Thursday, December 22, 2011

Motivate Staff and Consumers With Gift Vouchers

If you're considering the various options for boosting your staff's performance and encouraging clients to buy your products or use your services, consider schemes that use gift vouchers. To find out why these are so popular and how they could help your business, read on.
Gift vouchers can be harnessed for a variety of purposes - and it's this that forms a large part of their appeal. Whether you plan to launch a consumer-focused scheme or something for your staff, you'll find gift vouchers are an effective tool to have in your arsenal.
There are a number of ways they can be used to improve your engagement with clients, for example. If you plan to launch a new product, why not offer a gift voucher with each purchase to encourage more sales?
Or, you could simply use them to acquire more customers - or encourage existing clients to keep choosing your services. Indeed, the latter could prove particularly beneficial if you operate in a competitive marketplace, as it will help to differentiate your business from your rivals - and even potentially gain some of their client base.
When it comes to staff performance, meanwhile, you'll find reward schemes and incentives can be an incredibly effective motivational tool.
For example, you could boost employee morale by offering rewards for long service or loyalty. Alternatively, you can encourage workers to meet their full potential by offering sales incentives, such as gift vouchers for meeting targets.
Of course, different people are interested in different things, which means what is considered valuable by some may not be by others. This brings us to the next benefit of vouchers and cards - their wide appeal.

Unlike other forms of reward, vouchers can offer tangible benefits for everyone. Should your client base be broad or your staff have a wide range of interests, consider multi-option gift vouchers that can be redeemed at an abundance of familiar names on the high street.
Alternatively, vouchers catering for travel services, leisure attractions and spas - to name but a few - are also available should you be happy to go with something a little more specific.
In addition to these great benefits, such schemes are typically simple to implement and wonderfully cost-effective - something most companies will be concerned with during the current troubled economic climate.
So, why not consider harnessing the power of vouchers to help achieve your business goals today?

Sunday, December 11, 2011

Help Clients Start a Business Right by 8 Tips

When clients fail to plan, they plan to fail

Starting and running a profitable business is not rocket science. The 1st reason many people fail is they fail to follow a well-established business development process. Below are 8 tips to business development that, when followed with purpose, will significantly help your business clients and customers improve their chances for growth and long-term success:

1. Test the Waters: Encourage client so close a sale. While this is not possible for all ventures, making a sale validates the business idea on multiple levels, such as who will buy, why they buy, what they'll pay, how much it costs and how much profit will be made.

2. Research, Research, Research: Encourage clients to Web surf and shop the competition to learn how similar businesses define, price, market and sell their offerings. LIttle is new. Take advantage of what works.

3. Connect Clients to Experts: There are over 33,000 "volunteer" business mentors in the U.S. that offer all types of expertise, such as tax, funding, marketing, import/export, govt. contracting, etc. Introduce and help clients to connect.


4. Write the Business Plan: Require clients to write their own plan and invest the time, hard work, learning and focus that will be the keys to their future success.

5. Fund Innovatively: You well know, banks are rarely lending. Get creative. Will customers invest or prepay? Is joining forces an option where client have "x," someone else has "y" and together they're better off? Is contracting for a service versus buying equipment an option, such as a delivery service instead of buying a truck.

6. Recordkeeping: Require clients to demonstrate that they understand and have arranged for reliable expertise for maintaining breakeven, forecasting, cash flow and bookkeeping records. Business success lies in the details of managing the numbers.

7. Defeat Fear Through Knowledge: Asking for the sale is scary. Maintaining financial records can be intimidating. Investing in ones future is risky. Yet millions of people are doing this every day with success. Help clients connect with no-cost business assistance networks to learn how they can do it too.

8. Focus, Focus, Focus. Profitability is the first objective in business. Focus on a sales cycle where revenues exceed expenses. Assist clients with refining and repeating this process before they start something new.

Like most things in life, the more purposefully you engage, the more likely you'll get the results you seek. Good luck!

Friday, December 9, 2011

Should You Have a Business Partner?


Here at the Small Business Development Center (SBDC), we work with all types of  businesses — from sole proprietorships, to partnerships, to corporations with several owners. We’ve seen partnerships work exceptionally well and we’ve seen disasters.
A Successful Partnership
We’ve counseled many small businesses with more than one owner. In a great many of these cases the owners are also a married couple. As one couple said, “We want to continue to stay married to each other and therefore make the business partnership work!” Their marriage is the “glue” that keeps the business partnership working. But what if the partners aren’t married? Several years ago we worked with a non- married couple that started a business that was unique for this area. Soon their personal relationship ended. They separated their living arrangement, but both wanted to continue to work in the business. They did and were successful at it because they both believed in their business idea and wanted it to be a success. Later, one partner married and moved to Seattle. She couldn’t work in the business anymore and wanted her partner to buy out her half. She said “I want to be fairly compensated, but I also want the business to succeed.” Her partner agreed. We worked with them to come up with a buy-out plan that accomplished both goals. The business grew and did succeed.

A Disaster
While we hear more tales of disastrous partnerships than we’d like to, one short example may be illustrative. Two couples, in their late-thirties, fulfilled their dream of moving to the Olympic Peninsula and buying a business. The women were childhood friends. The men were friends as well. The four of them planned to run this business. Within 6 months after buying the business the personal and business relationship between the two couples was destroyed. They found out too late that being friends doesn’t mean you have the same goals for a business or the same values that guide operating it. We offered to mediate, but one couple refused, demanding to be bought out at double what they put into the business a mere six months ago. One couple did buy out the other and the lifelong friendship between the two women was gone.

How to Avoid Disasters in Partnerships
Before you take on a business partner, ask yourself some important questions:
• Why do you want a business partner?
• What financial contribution can your potential partner make to the business? Does your potential partner have access to credit and what is his/her financial situation?
• Do your skills complement each other?
• Do you both have the same vision for the business?

If you do decide to enter into a partnership, it is best to have a written partnership agreement. Although we advise seeing an attorney to assist you with it, here are some issues to discuss with your partner. Your answers will form the basis of your agreement. The first section deals with issues involving “getting into the partnership”:

“Getting Into the Partnership”
~What are the mission, vision, and goals of the business? Of each partner?
~What are each partner’s expectations of the business?
~Will the partners be equal?
~ What is the initial capital contribution of each partner? Are the contributions true investments or loans?
~What commitment of time, equipment, and other resources will you each make?
~What is the value of “other equity” such as “sweat equity”?
~What level of income will you each expect or need from the business?

Once you’ve worked out the issues to get into the partnership, turn to the actual running of the business and how you will do that in partnership:

“In the Partnership”
~ What are the roles and responsibilities of each partner? Who will do specific tasks? How will day-to-day decisions be made?
~Will partners make additional financial contributions?
~How will each partner share in profits and losses?
~What salaries, if any, are to be paid to partners?
~ Will you prohibit outside business activities that would be in competition with the partnership business?
~ How will disputes be resolved? Is there a “managing partner” who will make final decisions?
~Will new partners be added? If so, what procedure will be followed?
~Who can make commitments or expenditures on behalf of the company?

Since partnerships do end, now is the time to discuss how this will happen:


“Getting Out of the Partnership”
~ How will a break-up of the partnership be handled? What if one partner wants to keep the business? What if both partners want the business but no longer want to work together?
~ How will you determine the value of the business in case of death, incompetence, or withdrawal of a partner, or dissolution of the partnership for any other reason?
~Is a partner allowed to sell his or her portion of the business?
~ What happens in the event of the death of a partner? Is it specified in a legal will for each partner?
~ What happens if a partner gets divorced? What legal and financial impacts will that have on the business?

Getting Help in Forming a Partnership

Bringing a partner into your business is a key decision that will either help or hinder the business. We recommend reviewing the issues presented in this article and perhaps making an appointment with the SBDC to guide you and your potential partner in this task. We also recommend getting advice from your accountant and having your attorney assist you with the final agreement, typically referred to as a Buy-Sell Agreement.

Saturday, November 12, 2011

Five Ways to Simplify Your Life As a Small Business Owner

Most small business owners decided to start their own business because they believed it would allow them the freedom and flexibility to set their own schedule, make their own decisions, and only work as much as they wanted to. They might have thought that running a small business would give them more personal time and the opportunity to explore other activities outside of work. However, the nature of running a small business is such that most small business owners quickly discover that their business is controlling their entire life, and that they are working much harder than they ever did at any previous job. This is why it is always crucial for business owners take a step back and consider ways in which they can simplify their lives, practice better time management, and be more focused on the issues that are truly pressing at their business.
Here are five tips that will help you if you find yourself in this predicament:

1. Quit Sweating the Small Stuff
Don't let the minutia of owning and operating a business get in the way of you working effectively to achieve larger goals. While the small details of your business are certainly important, you can't let them hold you back from the more large-scale projects and tasks that you must accomplish. The lesson applies to perfectionists too: you will either have to let the small details and problems wait, or you will need to expand your staff to take care of them for you.

2. Set Concrete Goals
One way to deal with the issue of having too many projects to deal with at the same time is to set concrete goals and follow timetables. Once a week on Monday mornings, or every day - if necessary - write down a list of the goals you hope to accomplish that week or day. Keep your goals realistic.
Remember how much time you have and who is helping. No matter what issues may arise, ask yourself a few times every day, "Am I doing what I need to to accomplish my goals for the week?"

3. Stop Planning, Start Doing
There is at least one new study, blog entry, book, or Podcast published every week to help small business owners achieve success. Especially when it comes to small business marketing - a rapidly evolving and expanding field - it seems like there is way more information out there than any small business owner could feasibly comprehend and follow. This is why it is more important to take a look at what has actually worked to produce money for your business, and to use this knowledge as your own framework for success. You know your own business better than any author does, no matter how reputable they may be.

4. Allocate a Certain Amount of Time To Your Personal Life Every Week
No matter how pressing the issues confronting your business may be, there is nothing more important than your own health and happiness when it comes to running a business well. Balance is extremely important. If you are feeling overworked, exhausted, or overly stressed out, your emotions might begin to affect the way you work and the people with whom you work. There is nothing worse than snapping at a staff member or a customer because you aren't tending to your own well being. Give yourself a certain amount of time every week to spend with people you love, or doing the things you love, to help clear your head from all the work-related stress.

5. Make Your Workplace Your Happy Place
Regardless of how much you choose to follow the preceding four tips, the fact remains that, as a business owner, you will be spending a very large portion of your daily life in your workplace. This is why it is crucial to make sure that you enjoy your surroundings as much as possible. Hang up pictures of the people you love, bring some of your favorite or most sentimental pieces of art from home, or decorate in whatever other way makes you feel comfortable and at peace. Buy yourself a comfortable chair or invest in a nice sound system to play your favorite album (if the nature of your business permits it). Personalizing your work space and making it somewhere you like to spend your time will reflect in your work ethic and attitude more than you may realize.

Tuesday, November 8, 2011

Tracking Your Prime Cost? Good, Just Make Sure You're Calculating It Right



One of the most important and telling numbers of any restaurant is its Prime Cost.
Prime Cost is the total of food and beverage costs plus all payroll expenses including wages paid to management and staff and payroll taxes and related benefits.
Prime Cost is a key indicator of a restaurant's profit potential and how well management is managing the restaurant's biggest and most volatile costs.
Generally accepted industry rules of thumb tell us that in tableservice restaurants the goal should be to keep Prime Cost at or below 65% of sales. QSR or non-tableservice operations should aim for a Prime Cost is 60% of sales or less.
When Prime Cost exceeds these percentages by more than a point or two, it usually becomes a real challenge for any restaurant to make a sufficient bottom line profit regardless of the other expenses on their P&L.
Some independent operators may not be getting an accurate reading of their Prime Cost because of the way owner's compensation is handled.
When calculating Prime Cost, the owner's compensation should be included in management payroll only if the owner is actively working in the restaurant and the amount of compensation does not exceed 4% of sales.
If you own a restaurant but have a GM manage the daily operations, don't include your compensation when calculating Prime Cost
For owners who perform the duties of a GM and/or chef, first see if your salary exceeds 4% of sales. If it does not, don't do anything. If it does, take the amount that exceeds 4% of sales out of Prime Cost.
Reason for the 4% amount is this. In general, GMs or chefs are not paid more than 3%-4% of sales. When a restaurant is very profitable, working owners may pay themselves more or even much more than 4% of sales so including all of their compensation in Prime Cost can cause it to be artificially high in comparison to other restaurants.
If applicable, reclassifying some portion of owner's compensation out of Management Payroll should give you a better number for comparing your Prime Cost to industry averages and rules of thumb.

Have a profitable week!  Jim Laube & Joe Erickson

Friday, October 28, 2011

The Regulation Modifications That Can Help You Start a Business in Latin America Countries

When it comes to starting a new business in Latin America, the general misconception on the part of the potential investors is that the legislative limitations of the countries situated in this area outweigh the benefits. It is fairly true that in the past many governments imposed restrictive laws which deemed the business environment constraining.
However, nowadays, business in Latin America seems to be picking up the pace quickly due to several favorable modifications of the legal system and new regulations that favor development and the expansions of companies in the region. Although the following article will exemplify the highlights of these changes, it is advisable to employ the services of specialized consultants if you are not familiar with the Latin America market.
For Brazil, the most notable modification comes from the tax system, which has now synchronized the federal and the state taxes, for the convenience of the companies. It is necessary to point out that the old system of taxes made it very complicated and confusing for businesses to stay up to date with the full array of taxes in order to avoid penalties. Furthermore, those interested in the Chilean market will be happy to learn that the authorities have implemented an online business registration method as well as one that allows you to file publication requests.
Moreover, Chile now promotes corporate transparency and regulates the transaction approval, all in the interest of investors.
In Colombia it is much easier now to obtain construction permits, as the pre-building certificates are verified by the authorities online. There is no other notable achievement for Ecuador except for the implementation of the online system that manages social security registrations. In Mexico, on the other hand, several changes have been made, the first one being the one-stop shops which allow companies to register their business. At the same time, it is now much easier to obtain construction permits, as two major services (utilities and zoning) have been merged and streamlined. However, corporate taxes in this country have been increased, although the administrative tasks are much simpler due to the widespread popularity of online payment methods and high usage rate of accounting software programs.
Nicaragua, while it has regrettably imposed several new taxes (10 percent withholding taxes for the gross interest generated by a deposit) on companies and increased the preexisting ones has substantially improved the trade using innovative electronic data transfer systems for the department of customs and one-stop shops for goods exports. In addition, the investments made in the equipments for Corinto, one of the major ports of the country will also facilitate exports and imports trading.
In Uruguay, entrepreneurs will find it easier to register properties due to the elimination of the preemption rights waivers, which was required up to now. At the same time, Paraguay also allowed companies to obtain a construction permit with less hassle thanks to the improved administrative structures and the superior tracking systems which eliminated a great deal of bureaucracy. In a nutshell, many countries are striving to make business in Latin America enchanting for investors and many more changes are yet to come.

Monday, October 17, 2011

Preparing a Loan Application



Obtaining a business loan has become more difficult as the economy, regulations, and lendig policies become more stringent.  I took the following notes during a recent staff training presentation and hope they will help you to understadn what lenders need to see in a business loan appllication. 

I. Understanding the Lender

It is much easier to find a business lender if you understand what a lender needs in order to process your loan application. I recommend starting with the lender you are already doing business with but check for the most recent bank policies and procedures. Government regulation and bank policies are frequently updated. To prepare you application it is helpful if you know the following:

Bank Policies –
Loan portfolio mix, number of and type of loans they like to make.
Loan Programs they use? (SBA or USDA programs?)
Loan requirements – Minimum Credit score, Loan to Value, Collateral, Equity, Lending Ratios -- Liquidity, Debt Coverage, others
Risk tolerance – some banks are more liberal, others more conservative.
Lender’s experience with customers in your industry?
Recent changes in the bank’s corporate structure that effect lending policies.
Banking regulations that affect the bank’s lending policies.
Average time to close a loan.

• Loan Underwriting – The lender will only know what you provide, incomplete applications get denied. Your loan officer will need to justify a loan approval based on due diligence review of you and your business. Information they are looking for includes:

Is the loan purpose consistent with the type of loan?

Credit Standing (score and credit report)

Cash Flow, is the business be profitable?
.... Are losses explained?
.... How were losses funded?

Collateral
.... Quality and value
.... Collateral value covers loan?

Equity/Net Worth
.... Has equity increased or decrease over last three years?
.... Amount of contributed equity and earned equity (retained earnings)

Financial ratios
.... Exceed lenders minimum target?
.... Ratio trends over last three years

Business condition – Strengths, Weaknesses, Issues

Other
.... Other business owned
.... Other sources of income
.... Personal Financial history

II. Preparing a loan package
Presenting the lender with a complete package is critical. Your package must demonstrate your capacity to manage the business, your capacity to produce stated outcomes, and the market place capacity to buy your service/product. Incomplete packages slow review and errors or misstated information will result in a denied application. Lenders will be examining:

1. Financial Statements – History
• Profit Loss Statements- YTD  Revenue, margins, profit
 • Cash Flow: EBITDA and Working Capital needs, Owner draws, distributions, When you spent cash, when you received cash

• Last three years of Tax records, Explain differences between tax records and Profit & Loss Statements. Explain any expenses made for tax purposes

• Balance Sheets – current liquidity, asset quality, leverage, capital structure, retained earnings, Aging of A/R and A/P

• Budget Projections with assumptions

• Break Even analysis

• Ratio analysis - Liquidity, leverage, performance over time has been consistent and is sustainable Sales to Assets, ROI, ROA, A/R Turnover, Average Collection period A/P turnover, average payment period Inventory Turnover, Inventory on hand

2. Management
Character of top management, resume of management experience, experience as management in this business/industry. Team depth, who does the tasks of CEO, CFO, A/R and A/P. Succession (who runs the business if you can’t be there?) Performance as compared to industry standards and trends

3. Business Plans
• Supports and explains how you will accomplish what you claim in your budget. How you meet the five C’s of credit. (Character, Capacity, Capital, Conditions, Collateral)
• Explains market opportunity
• Provides budget assumptions.
• Describe the business, how you make money
• Describe the service/product, provide pictures, marketing materials, samples
• Associated documents, Articles of Incorporation (Partnership), Leases, Contracts, firm estimates on major purchases, Collateral

III. Presentation Tips
• Be enthusiastic
• Be professional
• Be prepared
• Make an appointment, be early and ready
• Be organized and bring copies of all the document to leave with the lender

IV. Deal Breakers
Some issues in your history can be deal killers, there must be extenuating circumstances before a lender can consider proceeding with an application. Other problems could result in a loan application being considered as a higher risk. If a loan were to be approved, these issues could result in higher interest rates and more conditions and restrictions.

Preparing a quality loan application package will help identify potential deal breakers and provide you the opportunity to explain what happened and what you have done to correct the situation. Remember, it is safer for the lender to say no if there is any doubt or perception that your loan is a higher risk than the lender wants to accept.

Friday, September 23, 2011

Typical Requirements For Business Loans

Seeking a business loan requires preparation and excellent documentation of your businesses financial health. The following list will help get you started, complete and accurate information will help the lender complete their review with a better chance of reaching approval. Pay close attention to financial projections and cash flow needs, they must be believable and supported by your business plan market assumptions


Proof read your documents as errors will delay review and possible cause rejection. Have someone else review you documents did they clearly understand what you wrote?


I. Cover Letter --States who you are, how much money is needed, what the money will purchase and what results are expected.

II. Business Plan
A. Description of the business
B. History and nature of business
C. Ownership structure. Attach contracts or organizing charter, copies of business licenses, EIN, Resolution/Articles of Incorporation or partnership contracts.
D. Key Management resumes
E. Description of product/service and market place. Including competition, market area, major customers, major suppliers, description of plant and equipment
F. Amount of loan requested. Specific dollar amount and purpose of loan, use and benefits, amount of owner’s contribution, primary source of repayment and repayment terms, list of collateral.

III. Business Financial Reports
A. Projected cash flow budget, income statement, balance sheet, financial assumptions
B. Business financial history for last three years
C. Tax returns for last three years
D. Itemization of all debts
E. Current aging of accounts receivable

IV. Personal Financial Statements (for each co-owner)
A. Recent personal financial statements, recent
B. Personal Tax returns for last three years

V. Attachments
A. Application forms.
B. Business incorporation documents, partnership agreements, buy/sell agreements, etc.
C. Legal documents: leases, contracts, franchise agreements,
D. Detailed lists of assets to be purchased
E. Summary of market research
F. Supporting documentation, pictures, plans, contractor estimates, customer contracts.


NOTE: Loan Decisions Points – Lenders have several critical decisions points. The information you provide must prove to a lender your ability to accomplish your business goals.  A lender review will include but is not limited to:

• Evidence of your ability to achieve the cash flow budget
• Total amount existing debt and how much more debt will be added with a new loan
• Ability to pay all of your debts and still be profitable
• Personal and business credit history
• Amount you are investing as the owner
• Amount of collateral
• Potential risk of business failure
• New business vs. well established business

Tuesday, August 16, 2011

Social Media Marketing Strategy

Recently read "The New Conversation: Taking Social Media from Talk to Action" anHarvard Business Review Analitic Serviceds Report regarding Social Media strategies. Follow the link to read the full text http://www.sas.com/resources/whitepaper/wp_23348.pdf


Executive Summary
The exponential growth of social media, from blogs, Facebook and Twitter to LinkedIn and YouTube, offers organizations the chance to join a conversation with millions of customers around the globe every day. This promise is why nearly two-thirds of the 2,100 companies who participated in a recent survey by Harvard Business Review Analytic Services said they are either currently using social media channels or have social media plans in the works. But many still say social media is an experiment, as they try to understand how to best use the different channels, gauge their effectiveness, and integrate social media into their strategy.
Despite the vast potential social media brings, many companies seem focused on social media activity primarily as a one-way promotional channel, and have yet to capitalize on the ability to not only listen to, but analyze, consumer conversations and turn the information into insights that impact the bottom line.

For instance:
  • Three-quarters (75%) of the companies in the survey said they did not know where their most valuable customers were talking about them. 
  • Nearly one-third (31%) do not measure effectiveness of social media.
  • Less than one-quarter (23%) are using social media analytic tools. 
  • A fraction (7%) of participating companies are able to integrate social media into their marketing activities.
While still searching for best practice and measurements, two-thirds of the companies surveyed are convinced their use of social media will grow, and many anticipate investing more in it next year, even as spending in traditional media declines.

Only a small group — 12 percent — of the companies in the survey said they felt they were currently effective users of social media. These were the companies most likely to deploy multiple channels, use metrics, have a strategy for social media use, and integrate their social media into their overall marketing operations.

Clearly, most companies are still searching for the best practices and metrics so they can understand where to invest and target their social media activities and build their own competitive advantage. It will take those new tools and strategies to create what Avinash Kaushik, Google’s Analytics Evangelist, describes as a new reality in harnessing the power of social media. “Too many companies have not evolved from what I call ‘shout marketing’ — think TV, newspapers, magazine ads — to influence by initiating and participating in conversations with consumers,” he said. “There needs to be a generational shift.”

Wednesday, August 3, 2011

Buying and Selling a Business

You've worked long and hard to build up a good business. Maybe the business is hugely profitable, or maybe from a financial perspective the business may have paid you a modest salary over the years, but maybe not more. You may ready to retire, move onto another challenge, or perhaps you are burned out. You are wondering if you can and should sell the business. Will you be able to get some return for your investment? How do you come up with a price? How to market the business? How to negotiate with potential buyers? What steps do you take to close the deal? Where are the hidden traps?



Selling your business can be financially rewarding as well as give you the personal satisfaction that what you created will continue after you. Your customers will be happy, and the jobs your business provides will continue. Plus you’ll give someone else a chance to be a small business owner. Our tips on selling your business can help you achieve your goals. Through this process your SBDC counselor can be a  valuable resource.

What do I need to do to get my business ready to sell?
Ideally, entrepreneurs should plan ahead if they are going to sell their business. This may take a 1-2 year look ahead. To get the best price and ensure continued success of the business you are selling usually involves specific activities from perhaps getting the business to be more profitable to writing documentation that will assist a buyer—an employee manual or technical manual, for example. Some key areas are:

Initial questions to ask yourself:
• Why are you selling your business? Most buyers will ask you this question. Are you retiring? Looking for a new challenge? Burned out? Having financial difficulties?

• Why should they buy your business? Why should someone buy your business rather than starting from scratch or buying something else? Your assets might include a sound reputation, a loyal customer base, industry knowledge, established suppliers, and good employees. In addition to those possible assets, consider how much cash the business will generate for a new owner. We discuss that factor under valuation.

• Is this the right time to sell? How is the economy doing? How is the industry outlook for your business? Have you been able to show profits for the past several years? Are there similar businesses on the market?

Get your books in order.
Buyers evaluating your business will generally require at least three years’ worth of financial information including tax returns and a current balance sheet. Have the most recent twelve months’ financial statements by month as buyers will want to see any seasonal fluctuation.
Have a list of the assets for sale and either the current book value or a supportable value of each. Other information that might be valuable for a buyer can be: permits, licensing, leases, customer and vendor contracts, supplier lists and marketing materials.

Get a business valuation.
Placing a dollar value on the worth of a business is a complex process involving many factors. One of the first things you should do is get a realistic idea of what your business is worth. A professional valuation will give you the basis for evaluating buyer offers and help you set your asking price. It will also tell you if there are weak areas that, hopefully, you can correct before you put the business on the market. Sellers often overprice their business — they have put their hard work into the business and have a difficult time realizing if profitability is low, that the business may not be worth as much as they think it is. Being aware of the factors that go into valuing a business can be of help. Valuations can be obtained from a number of sources, ranging from local accounting firms to regional business brokers and investment banking firms. Your SBDC counselor can explain to you, using your financial data, the most commonly used valuation techniques. See our discussion on valuation.

Get your advisory team in place.
Your advisory team includes your attorney, your accountant, possibly a business broker or realtor, your banker, and your SBDC Advisor.

Marketing: Determine a strategy, prepare a marketing package, and implement your action plan.
One question you should determine early on is: do you plan to use an agent or broker to help with the deal? If not, are you comfortable negotiating with potential buyers? If you have emotional attachment to the business, it may be helpful to have an intermediary for the transaction.

Be prepared for prospects.
Make sure you will be available to answer prospective buyers’ questions and meet with them. Keep your business ready to be shown at any time. Keep in mind also that prospective buyers may contact your business as potential customers.

Tips on sharing information with potential buyers.
When a potential buyer contacts you to buy your business, they will need to see the financial statements for at least the last three years, including tax returns, profit and loss statements by month for the most recent twelve months and a current balance sheet in order to evaluate the opportunity. Often the seller is reluctant to give out business tax returns to “just anybody who asks for it.” You don’t want your financial information known all over town (or perhaps given to the competition). You can meet the buyer’s need for information and your need for confidentiality by doing the following:

• First interview the potential buyer. Ask about their background in the industry. Get a sense of whether or not the buyer seems to have the skills and experience to run your business.

• Next explain that in exchange for giving the potential buyer your financials you will want the following from him or her:
~ A signed nondisclosure or confidentiality agreement. This should clearly state that the potential buyer’s intent is to evaluate purchasing the business and not for the purposes of gaining any information for business competitors or for any other reason.
~ A resume.
~ A personal financial statement.

Evaluating an offer.
What is the proposed purchase price? What are the terms? Will you be asked to finance all or part of the purchase? Many times a lender will want the seller to finance part of the sale to ensure that the seller has an interest in helping the business continue to be a successful one. Will you be available after the sale to help train the new owner or answer questions? How will the transition period be handled? What are the qualifications of the buyer? Does he or she have experience in owning or managing a small business? Any experience in this industry?

How will the buyer finance the deal? Does it seem reasonable that he or she will be able to secure the financing they need? What will be used for collateral? Does the buyer have sufficient cash for a down payment and perhaps for working capital? How good is the buyer’s credit?

Next Steps a list of things to do for the buyer and seller.

For Buyers
Perhaps you have considered starting your own business, but you realize there is good competition in the area. Perhaps you also know yourself and know that you are an excellent manager, but starting something from scratch if not one of your strengths. Whatever your reasons, you’ve become aware of a business for sale and are not sure how to proceed. How do you evaluate the price? What about financing? What contingencies will you need? What about training, and learning about the business? Buying a business can be an excellent way to be a small business owner. It may also be less risky since you should be buying a “successful formula”. Our tips on buying a business can help guide you in the initial steps of considering buying a business. They will prepare you to meet with an SBDC Advisor who can guide you further in this area.

Where do I start?
Some initial questions to ask yourself:
Is this the right business for you?
What will owning this business be like?
Talk to the current owner about what your day will be like.
Spend a day or two in the business to see what you would be doing.
Do you have experience in this industry?
If not, how will you get it?
Have you owned a business before?
If not, see our section on:
“What does it take to run a small business?”
I don’t know if I am “entrepreneurial?”

Why should you buy an established business?
Why should you buy an established business rather than start one from scratch? Assets of an established business can include their customer base, industry goodwill, established suppliers, and good employees. In addition, you are buying an identified cash flow. Other advantages of buying a business are time saving and reduced risk. Cons include reduced  reward (perhaps), and higher cost (the cost of buying a business is usually greater than starting one yourself ).

Why is the business for sale?
Don’t depend solely on what the owner tells you. Probe. Ask around town. What kind of reputation does the business have? Have there been legal or financial problems? Visit the business unannounced, as a customer.

What are you actually buying?
Ask the owner for the business records. You’ll want to see their financial statements for at least three years including tax returns, a current balance sheet and the most recent twelve months’ financial statements by month to determine any seasonal fluctuation and a current balance sheet. What are the terms of the lease? Do the statements appear to be accurate? Have they been prepared by an accountant? Are they audited statements? Request a specific list of all the assets you will be buying and what they are worth. Is property included? Inventory? Equipment? Generally you will be buying only the assets and good will and not liabilities.

What are some other tips for buying a business?
Information the seller wants.
The seller will most likely want some information from you before they release their financial statements. Typical information is: signing a nondisclosure or confidentiality agreement, a copy of your resume and a copy of your personal financial statement. The seller will want to know that you are a serious buyer and are in good financial shape to buy this business. Remember that you may be competing with other potential buyers.

Get your advisory team in place.
Your advisory team includes your attorney, your accountant, your banker, and your SBDC Advisor.

Financing buying the business.
First you will need to determine how much cash you have and how much you will need to borrow. Will the seller finance all or part of the deal? How is your credit? Can you get a bank loan? What will you use for collateral? Are the business assets sufficient collateral or will you need additional collateral, such as equity in your home?

Making the offer.
The offer is usually made in the form of a purchase agreement or a letter of intent. A letter of intent is a nonbinding agreement that allows the buyer to take a closer look at a business and its records before committing to a formal contract. The letter of intent lets the seller know that you are serious and that the two parties are in agreement on the basic terms of the transaction, such as price, terms, conditions, and timing. An alternative to a letter of intent is a standard purchase agreement that states specific contingencies that must be released before the offer becomes binding, such as financing. Keep a written record of meetings, conversations, and agreements with the seller or seller’s agent.

• Some things to consider in your offer are: What is the proposed purchase price? What are the terms? Will you ask the seller to finance all or part of the purchase? Many times a lender will want the seller to finance part of the sale to ensure that the seller has an interest in helping the business continue to be a successful one. Will the seller be available after the sale to help train you or answer questions? How will the transition period be handled?

How likely is it that key employees will stay with the business? Should you ask for them to sign an employment contract as a condition of sale? Your SBDC Advisor can assist you in determining other issues to be included in the offer letter. You may also want to get your attorney involved in the drafting of the offer.

My offer has been accepted! What’s next?

For Both Sellers and Buyers
Valuation
Placing a dollar value on the worth of a business is a complex process involving many factors. If you are the seller you will need to determine an asking price. Valuations can be obtained from a number of sources, ranging from local accounting firms to regional business brokers and investment banking firms. Your SBDC Advisor can explain to you, using your financial data, the most commonly used valuation techniques. There are a lot of ways to value a business. There is no “right” way. Ultimately, a business is worth whatever you think it is worth, based on your criteria. You can make your estimation by analyzing several ways to value a business. Let’s review some basics to help you get started.

• Asset Value: You can start by looking at the value of the business’ assets. What does the business own? What equipment? What inventory? Any assets such as a building? This rationale says that a business is at least worth its liquidation value. If you were starting a business you’d need to buy similar assets, so the business is worth at least the replacement cost of the assets. The balance sheet can give you a good indication of the value of a company’s assets.

• Revenues. Revenue is probably the crudest approximation of a business’ value. Often, businesses are valued as a multiple of their annual revenue. The multiples depend on the industry. For example a business might typically sell for “two times sales.” While a professional may be able to find out typical multiples for your industry, revenue doesn’t mean profit. While revenues can sometimes give a buyer an indication of potential if the business is poorly managed now, it is not a reliable indicator of value.

• Earnings or Discretionary Cash Flow. Using earnings or what we call “adjusted or discretionary cash flow” may be a better way to think about valuation than revenues. Basically, this technique determines how much cash a business will generate for a new owner to take for him or herself as compensation and for any debt acquired in buying the business. The more cash a business generates, the more valuable it is. Here are the steps in determining discretionary cash flow:

1 Take net profit for the most recent year.

2 Add to that figure any non-cash expenses, such as depreciation.

3 Add to that any expenses that a new owner will not have or are discretionary. The most common ones might be charitable contributions, perhaps some travel or expenses for conferences, interest on any debt (a new owner will have their own debt and will have a different interest expense figure).

4 Add to that the any wages that the owner has taken during the year. A new owner might have different income needs.

5 Subtract from that any known expense, other than new debt and a new owner’s compensation, a new owner will have. An example of this is if the seller is a couple with both working in the business and the buyer is an individual, the buyer will need to add another employee to replace one of the sellers. Another example would be if the seller owns the building where the business is located and will lease it to the new owner. A buyer then needs to subtract from the net profit figure what the new rent payment would be on an annual basis.

6 You now have how much cash this business currently generates for a new owner. If the financial statements you are using for this analysis are several months old and the most recent year is already proving to be different from last, you will want to adjust your analysis for that recent evaluation.

7 Have your SBDC Advisor help you with this analysis or review your figures.

Applying a multiple to DCF: Multiples are usually applied to the discretionary cash flow figure to arrive at a valuation for the business. Factors that determine a multiple can be:
• Type of business—service versus retail or manufacturing, for example. Also whether the business has significant assets.
• Whether special managerial skills or industry expertise is needed.
• Stability of historical profits.
• Business and industry growth.
• Location and facilities.
• Stability and skills of employees Competition.
• Diversification of products, services and geographic markets.

Feasibility: Whatever the asking price of a business is, whether you are the seller and used one of the valuation techniques to arrive at a specific asking price and/or a range that seems acceptable to you, or you are a potential buyer trying to evaluate an opportunity to purchase a business, you should look at the feasibility of someone buying this business at this price. If you are the potential buyer, you can apply your specific situation to this feasibility analysis.  If you are the seller, you might want to first look at feasibility for yourself and then look at what the situation might be for a “typical” buyer. For feasibility for the seller, the question is “can you afford to sell the business for this price?” Do you have business debt that needs to be paid off out of the proceeds of the sale? The steps for feasibility for the buyer are: take a specific price for the business, whether it is the asking price or one of the values in a range of prices; to that that add the working capital a buyer would need to start as well as any other initial costs (perhaps there are some needed renovations or equipment that needs replacing etc); this gives you the total amount a buyer will need to buy and begin to operate this business. With that figure:
~ Subtract the amount a buyer will have of his or her own funds. That leaves you with the amount of debt the buyer will have to incur.
~ Figure out what the annual loan payment would be on the debt. Subtract that from the discretionary cash flow figure you arrived at in step 6 above. Subtract the minimum amount the buyer will need to take out of the business for his or her own compensation. If there is not enough for the buyer, or if you are at a negative figure, the sale as outlined above is not feasible.

~ Look at the deal and see what, if anything can be changed to make it feasible. Can the seller finance all or part of it at a lower interest rate or longer term? Can the buyer come up with more cash? Is it feasible for the seller to reduce the price? Your SBDC Advisor can assist you in looking at the feasibility of various scenarios. 

Next steps: a list of things to do for buyer and seller.
This list includes some of the activities after the offer has been accepted and any contingencies have been removed, but prior to closing. We recommend that both the buyer and seller consult with both their accountant and their attorney in the transaction of buying/selling. These professionals should be different for each party. Your SBDC advisor can assist you in determining any additional steps.

• The seller continues to run the business in a sound and responsible manner until closing.
• The lease: if applicable, the buyer confirms the details of a new lease with the landlord.
• Business License: The buyer needs to get a state business license (www.wa.gov/dol); and a city business license if necessary.
• If the buyer is going to be a corporation, he or she will need to file incorporation papers as well (buyer’s attorney can do this).
• Seller will indicate that the business has been sold on the last B&O report that is filed.
• Buyer needs to get an EIN (employee identification number) from the IRS to be able to employee people or if the business will be a corporation (www.irs.gov).
• Buyer needs to get insurance prior to taking over the business (liability, property, fire, theft, vehicle, business interruption and the lender may require life insurance on the new owner.)
• Buyer is to inspect and approve the equipment list. Prepare allocation of purchase price forms that are for equipment (your accountant will have this IRS form).
• Inventory: determine who will take inventory and when. Estimate inventory level for closing documents.
• Contact utility companies to have accounts transferred. Contact phone company and web hosting firm, if applicable, to have accounts transferred and web site changed to reflect new owner (if applicable). Examine all marketing materials for any needed changes (such as owner’s name).
• Clarify training period and activities.
• Contact all suppliers and transfer accounts. Buyer to find out if suppliers will give terms and what they will be.
• Contact merchant’s credit card company and arrange for transfer or new account.
• Buyer to set up business checking account.
• Seller to close business checking account.
• Prepare joint press release to be sent out after the closing.
• Seller to turn over all records for the business to buyer at closing

Friday, July 22, 2011

Will It Work? Tips for Determining the Feasibility of a Business or Project

Entrepreneurs are often faced with answering the question “Will it work?” Lenders, investors, perhaps
suppliers and others involved in the project should also ask that question or scan the business plan to see if
“will it work” is addressed. Whatever the specific project—starting a new business, expanding an existing one, or even selling or buying a business—the basic issue is feasibility.  Can it be implemented successfully?

Here at the Small Business Development Center (SBDC) we work with entrepreneurs on a variety of projects, and most of them involve feasibility. Here are some tips on feasibility that we’ve found work in most situations.

Do A Rough Analysis First
A good starting point is what we call “back of the napkin” analysis. In a short amount of time and with little data, you can often get a rough idea of the feasibility of a project. The results of this rough analysis may quickly decide if you need to spend more time on the detailed analysis, alter your idea a bit, or move on to
another idea.

For example, say you are thinking of making cookies to sell to stores, cafes, espresso stands, and restaurants. In a short amount of time you can gather some basic data:

• The cost of ingredients of a batch of cookies, and how many cookies a batch makes.
• The time it will take you to bake them.
• How much rent will be to use a commercial kitchen (assuming you will lease space until you are established).
• The price of competing cookies (the price to your customer—the store, cafĂ©, espresso stand or restaurant, that is).
• How much money you need at a minimum to take out of this business for yourself for the time you spend in it.

Although you will have other costs (insurance for example), you can quickly calculate using the above data, what your capacity is (how many you can make in the time you have in your leased commercial kitchen), and what your gross profit (sales less cost of ingredients) per cookie will be. You can then calculate how many cookies you need to sell per month to pay the rent, and provide you with the income you have decided is the minimum you need. You can then see if at this very basic level of analysis if it seems feasible enough to continue.

If the rough analysis seems feasible, you can gather more detailed costs and refine the analysis. Then you can start your market research to determine the level of demand. While our example is a simple one, this approach can apply to any type of business: starting a commercial fishing business, expanding a manufacturing business to add a new product, or starting a service business, such as bookkeeping services.

The tasks are the same:
• Gather rough estimates of your basic and largest costs, including profit for the owner(s)
• Figure out how many of your product you need to sell to cover these basic costs.
• Ask yourself if the resulting sales figure seems reasonable. Calculate how many different customers you might need.
• If your rough results are encouraging, proceed to next steps.
• Refine your cost estimates and redo the analysis.
• Start your marketing research to determine demand

What happens, though, if the rough analysis is not encouraging? Rework your idea — explore various options for parts of your plan. Being successful in starting a business or expanding an existing one involves determining if the venture is feasible — will it work. Start your analysis and contact the SBDC if you need assistance.

Monday, July 18, 2011

Social Media Marketing Featuring You Tube.

Here is an article that is a quick read on social media marketing plan featuring you tube. http://www.fastcompany.com/1761504/how-to-make-youtube-part-of-your-social-media-marketing

INC Magazine Best Business To Start

A colleague forwarded this link to an article regarding businesses  start up opportunities.


Thursday, July 7, 2011

How to Recognize a Business Opportunity

Whether you are contemplating a new business or want to re-energize or expand your current one, you need to be able to recognize a business opportunity when you see one. You have probably had visions of one— customers buy things it cost a fraction to produce and you become fabulously wealthy. A businessperson’s dream come true! However, the reality is good business opportunities are hard to find.


Even if you think you have found one, it takes risk, skills and ability, and timing to take advantage of it. Risk attaches itself to any business opportunity. Therefore, objectively analyze the feasibility of your concept. Successful businesses have a product or service people want, at a price they are willing to pay, and it is easy to get. If you offer something you think people want without knowing it, you are risking more than necessary.

Let’s say you think an opportunity exists for a new restaurant. There are a number of things you can do to test your assumption. First, find out what is happening in the overall industry. Trade associations, magazines, and current books can give you an idea of current demand. Examples are the trend towards small, highly specialized food establishments (e.g., pretzel, cookie, ethnic, etc.) and mixed-use restaurants (e.g. play areas, movies, games, Internet, etc.). You can also gain a lot of information through observation. Stay current with local news and business periodicals and gain insights from the perspective of other businesses. You should also gather statistics on consumer behavior for your type of business. For a restaurant, you need to know how often people eat out, how much they spend, common personal or demographic characteristics, and preferences in dining atmosphere or services, etc. From there, you can evaluate your geographic area and see how well competitors are filling those needs.

Once you have gathered information, you can form a hypothesis about supply and demand. A business opportunity could be lurking somewhere between what people want and what they are getting. Find out how they are currently meeting their needs. For our restaurant example, you might find grocery stores have designated a special department or menus of established restaurants have been updated. Your challenge is to find out how well needs are being met and where people go to meet them. If people need something, they will find it. Locating establishments on a map will give you a geographic sense of how far people must travel. If convenience is a significant buying factor, you will be able to identify underserved areas. Once you complete this analysis, you will be in a better position to develop your own competitive strategy.

At the heart of your competitive strategy is your distinctive competence. Your distinctive competence is something (e.g. a skill, specialty, level of service, etc.) that sets you apart when compared with competitors. This differentiation and your pricing strategy define your business in the minds of consumers. A sound competitive strategy depends on your knowledge of the customers and their needs, the ways your competitors meet their needs, and the perceived value of the goods and services you offer. It’s what separates a business opportunity from a good idea.

It takes money to make money, so that means every business opportunity will have costs associated with it. Take the time and effort to know exactly what resources are required to optimally run the business. Capital expenses include hard assets like equipment and beginning inventory. It may be difficult to find a site designed for your purpose; therefore, you must anticipate costs associated with renovating a space. Be sure not to underestimate your working capital needs. Working capital is used to replenish inventory, pay employee wages, and finance other continuing operating expenses. You will always have a need for working capital because the timing of cash coming into the business does not always match the timing of cash going out. It takes most businesses a long time to achieve a predictable profit. Be sure you know if you have the financial reserves to cover the costs of startup (or expansion) and operation. If you must leverage your own money with a loan, be prepared to offer sufficient collateral to secure it. A true business opportunity will generate sufficient sales to support the cost and provide a profit.

There are many resources to help you analyze a business opportunity. You can find books on the above-mentioned topics, reference materials, and access to periodicals and the Internet. When you have completed your initial analysis, take advantage of no-cost, confidential business counseling from SCORE or the Washington Small Business Development Center. Advisors will help you evaluate your findings and assist you with the development of your business plan.

Wednesday, July 6, 2011

What SBA Seeks In A Loan Application:

First, the Small Business Administration (SBA) is a federal agency and does not make loans, SBA guarantees loans made by financial institutions. Under the guaranty concept, the business applies to their local business lender. The lender decides if they will make the loan internally or if the application has some weaknesses which, in their opinion, will require an SBA guaranty if the loan is to be made. The guaranty assures the lender that in the event the borrower does not repay their obligation and a payment default occurs, the Government will reimburse the lender for that portion of the loan guaranteed. However, the borrower remains obligated for the full amount due.  Additional informatioon on SBA loan programs and requirements can be found at

SBA 7(a) Loan Guaranty Program:  Most SBA business loan guarantees will be one of the various 7(a) guaranteed loan programs depending on the amount to be borrowed. A 7(a) loans can be used for most business purposes, up to a maximum guarantee of $1.5 million, with a typical maturity of 7 to 10 years depending on how funds are used.

504 Loan Program:  The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. Loan made under the 504 program can be A 504 Loan is made by a Certified Development Company who work with the SBA and private-sector lenders to provide financing to small businesses. 


Typically, a 504 project includes a a private-sector lender covering up to 50 percent of the project cost, with the  504 loan from the CDC covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped. The advantage of a 504 loan is a longer maturity and a lower interest rate on the 504 portion of the loan. The business/owners must contribute at least ten percent of the project total cost.


SBA Guarantee Eligibility
Repayment ability from cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner's equity contribution are also important considerations. All owners of 20 percent or more are required to personally guarantee SBA loans.

All businesses must: meet SBA size standards, be for-profit, not already have the internal resources (business or personal) to provide the financing, and be able to demonstrate repayment. Certain variations of SBA’s 7(a) loan program may also require additional eligibility criteria. Special purpose programs will identify those additional criteria.

Maturity  Maximum loan maturities have been established: twenty-five (25) years for real estate and equipment; and, generally seven (7) years for working capital.

The maximum maturity of loans used to finance fixed assets other than real estate will be limited to the economic life of those assets - but in no instance to exceed twenty-five (25) years. The 25-year maximum will generally apply to the acquisition of land and buildings

Equity Investment  Business loan applicants must have a reasonable amount invested in their business. This ensures that, when combined with borrowed funds, the business can operate on a sound basis.

Strong equity with a manageable debt level provide financial resiliency to help a firm weather periods of operational adversity.

Determining whether a company's level of debt is appropriate in relation to its equity requires analysis of the company's expected earnings and the viability and variability of these earnings. The stronger the support for projected profits, the greater the likelihood the loan will be approved. Applications with high debt, low equity, and unsupported projections will be denied.

Earnings Requirements  A company must be able to meet all its debt payments, not just its loan payments, as they come due. Applicants are generally required to provide a report on when their income will become cash and when their expenses must be paid. This report is usually in the form of a cash flow projection, broken down on a monthly basis, and covering the first annual period after the loan is received.

Applicants should write down all assumptions which went into the estimations of both revenues and expenses and provide these assumptions as part of the application. For new or expanding business with anticipated revenues and expenses exceeding past performance, the necessity for the lender to understand all the assumptions on how these revenues will be generated is paramount to loan approval.

Working Capital  Working capital is defined as the excess of current assets over current liabilities. Working capital is essential for a company to meet its continuous operational needs. Its adequacy influences the firm's ability to meet its trade and short-term debt obligations, as well as to remain financially viable.

Collateral  To the extent that worthwhile assets are available, adequate collateral is required as security on all SBA loans. However, SBA will generally not decline a loan where inadequacy of collateral is the only unfavorable factor.

For all SBA loans, personal guarantees are required of every owner with at least a 20 percent share of the business , plus others individuals who hold key management positions. Whether or not a guarantee will be secured by personal assets is based on the value of the assets already pledged and the value of the assets personally owned compared to the amount borrowed. In the event real estate is to be used as collateral, borrowers should be aware that banks and other regulated lenders are now required by law to obtain third-party valuation on real estate related transactions of $50,000 or more. SBA may require professional appraisals of business and personal assets, plus any necessary survey, and/or feasibility study.

Resource Management  Managerial capacity is an important factor involving education, experience and motivation. A proven positive ability to manage resources is also a large consideration.

Preparing A Loan Application. Obtaining loan approval is easier when the business loan application has been adequately prepared. This usually includes a current business plan, financial history with at least three years of federal income tax returns, personal financial history including credit reports and and credit scores, legal documents such as partnerships, leases, articles of incorporation, market research to support sales projections, sources of owners equity, lists of collateral and any other information the lender may require.

Seven Customer Retention Strategies

Do you direct all of your energies to getting new customers? If so, you may want to take a closer look at the source of your sales since it is very likely that 80% of your business is coming from repeat customers. If you  find that 80% of your business is coming from 20% of your customers, you may want to consider some strategies for staying in touch with those customers! Retaining customers and serving them over their lifetime can mean thousands of dollars for your business.
Some practical ways to develop action around customer retention strategies might include some of the following steps: 



1 Communicate with your existing customers on a regular basis.
2 Show your appreciation for their business and nurture customer loyalty.
3 Look for ways to build trust between your business and your customers.
4 Don’t make it easy for your customers to switch to the competition.
5 Expand product lines to provide more products or services for your customers.
6 Anticipate the changing needs of your customers.
7 Use cross-selling (selling other parts of your line to the same customer) and up-selling (selling more per order) to increase the average sale to each customer.

If you’ve lost customers, you may want to develop some strategies for getting them back. In order to implement a strategy, you need to have a database of previous customers. So, if you don’t keep a database, it stands to reason that that should be the first step in your strategy: Develop a database!

Next, you need to remind them about your business and tell them you want them back! However, you may first need to find out why they stopped coming to your place of business and, if you failed to meet their expectations, you need to make it right.

You’ve already invested a lot of money in the customers you retain and the customers you have lost. For that reason alone, putting some additional energy into retaining customers, and reactivating lost customers, makes sense for your business.

Do You Have Effective Internal Financial Controls in Your Business?

One of the very first private consulting jobs that I took on, several years ago was for a well-established company in the Midwest.  Day-to-day management of the company fell to the owner’s wife when he suddenly passed away. Since she was new to the daily operations, she began to scrutinize the financial information more carefully as a means of educating herself on the business financial condition. It didn’t take her too long to know that something wasn’t quite right but she couldn’t put a finger on the problem.


We worked together to analyze costs, analyze pricing and develop strategies for positioning the business to be put up for sale. Meantime, she shared with me that she had a concern that one of her employees was stealing from the company. So we turned our focus to the development of internal controls while we tried to identify whether or not her concern was valid. As it turned out, the tightening of internal controls caused the person in question to leave the company after over 20 years with the business. The owner, and her sons, were completely devastated to find out that the employee had been stealing from them consistently for many years. This employee was highly valued by the business and was considered almost like family after many years of service. The moral of the story is simply that no business is too small to institute effective internal financial controls.

How can you begin to develop controls? First you need to identify the areas that are high-risk in your business. High-risk areas may include: Cash receipts and disbursements, customer credit and collections (writing off bad debts), purchasing and storage of inventory, payroll (including worker’s compensation insurance fraud). Under no circumstances should an accountant, bookkeeper, or the Controller of the business be given check-signing authority. Fraud can easily be concealed if this person has authority to sign checks. The owner/manager should sign all checks. If there are multiple owners, at least two signatures should be required. Do not create a signature stamp that can be used in your absence.

Following are other recommendations:
• In a small company, if you cannot separate duties to provide a check and balance system, consider job-sharing through a cross-training arrangement.
• Require that employees who work in high risk areas take vacations. Pay attention as to whether employee life/styles seem to match what you may know about their salaries.
• Limit access to accounting records and year-end entries.
• Make surprise audits and inspections
• Discuss computer controls with your accountant or a computer security specialist
• Be sure that you pay attention to the legal aspects of internal controls. Be sure any controls that you put in place do not violate the privacy rights of employees or customers.

Article written by Susan Hoosier, Longview Small Business Development Center  To locate your local SBDC advisor please visit the SBDC web site http://www.wsbdc.org/

Thursday, June 30, 2011

Taking Your Business to the Next Level

“How can I evaluate new business opportunities?” “How can I determine whether to sell one of my three businesses?” “How can I better plan for future contingencies?” “Will I be able to sell my business in ten years and afford to retire?” These questions and others like them are ones that small business owners should be  asking themselves. As often happens, we become complacent when all is going well. We can breathe--and even take a vacation! However, businesses often take on a life of their own and may be headed down a path that is different from what the owner envisions. The owner just hasn’t told the business of his or her vision. Taking your business to the next level is that type of planning. It asks: “Where is my business going? Where do I want it to go? How can I get there?”


The First Step—Your Current Reality

To begin this type of planning, you need to know where you are—what is your current reality? This involves some data gathering and analysis. While this will be different for each business, there are four main areas you’ll typically need to look at to assess your current situation: finances; marketing; employees; and facilities. Let’s briefly look at some of the issues in each of these areas.

• Finances: Do you prepare monthly financial statements? If not, then this is the place to start. If you do, do you analyze them? What do you see when you look at trends in revenues and major expense categories? Are they changing? Is the change positive or negative? By calculating a few standard financial ratios, you can better understand what’s going on. You will also gain an idea of how your business compares with others in your industry.

• Marketing: How much do you know about your customers? Who are they? Where do they live? What other demographic data do you know about them? What influences their buying decisions? Has your customer base changed over the years? Is one type of customer more profitable than other ones? Who are your competitors? What are their strengths and weaknesses? What is your competitive advantage—why should customers come to your business and not the competition? What about your prices—are they too high or too low?

• Employees: Do your employees know what you expect of them? How do you communicate this? Can they take over for one another when necessary? Do they know what values your business is run on? What is your employee turnover rate? And why do employees leave?

• Facilities: Is your space adequate? Can you expand? How would your customers and employees evaluate your location and facilities?

The Next Step—Creating a Vision and a Plan

Where do you want to go and what do you want your business to accomplish? Now that you know where you are—what the current reality is—you can begin creating a vision of what you’d like to see as a future reality. Your vision can be broad in scope, including personal goals and goals for your community. Now ask yourself what part you want your business to play in fulfilling that vision. Your answer to that question becomes your mission statement. Armed with a firm understanding of your current Taking Your Business to
the Next Level  reality and what you’d like to create as your future reality, you can prepare an action plan that will help you to realize your vision.

How the SBDC Can Help

At the SBDC, we work with small business owners to help them gain an understanding of their current situation, create a vision, and develop a plan to get there. For example, a few years ago we worked with an entrepreneur who owned three businesses. He had a good understanding of his current situation and he had some components of a vision: he wanted more personal flexibility to enjoy life as he got older, and he wanted to be able to take advantage of opportunities to sell one or more of his businesses. We worked with him to fine-tune that vision, and we helped him to develop not only an action plan, but also a series of analytical tools for decision-making.

Businesses are never standing still, they are either moving forward or backward. By using the approach outlined above, you can move your business forward to the next level of success. Let us know if we can help you with this.

Kathleen Purdy is the Center Director of the Olympic Peninsula Small Business Development Center (SBDC),  This article was first published in Olympic Business Journal