others and give you an edge or foundation of competitiveness 

 

And – this is coupled with our own and our teams assessment of the greatest to be able to leverage these areas. This also includes our vision and our values as without them we have nothing to work for.

Our strategy will always evolve and respond to the conditions of our market conditions and also customer needs and desires.   It will also be affected by new opportunities and threats.

Now, once the strategy has been determined you will then also want to look at what your sub-strategies will be.  Here are the parts of the overall strategic objective.

 

OPERATIONAL STRATEGY = How we organize our business processes, resources and people or teams

PRODUCT STRATEGY =  How we will be sourcing and also delivering our products and services

MARKETING STRATEGY = How we will be raising awareness and create the strong demand

FINANCIAL STRATEGY = How we will be structuring and financing the business model

 

 

FAQ Starting A Small Business (Includes Vision, Strategy, Tactics)

 

So, as you can see your strategy is a very important part in all areas of your business.

The question is – HOW do successful leaders, business managers and startup founders create a successful, robust, workable and achievable strategy?

This is created by having:

VISION, STRATEGY AND TACTICS.

VISION =  THIS IS THE STRONG MENTAL IMAGE OF YOUR END GAME. Knowing where you are headed and and being able to see the final destination in your mind’s eye.   

STRATEGY = THE DIRECTION YOU WILL BE FOLLOWING to pursue your goals and be able to achieve the vision over a timescale.    

If we don’t envision a worthy future then we are in the dark. And this has been the key to my own success and a major common motivator for success in many businesses I have helped.  So _ highly recommend that you are able to develop your strategies and tactics to being this vision into fruition.

You only have to look at some of the most successful giants in business today and they all will have had a strong vision of what they were most passionate about achieving.  This is not about just dreaming, this is about having a strategic edge and implementing the right tactics towards your vision.

 

Today there are many tools and guides which can help us today and help us to craft an achievable and workable strategy, and there are many tactic that can bring this to life, so I will go into these as we move forward.  But let’s start by looking at your VISION.

 

YOUR VISION

It is never going to be super simple to develop a sound strategy to reach your goals, but it is WAY more achievable when we have a crystal clear vision of our future destination.  The tactics we use along our journey may involve a degree of testing, experimentation and tweaking through change, however it is important to note that the VISION should not change.  So now you know that the greatest leaders and successes in the business world begin with the end in mind. They visualize and strategize.  They will consider the ideal situation whilst also considering the reality as they also map out the idealistic vision and the reality of potential eventualities side by side.   And this is how they build successful, and sustainable business enterprises.

In the next section I will talking all about the strategy side of this, so be sure to take notes on that also. 

Congratulations on understanding the fundamental and important parts to starting your enterprise the right way. 

Let’s now talk about strategy.   

 

YOUR STRATEGY

So you now have a clear vision and its time to consider the strategies you will develop to be able to achieve your goals.  How this this be achieved?

You will need to research your market and gather up in-depth knowledge about your market.  You will need to also start creating rapport and communication with others to gain understanding of what they are doing. You will also need to look at your current business situation and position to determine what is required for you to be able to beat nearest competition.  If you already have a great passion or some experience of your market then you will probably already know a great deal about it. That’s why many successful entrepreneurs will build businesses around their passions as we talked about earlier.   This may be conducted with a team or business partner or with outsourced hired professionals. 

So if you already know a great deal about the area you wish to be involved with then you have a head start over others. Maybe you have already had some experience of working in this area, and because of this you have been able to see what areas need improving upon and where there may be opportunities for growth or change?  So take note that the greatest and most successful entrepreneurs create and build around what they UNDERSTAND very often. And this also tends to remain as their main focus.  Experience helps period!

But you may also notice new opportunities, so it’s not impossible to expand further or to break into new emerging markets also.   So gather your DATA, use your INSIGHT and apply your KNOWLEDGE to serve you.   We have to be able to know exactly what products and services we offer and that provide answers to the current issues in the marketplace.  In having this depth of knowledge it then enables us to see the opportunities for growth.  So we need to study the BEHAVIOUR of customers, clients and consumers in order to beat others through our strategy.

You will be identifying the core issues and where there are opportunities in the marketplace. This is going to enable you to maximize your strategic edge.

 

Communication and awareness

You will need to be focusing your efforts into contacting and communicating with customers, consumers and also your suppliers if you require these, so you can fully grasp what is wanted and needed, but also what they are doing now and whet their plans are for the future. Through this communication and in gaining insight you then create greater awareness which can translate into YOU being the greatest choice in your market area – and this will lead to greater growth.   So engage!   And this is something I talk about throughout this course.

 

 

FAQ Starting A Small Business (Includes Vision, Strategy, Tactics)

The more you explore and find out what’s going on around you the greater advantage you will have as you will see the weaknesses in others offerings. But – you may also speak to individuals to really grasp what they want and need. 

 

 

SO CREATE STRONG DIALOGUE as you may find gaps in what you offer but also in what others offer and you can fill that gap.

UNDERSTAND PERSPECTIVE from your buyers as you can see then first hand what they are asking for.

 

This is something which can ensure you outperform others, as you will grow through seeing the revenue streams which are possible.  Some of your customers may go to a competitor, and there is little we can do if they go, but if we can offer more than others and create retention we will have the strategic edge.

This may also mean that we can access our own INTUITION and IDEAS as much as logic and reason as we may see what others simply don’t see through our deep understanding and use of feedback we receive. So through talking to customers EVEN OTHERS customers, if we don’t have any yet means that we then know what they are desiring the most. This will show us their personal feelings and challenges and lead us to greater growth opportunities.

NOTE:  ADDRESS MARKETS SECTORS THAT ARE UNDERSERVED and as you identify these needs you will be a winning choice.  Your job is to understand their needs and frustrations.

 

So:

1) WHAT DO THEY NEED NOW THAT THEY ARE NOT GETTING ELSEWHERE?

2) COULD THE CURRENT OFFERS OUT THERE BE IMPROVED AND HOW?

3) DO THESE PEOPLE NEED GREATER CUSTOMER CENTRIC SUPPORT?

You will get to know what it is and where you can be better as a coach, consultant, trainer, shop owner, start up founder, or Baker. You know the area you can thrive in hopefully by now, so you need to now ensure you have the greatest chance to be the best.  So how will you fix this? How can you satisfy others needs in this way? Could you become faster, cheaper or more in-tune with their needs?

 

ADD VALUE!   Whatever it is you seek to do, ensure they feel you are adding value.

This is what strategy is all about. Do whatever you can to understand this from their point of view.

That is what a true competitive advantage truly means, as you discover unique value propositions, improved market areas and build a sustainable and unbeatable strategy.

And today – strategy doesn’t mean being cold calculated and cunning, we can be open, ask questions, seek to connect and be more transparent as we are all just trying to become the best we can be without being an enemy.  We don’t need to lose respect from others or in communities, we can grow respect and evolve relationships.   This is a different world now, where greed, egocentric leadership and standing on others toes is not the way forward.

 

So – open the dialogue and start your strategy.   

Now of course a great strategy is best executed with a great team.  SO you will need to find the right types to help you and hire those who can share your vision and passion, so you are all on the same page. And this means lowering risk and increasing probability of growth.

This is where you as a leader in your organization will have a team of competent and capable members who each bring their experiences and expertise to the whole.  Strategy is a partner of leadership, and one cannot really thrive without the other.

We must stay in an open dialogue with the team and ensure they are looked after.

Achieving scale means having a strong leadership team. Now, you may be working alone, but I recommend hiring a partner or a small team to help you.  This is not always possible, but as you grow then you will also need to grow in numbers.  My ultimate number is 10.   It’s not too big or too small, but manageable and enables me to ensure communication is clear and concise.

So before we move onto tactics let’s just finish by understanding that there needs to be a PURPOSE which all will be aware of.  And through this you can check your plans with others ensuring that you don’t miss the vital parts you probably cannot do alone.  So get into meetings and use zoom or whatever tool you need to get together and communicate.

Finally – you need to ensure that your team are all in full understanding of what the road map will be.  So ensure they all understand this strategy and purpose.

 

I want you to create a kind of POWER, ENTHUSIASM AND ENERGY where all team members are as excited as you are and this is vitally important I believe because there will be challenges, but with open channels of communication ‘all of you’ in the operation will consider your actions as a unit.

 

 

 

FAQ Starting A Small Business (Includes Vision, Strategy, Tactics)

YOUR CURRENT BUSINESS SITUATION

I don’t know where you are right now and you may not even have ever ran a business.  But that could be a great thing because, this means you can start right from the beginning. And it means that you start from scratch in the best way.  As you go through this process it means that you will be able to identify your S.W.O.T or strengths, weaknesses, opportunities and threats, and you will be much better positioned to craft your sustainable long term strategy. 

If you are new in business then you will likely have little experience in what doesn’t work yet versus what does work, but in starting right this will help you avoid the common pitfalls many will experience.  So start considering what you will need to do next, so that your business has greater prospects to improve rapidly. 

Questions to start asking yourself and your partner or team ‘if you have one’ are as follows:

1) IS OUR PRODUCT OR SERVICE GOING TO BE FIT FOR PURPOSE?

2) HOW MIGHT WE IMPROVE UPON OTHERS DOING THIS?

3) IS OUR PRICING STRUCTURE COMPETITIVE?

4) IS THERE A PROVEN NEED AND SUFFICIENT DEMAND?

5) IS THIS SCALABLE?

6) HOW WILL WE BECOME BETTER THAN OTHERS AND STAND OUT?

7) WHERE WILL WE FIND LOYAL AND REPEAT CUSTOMERS?

8) CAN WE MAKE AN ACCEPTABLE MARGIN?

It’s time to start asking these questions so you can start determining how to build satisfaction around knowing that you and your team are answering them effectively.  Communicate with your team, and always look at what can be the best option. In assessing your position NOW you will start to see the key areas and opportunities for you to work with.

DISCOVER YOUR COMPETITIVE ADVANTAGE.

ASK IF YOU ARE AWARE ENOUGH OF YOUR MARKET NEEDS.

ASK IF YOU NEED TO SOURCE PRODUCTS.

WHAT RESOURCES WILL YOU NEED.

ARE YOU COMPENTENT AND CAPABLE ENOUGH.

LOOK AT WHAT IS MISSING RIGHT NOW.

You will start to know what business you wish to operate and that is the whole point in this course, so questions may vary slightly depending on what you will be doing, however, in examining questions like these in DETAIL it will enable you to close any gaps and become the best.

 

YOUR TACTICS

You now know that you need a strategy, but you also need a solid plan. I will talk in more detail about planning and goal setting later in the course, but I want to go over the importance of your tactics. You need to be committed to taking the right action, you need to be sincere with your team, also reliable in execution whilst having integrity in doing what you say you will do, as you also lead with competence and absolute consistency.

As you probably now know, you cannot just dream you must ACT!  So, the strategy is all well and good and advised of course, but you also need to take strategic and specific action every day. 

Nothing can be achieved with that execution.

I am sure you have heard many times about dreamers who never quite managed to get started or who quit; but you won’t be like this of course.  The imagination is a truly magical and wonderful tool, but a tool which means nothing without FOLLOW UP or expression!  So how will you start to implement your strategy?   This is not just about what you will do or why you will do it either, this is about HOW!

 

 THERE ARE SPECIFIC TASKS AND TACTICS YOU WILL NEED TO MAKE USE OF. 

Again, depending upon where you are now this will determine what is required of you from now on, and if that is different to what you have been used to doing. With no vision or strategy YET, if you are at the beginning, this identification of your tactics will most certainly be required of you. 

It might be that you already operate a successful business? If this is the case then you will now look at how this can be evolved and improved upon.  And perhaps you have a great team, a solid track record and and capable leadership, so in this instance you will be looking at how this may be improved upon.

But you also know that there is more you COULD DO, and you could help your business to perform better. So, you explore the areas which you may have no considered before, and see that there is a gap in what you may also offer, so you can stick in your core area but also offer something else to increase your revenue.  Perhaps your market share may even grow as a result of this addition to your arsenal of products or services.

So exploring your tactics may even give birth to an entirely new product. 

This means that you will need to build that tactical plan in order to develop and market this new product whilst also ensuring that you maintain the existing business whilst allowing your team to be aware of how this may affect the overall operation.

 

 

FAQ Starting A Small Business (Includes Vision, Strategy, Tactics)

So now what will that tactical plan look like?

• RAISE THE IDEA WITH YOUR TEAM AND LISTEN OPENLY TO THEIR FEEDBACK AND INSIGHTS
• BE SURE TO TAKE IN ACCOUNT THE RESOURCES REQUIRED FOR THIS INCLUDING TIME AND MONEY
• START YOUR DEEP RESEARCH WITH EXISTING CUSTOMERS TO IDENTIFY THE POTENTIAL DEMAND
• TRY OUT THIS NEW PRODUCT/SERVICE ON A CURENT CUSTOMER OR ASSOCIATE
• DESIGN THIS PRODUCT/SERVICE BASED AROUND ACCORDING TO THE FEEDBACK RECEIVED
• CONSIDER IT’S COMMERCIAL SCALABILITY
• TEST, TWEAK AND FINALISE THE PRICING, FEATURES AND BENEFITS
• ENSURE YOU EXPLAIN THE NEW PRODUCT TO YOUR TEAM THROUGHOUT THE DEVELOPMENT  PROCESS
• HIRE TRAINERS OR TRAIN YOUR TEAM YOURSELF TO SELL THIS NEW PRODUCT
• HIRE PR AND MARKETING EXPERTS TO HELP YOU CREATE EXPOSURE AND AWARENESS
• EXPLORE MARKTING MIX AND BOTH ONLINE AND OFFLINE STRATEGIES
• ALWAYS MONITOR AND MEASURE HOW THIS PERFORMS AND HOW THIS ADDS PROFITABILITY
• SHARE AND MARKET THE NEW PRODUCT TO BOTH EXISTING CUSTOMERS AND NEW CUSTOMERS

 

This will obviously require ‘from you’ very specific actions with each step. And as always – these will need to be planned and explored through thorough consideration.   It just take s a little bit of organization and failure to do so means failure is likely going to happen.  So this section can help you reduce risk and reduce the probability of failure longterm.

Remember that this doesn’t have to be complicated either.

You may just need to evolve and consider that more action is required, not necessarily do different work or have an entirely new strategy.

Could you hire another expert or two?

Might you pivot your model?

Would you add in new tech, systems or processes?

Should you hire more sales professionals?

Will you look at your marketing mix and tweak it?

Can you hire a PR expert to help expose your brand rep more?

 

As I aid before – all businesses are different, so there is no one size fits all.   As long as you get specific on your targets, and identify the crucial areas which drive success factors and look at your KPI’s to monitor and measure results.  You know your goals by now I suspect, so ensure that these goals are fully understood, relevant and achievable with the resources you have.

 

STAY ON COURSE.  Stick with it, and don’t deviate from you path.   

You now know what to do, and you know that you need to have that vision as clear as anything you have ever imagined.  Now you need to realize this vision. Get to know exactly what is required of you to implement your growth strategy.   

Finally; if you fail to set this up and have a flawed strategy it may become your greatest downfall. So make it your goal to make it work.  

This is the absolute KEY and essential in your plan of action.   You now have to create commercial market demand and this may take time, so be aware of how time may affect the current demands and if they may change looking ahead. 

Now you will have an unfair advantage over anything close to what you re trying to achieve and through your idea, and through validating this you can ensure it has commercial demand so you can then scale. 

You will be ready for your market in no time.

 

 

Now for basic 
accounting essentials.

I am sure you will have heard others say KNOW YOUR NUMBERS, right?

Well it’s true. get to know them and you will have less headaches and stresses down the road.

But, I will tell you right of the bat ‘I AM NO ACCOUNTANT’, however, I do understand basic numbers and it pays to.

You don’t need to be a master of numbers or a wizard of math, as you can hire these masters, but it really does help you to know what is going on in your own business.  And if anything doesn’t quite make sense, at least you will be able to identify what the issue may be quicker than if you have no idea.

As Alison Pask from the London Institute of Banking and Finance once said:

Financial literacy is as important as reading and writing – it’s an essential skill for full participation in society.

Now, I used to think that Math was boring, and at school I would stare out of the window and dream of other stuff, but I would also feel the fear of the teacher possibly asking me something about numbers, and I literally hated the lessons.

But as I began selling to others in school I started seeing the fundamental need to really get the basics.

The truth is my mind is not naturally great at Math, so I had to train it. In fact – one might say that I was awful at anything more than basics.

I want you to be able to at least understand what you are going to build, as this way ‘you will know’ what is going on, and that is important when things may go a drift slightly from time to time.

So let’s begin:

Accounting is the essential language of business.  In fact – business cannot do without it, so we have to be able to IDENTIFY, MEASURE and COMMUNICATE economic information in order to permit truly informed decisions and judgments around what we do every day. This means that we get the information we need to be armed with.

Read this carefully; You will never consistently 1) make money, 2) control your costs, 3) make the greatest used of your resources, 4) know where to place your efforts and focus inside of your business, unless you understand the fundamental rules of numbers and accounting.  So it’s kind of  big deal.

If you are wishing to enter the world of entrepreneurship it is strongly advised that understand this language of accounts.  The great news is that by the end of this training you will be able to make sense of accounts and become aware of accounts, and to get you on the journey I have also included the financial terms you will be need to become aware of at the end of this training.

 

 

4 Golden Rules Of Accounting

Accounting is a rule based discipline.  And here I will provide you will those 4 key rules which you will need to become aware of.   And this will give you the necessary literacy a BASIC set of accounts.

 

 

1) A DOUBLE ENTRY SYSTEM INVOLVES RECORDING THE EFFECTS OF EACH TRANSACTION AS DEBTS AND CREDITS

2) LEFT-HAND SIDE OF AN ACCOUNT IS THE DEBT SIDE THE RIGHT-HAND SIDE IS THE CREDIT SIDE

3) TOTAL DEBTS MUST EQUAL TOTAL CREDITS

4) THE ACCOUNTING EQUATION; ASSETS = LIABILITIES + CAPITAL

CAN YOU REMEMBER THESE RULES?  IT WILL REALLY HELP YOU TO DO SO.

 

Let’s now explore each:

1) (GOLDEN RULE 1)The cornerstone of the double entry system is that each transaction is recorded with at least one credit and one debit.  This is because, each party in a business transaction will RECEIVE something and GIVE something in return.  Now in book-keeping terms, what is received is a DEBIT.  So something COMES IN when looking at the entry of a debit item.  And what is GIVEN is a credit which is something GOING OUT when looking at the entry of a credit item.

The words CREDIT and DEBIT and have very specific meaning in ACCOUNTING. Which is different from use in every day language.

Ready for some simple math to demonstrate this?

Let’s say that you need to buy a laptop for $700 ok, so how would this transaction be recorded as both a debit and credit?  If we think of a debit as something coming IN, there would be a DEBIT ENTRY in the MACHINERY ACCOUNT and if we think of a CREDIT as something going OUT, there would be a CREDIT entry in the CASH account.

Like this:

LAPTOP COMES IN = A DEBIT ENTRY IN THE MACHINERY ACCOUNT

CASH GOES OUT = A CREDIT ENTREY IN THE CASH ACCOUNT

 

2) (GOLDEN RULE 2) If every transaction creates a debit and credit, how do we then record them in our accounts?  The LEFT hand side is always the DEBIT SIDE, and the RIGHT hand side is always the CREDIT SIDE, and in it’s simplest form an account consists of  THREE PARTS.  1) THE NAME OF THE ACCOUNT 2) A LEFT OR DEBIT SIDE 3) A RIGHT OR CREDIT SIDE and this is referred to as a ‘T’ ACCOUNT and I will show you why in a moment.

Now, A T-account is an informal term for a set of FINANCIAL RECORDS that uses DOUBLE ENTRY BOOK KEEPING. This term describes the appearance of the bookkeeping entries. First, a large letter T is drawn on a page. The title of the account is then entered just above the top horizontal line, while underneath DEBITS are listed on the left and CREDITS are recorded on the right, separated by the vertical line of the letter T.  A T-account is also called a ledger account.  You will see that a T ACCCOUNT is sometimes depicted as a SCALE or BALANCE.   Think of your current account statements for a moment, as these adopt the same principle.

 

And there we have it.  The OVERALL account of a business are, in simple terms, the amalgam of a wide range of different T accounts which feature in ANY BUSINESS, such as assets, liabilities and capital.

Part of the HARD YARDS of accounting is in remembering how different types of transactions are recorded in DIFFERENT ‘T’ ACCOUNTS.

Always remember that CLEAR RULES APPLY and these are summarized below!

 

Got it?  Well done you.  You are doing a great job.

So, DEBITS LEFT and CREDITS RIGHT OK!  Every account comprises debits and credits.

 

3) (GOLDEN RULE 3)  Now that you know a T account resembles a set of scales you should have no trouble remembering the third rule.  Rule 3 is after every transaction is recorded in the company accounts. TOTAL DEBITS MUST EQUAL TOTAL CREDITS.

Now remember the $700 laptop you bought?  Our bookkeeping entry would read like this:

ACCOUNT                DEBIT                   CREDIT

LAPTOP                     $700                     $0

CASH                         $0                          $700

And in this example the books stay in balance, as the exact U.S. dollars amount increase the value of our machinery account decreases the value of our CASH amount.

With me?  Cool! Now onto Number 4.

4) (GOLDEN RULE 4)  So we have seen that every transaction MUST BE RECORDED once on the DEBIT side of an account, and once on the CREDIT side of an account, AND that total DEBITS must equal total CREDITS. And this way DOUBLE ENTRY BOOK-KEEPING follows the strictures of the final golden rule.  That is the ACCOUNTING EQUATION – which states:

ASSETS = LIABILITIES + CAPITAL 

This is a simple mathematical equation.  And the = sign requires that BOTH SIDES of the equation stay in balance at all times.  The equation MUST IN BALANCE AFTER EVERY RECORDED TRANSACTION in your system.

So, what does this equation mean in simple terms?

A) The ECONOMIC RESOURCES OF A BUSINESS (the assets) MUST BE EQUAL to the claims on those economic resources (liabilities + capital).

WHAT YOU HAVE SHOULD BE EQUAL TO WHAT YOU OWE!

WHAT ARE CLASSED AS ASSETS?

Assets consist of property of all kinds.  Including BUILDINGS, MACHINERY, STOCKS OF GOODS. And the other assets include debts owed by customers, and also the amount of money in the bank account.

 

 

LIABILITIES

Include amounts that are owed by the business for goods and services supplied to the business and for expenses incurred by the business that have not yet been paid for.

These will also include funds that are borrowed by the business.  The CAPITAL is often called the owner’s equity. It comprises of the funds invested in the business by the owner PLUS ANY PROFITS retained for use in the business LESS any share of the profits paid out of the business to the owner.

Be sure to really grasp this and understand it so it is embedded into your mind.   

 

 

You now have the key to being able to understand and master your accounts, and even if you hire other experts and stick to your core role, you will at least have a grasp on the essentials of accounting.

This goes back to the idea of an entity which is made up of resources AND claims on those resources.

A great way for you to think about about the accounting equation is shown in this simple image below:

 

ASSETS = LIABILITIES + CAPITAL 

_____________________________________

DEBIT LEFT       |    CREDIT RIGHT

                            |

 

This is the accounting equation

 

Now move onto the final part 2.

PART 2 Accounting essentials

Take your time.

So, what is that above? 

YESSSSS A T-ACCOUNT!  You now know what one of these is. HURRAY! BIG CONGRATS! You are growing and winning, and will be a mater in no time.

So, now you are rocking and are getting to grips with basic accounting it means that you will know your business.  If you fail to know your business, you may fail.  So it is kind of important!

EQUATIONS – T-ACCOUNTS and BALANCE SHEETS

Now I am pretty sure that you are getting this, and I would be as bold to also say that you probably have heard of a balance sheet before? Would that be correct?   The balance sheet is simply the accounting equation expressed into a FINANCIAL STATEMENT.

The balance sheet documents the accounting equation at a specific point in time. 

As the name suggests, and as determined by the accounting equation, it has to what?

YES BALANCE!   So, the value of the assets must be equal to the claims made AGAINST those assets.

 

WE ARE COOKING ON GAS NOW!   

I wanted to include both types of flame – as didn’t want one or the other to feel left out!

Enough silliness let’s keep going.

Back to balance sheets

When you look at your balance sheets, you can see our 4 GOLDEN RULES going right through it. With debits on the left and credits on the right, AND the need for BALANCE!

The clear link between the accounting equation and the normal T Accounts is a very simple one.

DEBITS ARE POSITIVE NUMBERS THAT ARE REPRESENTED ON THE LEFT SIDE of the accounting equation. 

CREDITS ARE POSITIVE NUMBERS THAT ARE REPRESENTED ON THE RIGHT SIDE of the accounting equation. 

ASSETS                                                                                              LIABILITIES                  

_________________________________________________________________________________

CASH AT BANK $1000                                        ACCOUNTS PAYABLE $1200

ACCOUNTS RECEIVABLE $1000

LAPTOP $700                                                       TOTAL LIABILITIES: $1200

CAPITAL

JOE BLOGGS $750

FANNY ADAMS $750

TOTAL CAPITAL  $1500

TOTAL: $2700                                                      TOTAL: $2700

The same spatial and financial relationships are replicated in the presentation of the balance sheet.  Just remember the 4 golden rules OK, and also remember that WHAT YOU HAVE should be equal to WHAT YOU OWE.  

A massive well done to you once again, you are doing so well. And in knowing this stuff well you can dramatically LOWER RISK and INCREASE GROWTH through measuring numbers and financial management.   NOTE: Whilst I get this I also have my own numbers gal, and I trust her implicitly with my numbers.

 

 

Now, here is the financial accounting glossary to further help you understand all of this:

ASSET: This is something a business or company OWNS. And which has future economic value.  This can include land, buildings, equipment, goodwill and so on.

LIABILITY: This is something OWES.  Money, service or products and so on.

REVENUES: Amounts received OR to be received from customers for SALES OR PRODUCT or SERVICES. Sales, rent or interest.

CAPITAL: Often called the owners equity.  It comprises the funds invested in the business by the owner and what is left of the assets after liabilities have been deducted. Profit: revenue less costs.

THE PROFIT AND LOSS ACCOUNT or P&L: This summarizes a business’s trading transactions; income, sales, and expenditure – and the resulting profit or loss for a given period.

A BALANCE SHEET: This provides a financial snapshot at a given point in time listing all of the assets and liabilities of a company.

THE BALANCE SHEET SHOWS THIS:

 

1) FIXED ASSTS – LONGTERM POSSESSIONS

2) CURRENT ASSETS – SHORT TERM POSSESSIONS

3) CURRENT LIABILITES – WHAT THE BUSINES OWES AND MUST REPAY IN THE SHORT TERM

4) LONG-TERM LIABILITIES – INCLUDING OWNER’S OR SHAREHOLDERS CAPITAL

 

Remember that: The balance sheet is called this because there is a debit entry and credit entry for everything, which must balance.

 

WHAT A BALANCE SHEET SHOWS:

1) HOW SOLVENT THE BUSINESS IS = Solvency is the ability of a company to meet its long-term debts and other financial obligations. Solvency is one measure of a company’s financial health, as it demonstrates a company’s ability to manage operations into the foreseeable future. Investors can use ratios to analyze a company’s solvency. 

2) HOW LIQUID IT’S ASSETS ARE = How much is in the form  of cash OR can easily be converted into cash. For example; stocks and shares.    

3) HOW THE BUSINESS IS FINANCED = Meaning the raising and managing of funds by business organizations. Planning, analysis, and control operations are responsibilities of the financial manager, who is usually close to the top of the organizational structure of a firm. In very large firms, major financial decisions are often made by committee. In small firms, the owner-manager usually conducts the financial operations. Much of the day-to-day work of business finance is conducted by lower-level staff; their work includes handling cash receipts and disbursements, borrowing from commercial banks on a regular and continuing basis, and formulating cash budgets.

4) HOW MUCH CAPITAL IS BEING USED = In the most basic sense, it’s the money and assets needed by a business to produce the products or services it offers. Businesses use capital to cover payroll and other associated expenses, allowing them to continue their normal operations.

NOTE: These definitions are partly drawn from; www.businesslink.gov.uk.

Now onto some simple economics:

 

Supply and demand curves explained

DEMAND = Is simply an expression of how much people want or desire something. This is measured by the amount they are willing to pay for such things or how much of this they will buy at a certain or specific price. DEMAND is rarely static, so this means that things change, peoples wants change, so in marketing the job is to aim to increase demand of possible. If demand is high and rising, then prices can change according to demand and so, measuring demand dictates prices.  In simple terms, if there is great demand, prices can increase which is ideal for the producers/manufacturers.

SUPPLY = Something which also influences and even determines the price is the cost to the manufacturer. How much does the manufacturer have to charge in order to cover costs, and still produce a reasonable enough profit for shareholders.  Prices can change in supply also according to the costs of materials and so on.

EQUILIBRIUM = Once a business or company understand the data for the supply and demand of their product through measuring supply and demand numbers – they can decide upon costs of manufacturing, also – ‘what to charge for the product’ based on these numbers, and this includes the quantity required for production.

 

 

Human beings are driven by emotion to buy, and so the markets are driven by human emotions such as greed, hope, fear and passion. These emotions change according to various factors which then drive the markets and the subsequent creation or products and services. 

Your job is to pinpoint exactly what you will be offering and why, based around your own research and development of the market you are entering into, unless you are creating a market of your own.   At the core, your business or company’s job is to demonstrate why you and your brand can deliver the solutions to others problems better than anyone else.  So you must anticipate their needs and strive to make lives improved in some way. 

  

As you will probably know – DATA capture is pure gold today, and drives the world’s behavior and business behavior.  This coupled with the ever changing landscape of social media means that ‘you and I’ need to be on top of our game, and ahead of the curve, and our goal is to beat our nearest competition.   

A MASSIVE well done to you.  You now know basic accounting essentials which will really help you now moving forward.  Let’s move forward now.

 

YOU 

ROCK! 

 

 

Huge congratulations on completing this section. It is not an easy area to understand and implement. And I fully understand that as a new business owner it might all seem a little overwhelming.  But just know that it will payoff.

Well done!

Take a break.

 

 

Vital F.A.Q About Starting a Small Business Click To Tweet

 

 

 

FAQ Starting A Small Business (Includes Vision, Strategy, Tactics)

Now – I hope this has been helpful for you in gaining some insights into starting a small business the right way.

 

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As always I wish you the very best

Greg

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