Running a Business

Growing a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business. Author: Henry McCabe.

Goals- Industry Profiles

In my last few blogs I have written about creating Someday Goals as a prelude to setting long term goals for your business. In effect a ten year Strategic Plan. Doing so requires some research using a search engine, local library and physical observation in a local market.  I have been using a fictitious women's clothing store to illustrate what can be done. Check earlier blogs for sources and results covered to date. The purpose of the research is to use industry profiles to establish that it is possible to reach the sales goal of $600,000 that is required to meet the fictitious owner's income goal.

In the last blog I mentioned two data bases from which a person could get more data. Reference USA and AtoZ charge subscription fees but can be accessed for free through the many library systems, colleges and universities who are subscribers. They have similar data sets. I have access to AtoZ via my library so I looked there. Sorry I cannot provide a link to my library. AtoZ contains data on both businesses and consumers that is searchable and downloadable. The data is supplied by DatabaseUSA, a company that compiles data on businesses and sells it in various forms.  I searched for stores in my county using two NAICS codes, one for women's clothing stores (448120) and another for department stores (452111) and downloaded the resulting 15 column spread sheet.

The spreadsheet contains details on 61 stores. I was primarily interested in DatabaseUSA estimates of the annual sales of independent women's retail stores and added department stores as related businesses. The file contains estimated sales and number of employees for each store.  Some analysis indicated that DatabaseUSA estimates sales based on a Sales per Employee factor and an estimate of the Number of Employees in each store. Not 100% solid data, but at least it is something. Privately owned companies rarely make their numbers public so Database USA has to estimate on some basis. Unfortunately, they do not disclose how, at least in the free AtoZ version. The table shown below summarizes the data divided into several groups.

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I was hoping that the data would confirm the sales estimate for the average women's clothing stores found in the SizeUp data I wrote about earlier. That number was $500,400, much higher than the average $293,000 for Small Stores in this data. It is annoying when data doesn't support a theory, but that is the way it goes. Still, of the 13 stores the two largest were estimated to have average sales of $580,000. Twenty two stores (including the 13) with average sales per employee less than $125,000 have average sales of $478,000. Twenty five stores (including the 22) with  average sales per employee less than $150,000 have average sales of $702,000. Those three subsets of the data more or less confirm that it would be possible to achieve sales of $600,000 (or does it confirm that a researcher can make data fit a theory?).

AtoZ Data-  Women's Clothing & Department Stores in My County
	Sales per	Estimated	Estimated	Average
Number	Employee	Total	Total	Est'd Store
of Stores	Factor Used	Employees	Sales	Sales
Small Women's Clothing Stores
1	$100,000	1	$100,000	$100,000
12	$116,000	32	$3,712,000	$309,333
13	$115,115	33	$3,812,000	$293,231
Small and Medium Sized Independent & Chain Stores
2	$100,000	16	$1,600,000	$800,000
7	$116,000	44	$5,104,000	$729,143
1	$127,000	11	$1,397,000	$1,397,000
2	$131,000	43	$5,633,000	$2,816,500
1	$152,000	28	$4,256,000	$4,256,000
1	$170,000	2	$340,000	$340,000
22	$171,000	562	$96,102,000	$4,368,273
1	$186,000	4	$744,000	$744,000
1	$195,000	13	$2,535,000	$2,535,000
38	$162,809	723	$117,711,000	$3,097,658
Large Stores (average sales per employee varies)
10	$653,516	483	$315,648,000	$31,564,800
All Stores
61	$352,842	1239	$437,171,000	$7,166,738
Subsets of the Data
Two Largest Independent Stores
2	$116,000	10	$1,160,000	$580,000
Stores with average per employee sales under $125,000
22	$113,075	93	$10,516,000	$478,000
Stores with average per employee sales under $150,000
25	$119,361	147	$17,546,000	$701,840

By now readers may be wondering why they should go through exercises like this as part of their planning process. After all it takes hours to do it. The answer is simple. It is better to make plans for the future based on facts rather than on pure guesses even if the "facts" are somewhat spongy. The owner of a business that achieves success will probably spend 42,000 hours working in it before retiring after 20 years. 40-80 hours spent now planning to make those hours worth the effort is not much of an investment in light of that. Next, can a $600,000 women's retail store generate $125,000 in income for its owner?

Planning. The only thing we know for sure about any plan we make is that actual events will turn out to be different. We must not let the attempt to create a perfect plan get in the way of completing one. An imperfect plan is better than none at all.

Answer to last quiz: It may not be complete and accurate

Definition Quiz: What is a financial model?

Running a Business

Growing a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business. Author: Henry McCabe.

Goals- Industry Profiles

In my last blog I wrote about creating Someday Goals. This as a prelude to setting long term goals for what you want your business to grow into and a set of actions necessary to bring about the growth. In effect a ten year Strategic Plan for your business. I suggested that doing so requires some research about what is possible and am using a few blogs to illustrate how you might go about doing your own. Your favorite search engine and local library are your tools. Using the a fictitious Women's Clothing Store as an example I began looking at what level of sales is possible. It seemed a $600,000 goal was reasonable. Needing a little more evidence I looked at some data I had gathered  last year after a lot of scrounging on the internet. The kind of scrounging you can do.  From that I produced this table.

Ranking of U.S. Retail Chains by Sales per Square Foot
From a Survey of Public Data From 160 Chains
Retail		Sales Per
Chain	Rank	Square Foot
Limited	14	$653
Aeropostale	16	$595
J Crew	17	$593
Urban	19	$532
Guess	20	$510
Source: Retail Sails.com March 30, 2012

RetailSails is a New York based research and consulting firm aiming to be the premier resource for fact-based insight and analysis covering the U.S. retail and consumer goods industries. Another source for information of retailing is the National Retail Federation, an industry advocacy organization. When doing this kind of research industry organizations are an important source.

I don't expect a small local retail store will outsell the chains listed, but $400 per square foot right be reasonable. At that level a 1,500 sq foot store would be required to make the $600,000 goal. The current store is 1,200 square feet so a relocation may be required.

There are two other data bases from which I could get more data. Reference USA and AtoZ. Both are subscription  fee based services. My budget requires that I locate free data. Fortunately many library systems, colleges and universities subscribe to those services and make them available to users without charge. My library subscribes to AtoZ so I looked there. Sorry I cannot provide a link but I did find some interesting data. More on that in my next Growing a Business Post.

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Planning. The only thing we know for sure about any plan we make is that actual events will turn out to be different. We must not let the attempt to create a perfect plan get in the way of completing one. An imperfect plan is better than none at all.

Answer to last quiz: One from whom you can make profit.

Definition Quiz:  What do we know about data gathered in our research?

Running a Business

Growing a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business. Author: Henry McCabe

Goals- Research Industry Profiles

In my last blog I wrote about creating Someday Goals. I provided an example of a way to arrive at financial model for what your business must become in order for it to provide you with a certain amount of personal income. If you studied the instructions, you read "Research industry data to establish a profile of revenue and expense". My experience has been that few people know how to go about doing this. I am going to provide some tips. For purposes of illustration I'll assume that I run a small women's clothing store and am trying to establish Someday Goals for my business. I can use several free tools to develop a profile for what my business might become. In this blog I will illustrate one of them. I'll follow up with more in a future blog or two.

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The SBA provides access to a commercial service, SizeUp.  I can use this tool to get an idea of what is possible. The site provides three research options: My Business, My Competitors and Advertising.  Clicking on My Business and following the instructions I find a this table:

My Business	$251,000
My Small City, FL	$579,166
My County, FL	$500,400
Florida	$720,306
United States	$802,181
National Median	$534,000

What does this tell me? Well it gives me a sense of what is possible. The average for stores in my small city and large county is twice my sales volume. Based on this, it seems that a long term sales goal of $600,000 in today's dollars is reasonable. To achieve that requires about 9% per year in sales growth over a ten year period. I decide to look deeper so I click on the My Competitors button. The data lists 7 competitors in My Small City and another 359 in the surrounding area. Unfortunately it does not provide individual sales data. I know of another site that provides an estimate so I will look at that later. However, I know something about most of the local ones because of my ongoing tracking of the competition. Many have been in business longer than I. Some are not very well run. There is no reason that I cannot grow my sales to match or better theirs. It seems that a goal of achieving sales growth of about 9% a year over the next decade is an achievable goal. I can plan an advertising program to make that happen and get some estimates on what that will cost. 

I will need to figure out if a business of that size will produce the $90,000 to $100,000 a year of income that I seek. My rough calculations with Henry's spread sheet indicate that I might need higher sales than that. I need to do some research to see what the average cost of sales and overhead are in my industry so that I can fine tune Henry's spread sheet. And, some more research on how what a reasonable sales goal is.

In preparation for that it might be useful to find out what my North American Industrial Classification System code is. Lots of data is stored under those codes. So I go to http://www.naics.com/search.htm and do a search using  Women's Clothing Stores. My NAICS Code is 448120. I also learn that, under the older system, my SIC code is 56210000. I am ready for the next steps.

Planning. The only thing we know for sure about any plan we make is that actual events will turn out to be different. We must not let the attempt to create a perfect plan get in the way of completing one. An imperfect plan is better than none at all.

Answer to last quiz: One from whom you can make profit.

Definition Quiz:  What do we know about data gathered in our research?

Running a Business

Growing a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one.

Author: Henry McCabe

Goals- A Someday Goal

On October 10, 2013 I wrote: "I've yet to meet a person running a small business that does not want to grow sales and profits." In a subsequent post I wrote that  you should write or update mission and vision statements, evaluate your current situation and prepare strategic and tactical plans. In two later posts I provided a list of questions to ask yourself as a means of evaluating your current situation. The answers should provide a guide to what needs to be done to bring about growth. If you have done those things, you should be ready to begin work on a road map to the future.

But wait, I've skipped something!  In order to go somewhere you have to pick a destination. In this case a set of long term goals for the business. Those business goals should satisfy your personal goals. That is, what is it that you want the business to do for you. I call them Someday Goals because it may take years for you to attain them. Many business planning guides skip this vital step. That is a mistake you can avoid by a sitting down and working out some long term goals. Someday Goals may be qualitative, such as returning to a normal work week or establishing an exit time date and strategy. Others may be quantitative.

Compensation, a quantitative one, is most important, unless you are running a hobby business and do not care how much income the business provides. Don't be a hobbyist. Decide on a Someday Compensation Goal that should be achievable and develop a financial profile of what your business needs to look like in order to provide that amount of compensation. Below is a tool I developed for my clients as a way to arrive at a Someday Goal for compensation. If you want a copy of the spread sheet, go to the web site for the SCORE office I work from, fill out the Request a Mentor form and in the What business question block write: "Please assign Henry McCabe. Henry, please send the Someday Goal Tool." If you have a business question I might answer, write that in as well. I'll get back to you by email.

Planning. The only thing we know for sure about any plan we make is that actual events will turn out to be different. We must not let the attempt to create a perfect plan get in the way of completing one. An imperfect plan is better than none at all.

Answer to last quiz: A Valuable Customer      Definition Quiz. What makes a customer Valuable?

Someday Goal For My Business- Compensation
Instructions
Use this spreadsheet to develop a financial profile of what
your business would have to look like in order to provide
a given level of personal income for yourself.
Based on that profile you can develop a plan for how to
get there from where you are today. This is different from
developing a financial projection because instead of estimating
the results of action over the short term, 1 to 3 years, you are
"backing into" the  amount of sales and and related costs needed to produce
the amount of income you desire. They become a set of goals to meet.
Once you have set a goal you can flesh out the model with details on
revenue, cost of sales and expenses.
Research industry data to establish a profile of revenue and expense.
Replace the sample data with your data in the cells color coded:
The results will appear in the cells color coded:
Factors and Results	Scenario 1
Factors
Owner's cash compensation goal $	$125,000
Owner's compensation goal % sales*	15.0%
Estimate of cost of sales % sales*	50.0%
Estimate of overhead cost % of sales*	30.0%
Net cash flow retained for reinvestment goal % sales*	5.0%
*Percents must total 100 %. True if they do. False if they don't.	TRUE
Results
Sales required to achive goal	$833,333
Estimated cost of sales for those sales	$416,667
Estimated overhead for those sales	$250,000
Resulting net cash flow (profit)	$166,667
Net cash flow taken by owner	$125,000
Net cash flow left for re-investment or as retained earnings	$41,667
Warranty and Copyright
The author does not warrant that the results of the worksheet are correct. Use at your
own risk. Report errors to the author. ©H. W. McCabe 2013. All rights reserved.

Starting a Business

Three Ways to Describe Potential Customers
by Henry McCabe
A blog for businesses with 20 or fewer employees or for people planning on starting one.

In my October 3, 2013 blog I wrote: "Describe for yourself the important characteristics of the consumers or businesses that are likely to buy your product or service because they may have a need for it."  It is to those prospects that you should address your advertising. That is called targeted marketing.  Money and energy spent on promotions  to others is wasted. In order to target likely prospects you need to define who they are so that you can find a way to reach that group in particular. Do this by describing their characteristics. There are three groupings of them: psychology, demography and geography.

1. Psycho-graphics. These are the psychological factors that lead consumers or businesses to make purchase decisions or that influence the decisions they make. The underlying factor is a desire to satisfy a need or want, as described in an earlier post. Expand on that with such factors as: life style- basic or luxurious; desire for prestige, buying habit- impulse or carefully calculated, ethnic background, desire for convenience, style consciousness, infirmity, hobbies, amenable to change or not, fear of wrong decision and so on.

2. Demographics. These are quantifiable factors. The age, gender, place of domicile, vehicle ownership, income level, social class, occupation, educational level and other such facts about consumers. For businesses: industry, location, size of firm, quality requirements, technology needs, and other such facts.  Also, where are they most likely to get they get their information from: TV, periodicals, internet, friends, etc.

2. Geographics. These are obvious but are sometimes overlooked.  It is where the prospects live or do business and make their purchases relative to an area you can profitably serve: local. regional, national or international.

Using these factors you can create a profile of your likely prospects. Then find a way to reach them. Creating such a profile may sound esoteric or complicated but it is relatively simple. Just sit down, make a chart or table and list the best factors you can think of. Here are two examples.

Consumers	Businesses
Age	Industry
Gender	Sales volume
Nationality	No. of employees
Household Size	Profit or non profit
Education	Home based
Occupation	Location based
Income Level	Mobile
Ability to pay	Consumer of product
Special Interest	Re-seller of product
Hobby	Location
Place of Domicile	Source of News
Place of Employment	Computer Literacy
Willingness to travel	Have unmet need
Source of News	Need being met
Source Entertainment	Price sensitivity
Computer Literacy	Formal buying
Have unmet need	Informal buying
Need being met	Frequency of buys
Price sensitivity	Size of buys
Want credit	Competitors
Credit worthiness	Field open
Home value	Want credit
Brand of auto	Credit worthiness
Clothing style	In a network

Planning. The only thing you know for sure about any plan you make is that actual events will turn out to be different. Do not let the attempt to create a perfect plan get in the way of completing one. An imperfect plan is better than none at all.

Definition Quiz. What phrase or sentence describes a customer you want to do n business with?

Answer to last quiz: An Income Statement

Running a Business

Six Areas to Assess
by Henry McCabe
A blog for businesses with 20 or fewer employees or for people planning on starting one.

In order to plan for future growth, you need to assess where you are now in order to identify what you must change to bring about growth. Assess your situation by answering a few questions about six areas of your business: Goals, Management, Marketing, Sales, Operations and Finance. My last post covered Goals, Management and Marketing. This covers the last thee.

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4. Sales. Have I considered using other distribution channels besides the one I now use? Do I know what other distribution channels are available to me?  Is my advertising  program generating a sufficient number of qualified prospects? Have I defined what makes a prospect a qualified one?  Are I and my customer facing employees converting the right number of prospects to sales- not too few or too many? Do we have and use a planned selling process? Have I set sales goals for myself and my sales team? Do we meet our targets? If not, do I know why? Are you simply hoping prospects will place orders instead of leading them to do it? If the answer to the first eight questions is no and to the last is yes, then one way to foster growth is to design a selling system, and train everybody, especially yourself, to use it.

5. Finance. Do I have a way of keeping accurate financial records? Do I study my financial statements and reports each month looking for things that are out of line? Do I my monitor accounts receivable and payable every month?  Do I have a financial projection or budget or set of goals for each year? Am I meeting my goals? Has my cash position been improving year to year? Do I have a system for monitoring costs and expenses? Am I maintaining a relationship with a banker in preparation for the day I need a loan? Is the management of your investment and future financial well being on autopilot because you are not paying attention to the coming and going of your money? If the answer to the first eight questions is no and to the last is yes, then one way to foster growth is to put into place a financial planning, reporting and analysis system and then to use it.

6. Operations. Have I documented the various processes that occur in my business from order entry to final delivery? Have I taught my employees how things are to be done? Have I established goals for critical processes? Are my products and services of suitable quality and are they delivered on time most of the time? Have I defined my quality and delivery goals?  Do I have a way of measuring progress against goals? Do my employees know what the goals are and do I and they receive feedback on actual results? Will the business continue to operate in the manner I expect if for some reason I am absent for a period of time? Are your day to day operations run in a haphazard manner totally dependent upon your emotional reaction to the circumstances of the moment? If the answer to the first eight questions is no and to the last is yes, then one way to foster growth is to put into place an organized and documented management system and then to follow it.

Planning. The only thing we know for sure about any plan we make is that actual events will turn out to be different. We must not let the attempt to create a perfect plan get in the way of completing one at all. An imperfect plan is better than none at all.

Definition Quiz. What report shows the monetary results of last months operations?

Answer to last quiz: Marketing