When should a small business get help?

This morning I was asked an interesting question: “When should a small business seek outside help?”. The question is timely because so often I have been called in to help a small business owner when it is too late to save the business. A colleague complained to me yesterday that last week he had initial meetings with three small businesses which were all failing. His only advice to them was to close their doors. How very sad.

Small business owners are by nature self-sufficient and believe that they can do anything. The things that they don’t know they often don’t know. So when should they get outside assistance? When they are failing it is too late. Here are ten symptoms which, if not quickly addressed, may foretell failure:

1. Continual drawing on line of credit without paying it back down.

2. Declining sales

3. Employees concerned about their future

4. Not making timely IRS deposits

5. Ignoring financial statements

6. Quality control problems

7. Sleepless nights worrying about the business

8. Vendors putting the business on a COD basis

9. High employee turnover

10. Falling productivity

All of these are symptoms of deeper problems which may include ineffective management, poor planning, lack of a business plan, lack of a marketing plan or strategy, and inattention to financial data. These issues, when caught soon enough, can be resolved and once resolved substantially increase the chances of profitability and longevity of the business.

At some point business owners need to acknowledge that they may not have all the answers and bring in an independent small business advisor to help them.

Business Plans – Part 1

Is either of the following the way you respond when someone suggests that you need a business plan for your business:

“I’ve been running this business for five years without a plan. I know what I’m doing. Writing a business plan is hogwash!”

“Ugh! Why do I need a business plan? I’m just going to be a one person operation providing marketing services. I know what I’m doing. Anyway, writing a plan will take me away from more important tasks.”

These are common reactions. Let me be clear at the outset that a plan is not busy work. For a startup, creating a business plan is a process for clarifying that your great idea for a business is solid enough to financially support you while achieving your goals. For an existing business, a plan will help you crystalize your business goals and point you in the direction of continued growth and success.

There are times when business plans are absolutely necessary. They need to be available when seeking funding or loans. Well articulated plans may help you attract key employees. But the greatest value of a business plan is to you, the business owner. You don’t start on a long trip without a destination, a map, or knowing where you will sleep. The business plan will give you the same focus and certainty of direction for your business.

In writing a plan you force yourself to critically evaluate your business model and think through all aspects of running the business. By writing the plan before you start the business, you may avoid stubbing your toe or even making big mistakes. I have seen seemingly great ideas tabled because the plan proved the business would not be viable. I have seen promising businesses stumble for lack of planning. Once you have a plan, it becomes the blueprint for running the business.

The process of developing a plan will help you clarify your vision, your goals, your products or services, your markets, and your core competencies. Using the plan will help you and your team focus on the strategy and tactics to arrive at your destination without taking needless detours. No business is too small or too large to benefit from the planning process and the resulting business plan.

Once written a plan is a living document to which you should constantly refer, and which you should modify as the business evolves.

During the next few posts I will describe the important elements of a business plan and how to structure a meaningful plan.

Multiple Revenue Streams

Many small businesses are “one-horse towns” – they have a single product or service that generates revenue. This may have worked in the start-up phase, but is a dangerous strategy for a growing business, and could prove to be catastrophic in a down economy. Reliance on a just one stream of income can be as risky as to be dependent on a single customer. As needs, fads, and disposable income change, market for the service may dry up.

Most business owners can readily find sources of income that are complementary to existing products and services. Look at the skills, equipment, and disciplines of your organization. How might they be used in different ways? What are the trends in your industry? Brainstorm with your employees on ways to branch out. Ask customers what they need that you aren’t currently providing. Ask customers what related services they are buying from other vendors. The answers might surprise you.

But do enter a new revenue stream with caution and with a sound strategy. Put together a business plan. Just as in starting a new business, determine how much demand there is, consider how you will market the new product or service, and calculate costs and profitability potential.

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

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