This Segment Is Dedicated To Two Exceptionally Bright Future Entrepreneurs: Logan & Ryan Northville MI
The world needs new entrepreneurs. Entrepreneurs create jobs, lift the standard of living, usher new technology into society, and keep competition alive in the marketplace. Starting a business is difficult, and it’s crucial that the next generation has as much ammunition as possible. We are all relying on you to carry on the proud tradition of innovation.
If I could go back and give my 18 to 20 something self a bit of advice about starting out as an entrepreneur, these are the tips I’d start with:
Perseverance/Passion. Throughout the entrepreneurial journey you will at times fail. That is part of the game. Your failures are most likely to lead to success if you get involved with something you believe in. Starting a business just for its own sake will leave you directionless, burned out and ultimately, back where you started. Choose an interest that you can be passionate about. Marrying charity to traditional business models may be a great way to combine the things you – and potential consumers – care most about.
Define your market. You’ve heard this before. It’s one of the most common mistakes that entrepreneurs make. Go with something that makes sense for your scope. If you’re a small startup and still a student, staying local or targeting fellow students might be the best direction. The Internet gives us almost infinite reach, but it’s vital to narrow your market down to what is realistic, and stick with those who have a reason to be interested.
Price point. Risk taking is important in any new business venture, provided that it is sensible. Consider providing your product or service at the most basic level possible (also called minimum viable product). A small investment up front can hook new customers/donations before risking more money. Your target defines the ideal price. Survey your defined market and adjust accordingly. You can always reevaluate your prices as you grow.
Be honest. This advice applies to yourself, your employees and your customers. Be honest about what you can commit to your business. It doesn’t do any good to over-extend yourself when in truth; you don’t have the cash or the hours to commit to a project. Be honest about what your partners can expect from, and what you expect in return. And be honest with clients.
Utilize, but don’t over-use, social media. Young people are always eager to jump online, and that’s not a bad thing. But it is important to think carefully before plastering marketing materials on the Internet. Social media is obviously a powerful tool. Focusing it on your business can get word out quickly and cheaply. That said, be careful not to put all of your eggs in the online basket. Experiment and measure results, then constantly evaluate and decide what is working, and what you are wasting resources on.
Don’t forget PR. Traditional and online press relations can yield coverage that has longer shelf life and costs less than advertising. Think about what makes your product new, interesting, and relevant. Then, talk to the media about it. You might get great reviews, mentions on blogs, or even appear on news segments. Many media outlets have sections dedicated to people in the community doing outstanding things. Even an article in your local/campus newspaper can be a valuable source of publicity.
Look for mentors. The beginning of any venture can be exhilarating, frustrating, liberating and terrifying all at once. Remember, although younger generations can be more tech-savvy than those who have been in business for years, there are still basic principles that are refined by experience. Many communities offer networking opportunities for entrepreneurs young and old. Take advantage of this, and you may be surprised at the wealth of knowledge your colleagues have to offer.
These tips won’t earn you certain success, but every bit of knowledge you can gather before you begin your entrepreneurial career can help you avoid serious mistakes.
Measure Your Business's Health with These Financial Ratios
Large companies use defined financial ratios to analyze the health of the organization. There are dozens of established ratios that test a variety of financial domains, including the ability to pay debt, secure stockholder funding and expand services.
Not all ratios are used by every company. Small business owners should use the following ratios that help manage day-to-day activities while still keeping an eye on growth:
This metric derives its name from the speed in which you can get out of your business. The quick ratio is cash, accounts receivable and other assets that can be quickly realized divided by your total current liabilities. This ratio tells you whether or not you can cover your debt without tapping into your inventory. It looks at a point in time for your business and determines if it is healthy at that point.
If your assets are greater than your liabilities, the quick ratio will be greater than one. Decimal ratios show that your business needs a fast infusion of cash to be strong. You may consider cashing out long-term income from things like structured settlements and annuity payments using J.G. Wentworth. If your quick ratio is more than two, this means that you have twice the capital that you need and should think about expanding your business.
The second ratio of the financial triumvirate measures the income from operations divided by the net sales. The operating income is the profit after deducting variable costs of production or service delivery. If this ratio is equal to one, then there is no cost for doing business and all of the income from sales is profit. On the other hand, if the ratio approaches zero, all of the income from sales is eaten up by producing the item. Somewhere is the middle of these two extremes is a good profit margin. This ratio only looks at operating costs and before-tax sales. It does not take into consideration after-tax effects or cash assets.
There are other profitability ratios that are more robust in their analysis and work better for larger companies, but for a small business, the operating margin ratio tells you everything you need to know about your profit. Since entrepreneurial ventures are often closely linked to the owner’s net worth, things like tax bases and fixed expenses do not fit into the mix. When we drop the kids off at school, go see a client, then come home to the office, it is useless to separate out these expenses as fixed costs. The operating margin lets us ignore these and focus only on the profitability for one service or product.
Cash Flow to Debt
Many new businesses have failed because they did not analyze their cash flow. As a matter of fact, the U.S. Small Business Administration cites under funding and poor cash flow as one of the main reasons a new business fails. This coverage ratio is your net income plus depreciation divided by total debt, and it is considered the best predictor of business failure. A number less than one means you cannot cover your bills without securing additional funds. A ratio greater than one but less than two is good, and anything high shows that you have surplus capital and you should start looking at investing or expanding.
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