The Constant Entrepreneur: Advice for Running a Productive Business

Should you buy a business?

So you want to own your own business. There are basically three ways to get started. 1) Develop your idea and start your own company; 2) Buy a franchise; 3) Buy an existing business. I could write books on the benefits and pitfalls on all three of these, but today I want to talk a bit about buying a business.

In the last year I have worked with two people who bought companies and, quite frankly, were stung because they did not do effective “due dilligence” (business jargon for doing your homework).

The first was a small specialty repair shop. The prior owner talked a good story about annual sales, repeat customers, and profitability, but could not produce the records to validate the numbers. As part of the deal he also insisted on staying on the payroll for a year, as he had the “special expertise” needed to make the business work.

The second was a manufacturing company that had reasonable records that showed profitability, but a history of poor quality, and worn out machinery. This owner also insisted, as part of the deal, on staying on as the primary sales person, as he “knew the customers”. The new owner paid much more than the company was worth.

Buying a business can be a quick way to become an entrepreneur and to rapidly start receiving income. But, before putting any money down, make sure that the business is really worth what you will pay for it. Here are some tips:

1. Don’t rely on any financial information that is given verbally. Have a trusted accountant review all financial data and give you an opinion on the data.

2. Have an attorney review anything that you will sign.

3. Talk to employees, customers, and vendors to learn everything you can about the company, its services, its products, and its viability in the market. If the owner blocks access, walk away.

4. Get a professional to provide a valuation of the business to assure that you are not going to pay too much for it.

5. Carefully examine the facilities and equipment. Bring in an outside expert if needed.

6. Really understand why the business is for sale. Is the owner wanting to retire? Or, is the neighborhood deteriorating? Is the market drying up? Has a major competitor moved in across the street?

7. Never keep the former owner on the payroll. If you need training, include a certain amount of training time in the contract and, if needed, occasionally consult with the prior owner.

8. Make sure that the contract includes a non-compete statement so the prior owner does not open a new competing shop next door.

9. If possible, work at the business for a few months before deciding to buy it to get to really know the business.

10. Retain a business advisor to review marketing, sales, production, personnel, and processes before the sale – and have the advisor help you with the transition after the sale.

The list could go on and on. But what is important is that you know what you are buying, and that you are buying for the right reasons and for the right price. This will be one of the biggest investments you will make, and you want maximum assurance for a good return on the investment.

By the way, both of these businesses closed, for financial reasons, within three years after they were bought. A really tough lesson for both owners.

Will Limkemann
Limkemann Business Advisors
440-871-0076
www.neobizadvisor.com

The Constant Entrepreneur: Practical Advice for Running a Productive Business

Exercise Excellence in Management: Be a Leader

Imagine a ship without a captain. The crew would be in chaos. The ship would likely not get to its destination on time (or at all). A ship is an enterprise not unlike a private business.

Like a ship, a business needs a captain – or a leader, who knows and can articulate the vision and direction of the enterprise, and keep order among the employees. The employees of a successful small business look to the CEO not as a friend, but as their leader. The number one job of the CEO is to lead.

What does it mean to lead?

First and foremost is the ability to communicate the vision of the organization in such a way that all employees, customers, and vendors, fully understand the vision.

Second, all actions of the leader must be consistent with the vision – keeping the business focused and pointed in the right direction.

Third, the leader must respect all employees and assure that they are the right ones for the jobs they are in, are properly trained for their jobs, and are properly equipped to do their jobs.

Fourth, the leader must clearly explain his or her expectations of each employee, make them responsible for doing their jobs, empower them to make decisions, and hold them accountable for their actions.

Fifth, allow employees to make mistakes they can learn from.

Leadership is a learned skill – very few of us is born a natural leader. Many business owners can benefit from a business mentor or coach who can assist them with their leadership skills.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net

The Constant Entrepreneurs: Advice for Running a Productive Business

Your Business as an Investment

When we buy stock in a publicly traded company, most of the time we do it as an investment. We are expecting the value of the stock to rise and for our wealth to increase. We look at the record of past performance and the prospects of future performance, and we look at how the stock compares with the stock of other companies or even other forms of investment. In an unsettled market, we may even decide that a wiser investment is to purchase a certificate of deposit or even to invest in a low-yield money market account. The point is that we are looking to make our money work for us and to maximize the return on our investment.

But how many entrepreneurs look at the money they put into their businesses as an investment, and compare the potential return to other forms of investing their money? I dare say that most people going into business pay little attention to future value – they have a dream of running their own business and put into the business whatever money then can scrape together in order to make the venture work. All too many entrepreneurs then work for years for less than minimum wage and have not increased the value of their business. Their wealth has suffered a negative growth!

Most investments involve calculated risk. The smart entrepreneur weighs the risks, and potential rewards, of investing in his/her own business versus other forms of investment and decides that the business is a good investment. The financially savy entrepreneur is always looking at the business not as a job but as a vehicle for building wealth, and will be constantly increasing the value of the business while at the same time taking a reasonable salary and minimizing taxes.

But it takes a mind-set of wealth, sound strategy, good management, and excellent business, finance, tax, and legal advice to maximize the value of a business.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net

The Constant Entrepreneur: Advice for Running a Productive Business

Time Management

The scarecest resource we have is time – once it’s gone, it’s gone and can’t be replaced. Yet rather than manage our time better, many entrepreneurs just pile up more hours every week working. An entrepreneur working more than 50 hours per week needs to carefully examine how effectively the time is being used.

The best advice I ever received on time management is found in the first chapter of a book called “The Ultimate Sales Machine” by Chet Holmes. To summarize:

1. Touch it once – read an e-mail or memo, follow-up on it and dispose of it.

2. Make lists – the most important, is a list of the 6 most important tasks that need to be done today.

3. Plan how much time you will allocate to each task – Adding up the total time for the six most important tasks to be done today should be no more than six hours. This leaves time for answering e-mails and interruptions.

4. Plan the day – Knowing how much time is allocated for each task, assign a start and stop time for each one.

5. Prioritize – Knowing that 20 percent of effort brings 80 percent results, plan for most effort to be focused on high-results-producing activities.

6. If you don’t need it, throw it away.

That’s it. I found it amazing how much more productive I could be in following these six simple steps.

By the way, Chet’s book is also a wonderful sales book.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com

The Constant Entrepreneur: Advice for Running a Productive Business

Staffing

I spoke recently with the owner of a small software development company. He is needing to add staff, but was lamenting that qualified software developers were already employed, and was concerned that developers not employed were probably unemployed for a good reason.

While I am not sure that assessment is totally accurate, his comments did cause me to ponder how a business can hire the most productive employees.

One suggestion I gave my friend was to recruit directly from new college graduates. We hear constantly of the “brain drain” from North East Ohio – but if we are not recruiting the bright students, they will look elsewhere. He said “but they are not experienced”. My response was that they also had not learned habits from other companies that might have to unlearned at his. By hiring a fresh graduate, you can instill the skills, habits, and culture from your own company. Another idea is to hire interns – students who have not yet earned their degrees, and transition them to full time employees once they graduate.

But there are also habits that a small business (or any business) needs to have in effective hiring:

1. Have a strong mission statement and vision for your company that will excite a prospective employee.

2. Develop a job requirements document for each position.

3. Develop a thorough job description for each person hired.

4. Subject each prospective employee to personality and skills test to help assure that the individual can do the job and fit into the organization.

5. Develop good interviewing techniques in order to conduct effective job interviews.

6. Research prevailing wages and benefits for the type of job being offered to assure competitiveness in the market.

7. Welcome new employees and make them at home, comfortable, and productive from the day they are hired.

8. Oh, and if a mistake is made in hiring and the employee does not work out, terminate the relationship sooner rather than later. This will be best for both the company and the individual.

Recruiting and hiring good employees is not easy, but the search is worth the effort once the best employees are found.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net

The Constant Entrepreneur: Advice for Running a Productive Business

Business Plans

When I talk with a business owner I always ask if they have a business plan. Inevitably the answer is “no”. Which is often followed by a concern that it would take a long time to write a plan, and what good would it be anyway?

Let me be clear. Business plans take various forms depending upon their intended use. When talking about a business plan many people immediately contemplate a thirty plus page book that is required if trying to attract venture funding. Venture capitalists want to know that you have thoroughly thought through all aspects of the business and can make a solid case for extremely rapid growth over the next few years. Now most businesses do not need venture capital, and fewer still qualify no matter how thick the business plan.

A second use for a business plan is to present to a bank to qualify for a loan. What the bank wants to know is a) how much money is needed, b) how will the loan proceeds be used, c) how will the loan be repaid (does cash flow support the repayment), d) what is your record in handling money. So what is important to the bank is a brief narrative that explains your business and a detailed and substantiated financial forecast. Oh, and they will check your FICO credit scores and want to see your tax returns for the prior three years.

The most important business plan is really a roadmap for the business owner. Putting together such a plan is an important strategic exercise for the owner as it forces the owner to really think about the business. The resulting plan becomes a guide, with goals, for operating the business. How extensive should this plan be? In its simplest form, the plan is a single page. What is important is the content, which includes:

1. The vision – What does this business look like in a year, or perhaps three years? What is the annual sales volume? Who are the customers? What services and products will be provided?

2. The mission – What does this business do? What are the core values of the business – of the business owner?

3. Objectives – List the specific goals such as sales volume, new products, number of employees, amount of credit needed, etc.

4. Strategies – List the steps that must be taken, the changes that need to be made, to reach the objectives.

5. Action Plans – list specific actions that need to be taken, who will be responsible, and deadlines

A one page plan like this can be completed, in many cases, in less than half a day. Once it has been completed, review it constantly, and update it as needed.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net 

The Constant Entrepreneur: Advice for Running a Productive Business

Financial Data – You Can’t Run a Business Without It

Yesterday I met for a couple of hours with the owner of a small flower and gift shop. She has run the business for ten years, and has taken very little personal income from the shop. Early in the conversation I asked her how much the business grossed last year – she could not even give me a ball park number, nor could she produce any current financial statements. Her idea of financial control is to call the bank daily for the current checking account balance.

What I have found in my years of advising small business owners is that it is not uncommon for them to have absolutely no understanding of their financial condition. Is it any wonder, then, that there are so many business failures? With no understanding of sales, costs, and values, a business owner can not possibly manage for profitability. If the business is profitable, it is purely by accident.

At least this owner has a relationship with a CPA who files tax returns and balances her check book. This CPA, like many who work with small businesses, has missed the opportunity of being of true value to the owner. These CPAs fail to explain the financial information and fail to provide financial analyses that could help the business to be better managed.

This shop owner will probably keep prodding along for the next few years trying to pay down debt and keep the business running. But without a financial understanding and a financial plan, the business, by most standards, will never be a success. The business certainly will not have built any wealth for the owner.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net

The Constant Entrepreneur: Advice for Running a Productive Business

Banker – a business owners best friend

I had breakfast this morning with a business banker. He lamented the fact that so many business owners do establish relationships with their bankers and thus do not understand how banks can work for them. Many business owners wait until they are desparate for money before asking for a business loan – often that is too late.

A bank needs to be assured that a borrower can indeed repay monies that the bank has loaned. As the person responsible to see that the loan is repaid is the business owner, the bank will make the owner personally responsible for the loan. If the banker sees a low FICO credit score, personal and business tax returns showing minimal income, and business cash flow that will not sustain the servicing of the loan, the chances are next to impossible to get a loan. The banker will also want to see sufficient collateral to back up a loan. Which is why often the best and easiest way to borrow money is to obtain an equity line of credit against the owner’s home.

Some business owners are reluctant to risk a home line of credit. But, even if not using the home as collateral, the risk is really not diminished when the owner personally signs for a business loan.

Getting back to obtaining credit when it is not needed. When times are good, the bank will see little risk due to sufficient income, cash flow, and credit scores. Then, when times are not so good, you can tap into the line of credit as needed.

Once a relationship is estalished with a banker, nurture the relationship. Meet with the banker at least quarterly and provide current financial statements. Talk about the future of your business and ask for the bankers financial advice. Most important, if you anticipate that you will be defaulting on a payment, alert the banker before the fact. Most banks will work with you if you are honest and open with them, and keep your lines of communications open.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com

The Constant Entrepreneur: Advice for Running a Productive Business

Fuel Prices

It is no news to any business owner that rising fuel prices are eroding profits. An article in today’s Wall Street Journal suggested a 10% rise in gasoline prices in just the past month! What is an owner to do?

Many businesses are now adding a fuel surcharge to their delivery bills.

UPS, which has one of the largest (if not the largest) delivery fleets in the world has taken a number of steps toward minor and major fuel savings. These techniques can be used by any business that regularly has vehicles on the road.

1. Carefully plan routes – this not only saves fuel, but also is more time efficient.

2. Plan ahead to avoid stopping at any site more than once per day.

3. Turn off the engine when making a delivery.

4. Plan routes to eliminate left turns (eliminates waiting – and idling – while traffic from the other direction clears).

These are not drastic measures. But every gallon of gas saved adds four dollars or more to the bottom line.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com

The Constant Entrepreneur: Advice for Running a Productive Business

The Tax Man

I was talking recently with a small business owner who proudly told me that he had been able to finance his generally successful business without having to resort to taking any equity from his home. On the surface this seemed admirable and appeared to be protecting his personal assets.

Digging a little deeper I learned that he owes the federal government $40,000 in back taxes that were withheld from employee paychecks but not paid to the IRS. A business owner is fully and personally liable for unpaid withholding taxes (regardless of the structure of the business), so his personal assets were put at great risk. Plus, the penalties and interest on the back taxes were many times more than any interest he would have paid the bank.

He has been working with the IRS on a repayment plan and is making current tax deposits, so he should be OK.

The lesson is that the IRS is not a bank. Businesses need to pay all taxes on time and find other ways of extending cash flow.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net